D.C. officials are developing contingency plans for patients at Specialty Hospital of Washington as the health care company’s debts, liabilities and legal problems mount.
Specialty Hospital, which runs two nursing homes and the city’s only two long-term acute-care hospitals, faces at least $50.4 million in corporate debt, unpaid taxes and overdue utility bills, according to Maryland, D.C. and federal court filings and tax liens. That does not include another $11.4 million in dispute with the D.C. Medicaid program.
Creditors have secured personal judgments and liens worth a combined $18.6 million against three investors in the hospital’s parent company: Robert Rummler, Frank Wilich and Jim Rappaport. Rappaport is chairman and CEO of the New Boston Fund Inc., a real estate investment management firm and one-time Republican nominee for the U.S. Senate.
D.C. Director of Health Care Finance Wayne Turnage said Friday that the city is closely monitoring developments at both Specialty’s Capitol Hill location and Hadley Hospital in far Southwest D.C.
“Obviously their public list of creditors is indicative of very serious financial problems and we are developing contingency plans for the patients in their care,” Turnage said. “The bottom line is we have to protect the patients and thus we must take steps to ensure that [Speciality]’s patients continue to receive the care they deserve.”
Specialty spokeswoman Lisa Proctor said, “Our company is fully operational.”
Prior to any of these new debts, the District government gave Specialty $79 million in 2007 as part of a deal to run United Medical Center, a public-private partnership that came to a fiery, controversial end in 2010 after Specialty disclosed heavy losses.
In an interview, Wilich said the company is secure despite its debts.
“Like all hospitals in the District, we’re all stressed to some degree,” said Wilich, the president and chief operating officer of its parent, New Hampshire-based Specialty Hospitals of America LLC. “We’ve been through tough times before, and we’ll get through this tough time. I can’t give you too much detail, but we plan on being here.”
For-profit Specialty cares for seriously ill or injured patients who require hospitalizations longer than standard short-term hospitals usually handle, and it has won recognition for its success in weaning patients off ventilators. It has 142 long-term critical care beds and 180 nursing home beds across its two locations.
Later, Wilich added: “Barring some unforeseen, out of the blue, bump in the road that is a game changer, we plan to be here.”
But it won’t be an easy climb. On Oct. 16, a federal judge entered $8 million in judgments against Rappaport and Rummler, for part of $36.9 million in outstanding corporate debt to BB&T Corp. they personally guaranteed.
Specialty defaulted on those loans, which date to 2008, leaving most of the principal unpaid, according to BB&T’s complaint filed in April in federal court in the District. Wilich said BB&T has been working with Specialty and hasn’t liquidated its collateral. Also, there are other loan instruments that aren’t in default with BB&T, he said.
“This company is so healthy in a lot of ways, that we’ve been operating without being able to borrow money on that particular line,” Wilich said. “We’ve been operating out of our own cash flow.”
Of the bank, he said: “They don’t want to make a problem in the District of Columbia. They’re not interested in shutting down hospitals.”
BB&T declined to comment, citing client confidentiality.
The line of creditors doesn’t end with the bank. Both Maryland and the District have filed tax liens for numerous delinquent taxes, according to liens and judgments obtained in Maryland court records and the D.C. Office of Tax and Revenue.
Maryland has liens against Specialty entities for at least $4.9 million in unpaid withholding taxes. Maryland has also filed personal liens against Wilich and Rummler for about $4.2 million each, and against Rappaport for $2.2 million, according to Maryland court records.
Rappaport did not return phone messages and efforts to reach Rummler were unsuccessful.
In the District, Specialty faces unpaid tax obligations of at least $5.28 million, including sales and use, personal property, withholding and the corporate franchise tax, according to tax liens. The single biggest chunk of that is $3.62 million in property taxes on its Hadley property, a bill that hasn’t been paid since 2009.
Numerous private companies have taken action against Specialty, including utility providers.
In February, Pepco sued Specialty for $2.06 million in unpaid electric bills and legal fees, stemming from its failure to meet the terms of a 2011 installment plan created when the bill stood at $740,602, according to D.C. Superior Court filings. Specialty’s attorney acknowledged the debt in a response to the suit in March.
On Oct. 25, Pepco revised its suit, saying the debt is now up to $2.58 million. In Maryland, Constellation New Energy secured $754,800 in judgments against Specialty in 2012, according to Baltimore City Circuit Court records from April. Other, smaller disputes with vendors pepper court records.
Specialty officials declined to comment on any particular debt beyond the bank loans, citing ongoing litigation.
The corporate debts are piling up as Specialty awaits a determination from a D.C. administrative judge in a key dispute with the District’s Medicaid program. The District claims Specialty overbilled the program from 2007 to 2010 by $24.7 million — if the judge says Specialty erred, it would owe $11.4 million in clawbacks immediately.
While the sum is substantial, Wilich said it won’t determine Speciality’s ultimate fate.
“Worst case scenario is we lose, and we have to figure out how to make what they say we owe go away,” Wilich said. “I don’t have a clear game plan about that because we’re very confident.”
A ruling is expected by the end of December.
The full scope of privately held Specialty’s problems is still emerging. Audited reports completed in 2012 for the calendar year 2010 show a $3.1 million profit on $49.2 million in revenue at the Capitol Hill location.
Specialty’s difficulties come at a time when many hospitals struggle with declining revenue streams and intense regulatory environments, and the unwinding of its role at United Medical Center compounded problems.
On a day-to-day basis, Wilich said, the company still makes money, and has been generally profitable since the beginning. However, he declined to answer follow-up questions about its plan to pay down its debts.
In fact, Wilich said, Specialty is preparing to expand. Depending on the outcome of the Medicaid case and financing arrangements, the company plans to open a surgery center at Hadley and add 35 beds on Capitol Hill. Specialty won regulatory approval for those projects several years ago, but hasn’t yet moved forward.
“I personally wrote the first check, back in 2002, I personally did,” Wilich said. “The mission was to do good, and make a living, okay? We are not doing this to make a gazillion dollars. We’re doing this to do good, be a good citizen, take care of people and make a living. We’ve been able to do that. It’s been a little more challenging than would have hoped, but we’ve been able to do that. It’s very satisfying.”