Known for Innovative ER Services
A Phoenix-area hospital, known as an industry model for emergency-room practice, filed for bankruptcy after suffering from mismanagement including failure to meet a federal Affordable Care Act deadline for hospital expansion, loss of operating expense funding, and nearby traffic construction.
Gilbert Hospital filed for bankruptcy in February, 2014 after its main creditor, Stillwater Bank, seized over $1 million from the facility’s operating budget according to Ken Alltucker at The Arizona Report. In the federal bankruptcy court filing, the hospital estimated its assets at less than $50,000, with liabilities between $1 million to $10 million.
Plagued by Mismanagement
In 2013, Gilbert Hospital investors settled a lawsuit in Maricopa County Superior Court accusing hospital founder Timothy Johns, M.D., of diverting up to $20 million in hospital funds to two nearby hospitals Johns also owns that are facing financial ruin.
The first, Florence Hospital at Anthem, filed Chapter 11 bankruptcy in 2013. The 36-bed Pinal County hospital suffered financial troubles about one year after opening.
The second, Peoria Regional Medical Center, was scheduled to open in 2013, but was never completed. Once promoted to become a $30 million, three-story hospital with a helicopter pad, the Peoria Regional Medical Center remains an empty skeleton of steel beams and concrete. Construction ended in 2012 after a “topping off” ceremony with Peoria city officials. Hospital backers have shared little information about its progress other than saying that additional funding could not be secured.
Johns Attempted to Expand Gilbert Hospital Before a Federal Deadline Banned Growth of Existing Physician-Owned Hospitals
Johns attempted to complete expansion of Gilbert Hospital before the Affordable Care Act ban on physician-owned hospital expansion went into effect in December, 2010, The Phoenix Business Journal reported. According to a September, 2012 story filed by then Senior Reporter Angela Gonzalez, Johns had lobbied “furiously” to encourage lawmakers to overturn that portion of the Act so that his hospital could continue to grow.
In additional to $1.2 million architectural and engineering fees, Johns paid $800,000 for steel before the ban took hold. He then sold the steel to Florence Hospital, The Journal reported.
Grand Vision Goes Bad For Physician-Investors
Johns, an emergency-room physician who assumed leadership positions at Chandler Regional Medical Center, envisioned a hospital emergency room in which patients were guaranteed that they would be treated by a doctor within 31 minutes of arrival. He solicited other doctors to purchase shares in Gilbert Hospital at $60,000 each.
In 2006, Gilbert Hospital opened with 100 employees and 12 beds, projecting that it would see about 25 patients a day. Patient volume swelled to three times that, making it one of the most profitable hospitals in the United States, the lawsuit reported.
By 2011, the hospital had $20 million in cash reserves which Johns used to establish lines of credit for the Florence and Peoria hospitals. According to Johns’ attorney Keith Hendricks, all money transfers were reported and fully disclosed in audited financial statements. “There was never a claim that it was surreptitiously done,” Hendricks told The Arizona Reporter.
Hendricks said that hospital’s investors received annual and semi-annual payments from their initial investments. When more recent payments did meet the lucrative payments distributed during the hospital’s initial years, investors became upset.
Despite Bankruptcy, Gilbert Hospital Model Gains Popularity
Other metro Phoenix health-care providers have followed the Gilbert Hospital model of small hospitals designed to treat patients within minutes of their arrival. Larger health systems like Abrazo Health Care, Banner Health and Dignity Health, have also opened smaller, acute-care hospitals and primary-care clinics in recent years.
“Gilbert (Hospital) was so successful a year and a half ago,” Hendricks said. “It’s just tragic that this dysfunction killed the golden goose.”
Pernell McGuire, the hospital’s bankruptcy attorney, suggested additional reasons for the facility’s failure particularly nearby construction. He claimed that the public was discouraged from visiting the hospital because of temporary construction in the area. “It’s an emergency-room-based hospital,” McGuire said. “When people are driving down that road and hit that construction, we believe some are opting to go to another facility.”