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Two bankrupt Maine hospitals have warned that they could both have to close their doors by the end of June if they don’t receive funding through a federal loan program meant to help small businesses keep their staff employed through the coronavirus crisis.
Both Calais Regional Hospital and Penobscot Valley Hospital in Lincoln have been denied access to the Paycheck Protection Program because its rules disqualify entities that have filed for bankruptcy protection from receiving funds.
But in separate lawsuits filed this week as part of their Chapter 11 bankruptcy proceedings, both hospitals argued that those rules are unlawful because they’re not in the federal legislation that originally created the program last month.
The two hospitals are now facing steep revenue shortfalls after following state and federal guidance to delay elective and outpatient services during the pandemic, even though those types of services bring in large portions of their revenue, according to their legal complaints.
Without receiving additional funding, both hospitals have issued dire forecasts for their expected cash flow in the next two months.
Calais Regional Hospital said that its cash balance could fall from $1.02 million in late April to $178,493 by the end of May. That means it could “run out of money to pay ongoing expenses by early June” if it doesn’t receive funding from an outside source such as the Paycheck Protection Program, the hospital’s attorney said in the legal complaint.
In a memo to staff that was added to the Calais Regional Hospital court file on Tuesday, CEO Rod Boula also said the hospital is cutting 10 percent of its staff as a result of the ongoing financial challenges.
“We are taking the necessary actions for survival, not closure,” DeeDee Travis, a Calais Regional Hospital spokesperson, said late Tuesday in response to emailed questions.
Penobscot Valley Hospital’s financial outlook is only slightly less grim. Without a lifeline, it expects its cash balance to drop from $1.2 million in late April to $155,022 by mid-June, according to court documents.
“This would result in the Debtor being forced to immediately close its business without sufficient funds for an orderly wind-down,” the hospital’s attorney, Andrew Helman of Portland, said in the civil lawsuit against Jovita Carranza, administrator of the Small Business Administration, the federal agency that runs the Paycheck Protection Program.
The Paycheck Protection Program was created as part of the $2 trillion coronavirus aid bill — the Coronavirus Aid, Relief, and Economic Security Act, or “CARES Act” — that President Donald Trump signed into law on March 27. Under it, businesses with fewer than 500 employees could apply for loans that would be forgiven if at least three-quarters of the funding was spent on payroll and wages, among other conditions.
Four Maine hospitals have been approved to participate in the Paycheck Protection Program, according to Steven Michaud, president of the Maine Hospital Association: Houlton Regional Hospital, Millinocket Regional Hospital, Mount Desert Island Hospital and Down East Community Hospital in Machias.
But an interim rule from the Small Business Administration bars entities in bankruptcy from participating because they “present an unacceptably high risk of an unauthorized use of funds or non-repayment of unforgiven loans,” according to the civil lawsuits by Penobscot Valley Hospital and Calais Regional Hospital.
Helman, who also represents Calais Regional Hospital, said that they should qualify, in part because the CARES Act does not include such restrictions for the paycheck program.
“Our view is that this is discriminating against Penobscot Valley Hospital, based on its status as a debtor, but that violates the bankruptcy code,” he said during an interview with Crystal Landry, CEO of the Lincoln hospital.
In addition to filing a legal complaint, Penobscot Valley Hospital is also seeking a temporary restraining order against Carranza as part of the lawsuit. The order would bar the Small Business Administration from denying applicants to the Paycheck Protection Program based on whether they’re in bankruptcy. It would also require the agency to reserve funds for any applicants in bankruptcy that might eventually qualify for the program if the restrictions are lifted.
A regional spokesman for the Small Business Administration did not immediately respond to a request for comment late Tuesday afternoon.
While the Calais and Lincoln hospitals have so far not been able to benefit from the Paycheck Protection Program, they have received some other payments from the federal and state governments as part of their response to the pandemic.
In the week of April 10, Penobscot Valley Hospital received $326,160 and Calais Regional Hospital received $623,160, according to court records. Last week, they received lesser amounts of $84,322 and $108,779, respectively.
Landry, at Penobscot Valley Hospital, said the first payment was from the federal government and the second was from the state. The Lincoln hospital is now trying to secure additional funding from the state, according to Helman.
The hospital has seen a 50 percent reduction in patient visits over the last month as it has canceled elective and nonessential services, Landry said. While no patients at the hospital have so far tested positive for the coronavirus, it has also had to spend extra on protective equipment and training to prepare for its spread.
Landry desperately hopes that Penobscot Valley Hospital, which employs 174 full- and part-time workers, does not have to close its doors come June. However, she said the hospital does not plan to lay off or furlough any of those workers because its staffing levels are already lean.
“We’re actively seeking a path back to financial stability, as all hospitals are,” she said.
BDN writer Erin Rhoda contributed reporting.
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