Chapter 9 Bankruptcy keeps Kennewick Public Hospital District hospitals and clinics under new ownership
After filing for relief under a Chapter 9 of the Bankruptcy Code on June 30, 2017, Kennewick Public Hospital District, doing business as Trios Health, sold all of its health care operations to a subsidiary of RCCH HealthCare Partners, a Tennessee-based health care organization that owns and manages 16 regional health systems across 12 states that will be operated under its joint venture RCCH-UW Medicine Healthcare Holdings, LLC pursuant to a Chapter 9 Plan of Adjustment.
Kennewick Public Hospital District, based in Kennewick, Washington and serving the Tri-Cities area, includes two hospitals – its original hospital in downtown Kennewick dating to the 1950s, the new Trios Southridge Hospital, the Trios Care Center at Southridge, along with a network of clinics and an emergency care facility. The Hospital District employs approximately 1,100 people and 80 providers and is the only public hospital district in the Tri-Cities community.
Trios Health has been an integral part of the Kennewick community since 1952 when it opened the Kennewick General Hospital with 46 beds and the city’s first-ever passenger elevator. Prior to the opening of the hospital, patients would have to travel out of the city for hospital services.
More than 50 years later, faced with an aging hospital, an expanding base of physicians and outpatient services, and mounting competition, the District completed a feasibility study for the construction of a new hospital. The study projected revenues would grow during and following construction to support the cost of development.
Trios Southridge Hospital opened on July 15, 2014 with 74 private rooms, including 14 intensive care and 60 medical/surgical rooms and the adjacent Trios Care Center at Southridge opened a year later. The emergency department included 27 treatment rooms, including two trauma rooms and six fast-track rooms. The former Kennewick General Hospital, now called the Trios Women’s and Children’s Hospital, became a 37-room women’s and children’s hospital.
However, the feasibility study projections did not anticipate the near future, nor the level of competition from the cross town competitor which opened a separate medical center, a standalone emergency department near the hospital and negotiated for the exclusion of Trios Health from coverage under HMO and PPO plans offered by a major medical insurer.
In 2016, facing a troubled financial situation, Trios Health hired consultant Quorum Health Resources to review its finances and operations and prepare an improvement plan that included everything from restructuring the workforce to scheduling changes and potential layoffs.
In June 2017, with $221 million in debt, 800 creditors and cash on hand for only five days, instead of the recommended 122 days, Trios Health filed a voluntary Chapter 9 bankruptcy in the U.S. Bankruptcy Court for the Eastern District of Washington on June 30, 2017.
Chapter 9 offers bankruptcy protection to financially distressed municipalities as they reorganize debt, and allowed the hospital to remain open to continue to serve the community. Washington state is one of 26 states that authorize Chapter 9 filings, but there have been only two such filings in the state previously. The largest Chapter 9 bankruptcy in the country was filed in July 2013 by the city of Detroit, Michigan.
With its bankruptcy filing approved, Trios Health had the opportunity to restructure debt, but more importantly, allowed the hospital to remain open.
In September 2017, Trios Health announced preliminary conversations to form a partnership with regional health care system operator RCCH HealthCare Partners, backed by affiliates of Apollo Global Management. In May 2018, Trios Health announced a plan to exit bankruptcy, contingent on an acquisition by RCCH HealthCare Partners.
Before the sale could close, the Washington State Department of Health would also have to sign on through the Certificate of Need process. Trios Health’s creditors would also need to vote on the Chapter 9 plan before the court hearing in June 2018.
Following a successful 13-hour mediation in mid-June 2018 with Judge Steven Rhodes, the now retired judge that presided over the Detroit Chapter 9 case as mediator and the unsecured creditors to resolve objections to the plan, U.S. Bankruptcy Judge Frederick Corbit approved the plan on June 20, 2018. It was almost a year to the day from when Trios Health filed for Chapter 9 protection.
The confirmed Plan provided for the creation of a “Creditors Trust” to hold certain surplus assets for the benefit of the unsecured creditors and the adjustment of all of the District’s debt.
The final step was obtaining Certificate of Need approval from the Washington State Department of Health, and after an emergency review, it was approved in late July 2018 and the transaction closed on August 3, 2018.
Under the RCCH agreement, all existing employees were offered employment. University of Washington Medicine is engaged with RCCH regionally and will be providing clinical support and additional expertise to the health care being offered at Trios.
Trios Health will continue to act as an independent, taxing district that will provide community health care outreach programs, oversee the current Adult Day Care services and continue to be a part of the Kennewick community.
Foster Pepper was honored to represent Trios Health in this matter and pleased to work to find creative solutions to keep the hospital open for those who rely on it for care.