Calais Regional Hospital (right) and Penobscot Valley Hospital in Lincoln (left) Credit: Nick Sambides Jr. and Bill Trotter

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A court has allowed two Maine hospitals in bankruptcy to seek loans through a federal relief program even though the agency that runs the program previously said they were ineligible because they had filed for bankruptcy.

In court filings last week, both Calais Regional Hospital and Penobscot Valley Hospital in Lincoln warned that they could have to close their doors by the end of June if they didn’t receive outside funding through the federal Paycheck Protection Program or other relief programs.

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They have each sought at least $1.5 million through the Paycheck Protection Program, which is meant to help small businesses keep their staff employed during the coronavirus crisis. But the Small Business Administration denied their applications because of an interim rule that bars applicants that have filed for bankruptcy. Both of the small rural hospitals sought Chapter 11 bankruptcy protection last year to help restructure their millions in debts.

On Friday, U.S. Bankruptcy Judge Michael Fagone placed temporary restraining orders on the head of the Small Business Administration requiring the agency to let each of the two hospitals apply for funding through the PPP.

While the PPP has interim rules barring entities that have filed for bankruptcy, the two hospitals have argued that the federal legislation creating the program did not include such a restriction and that they were discriminated against based on their bankruptcy status.

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.

The administrators of Calais Regional Hospital, who have sought $1.8 million through the PPP, do not know how long it could take them to receive that funding, according to spokesperson DeeDee Travis.

An official from Penobscot Valley Hospital, which has sought $1.5 million in PPP funding, did not immediately respond to a request for comment about when it could expect to receive that amount through the PPP, which is administered through commercial lenders.

But CEO Crystal Landry in a statement called the court’s order “an important step forward” that “allows us to apply for PPP relief without being discriminated against due to our chapter 11 filing.”

A Maine spokesperson for the Small Business Administration didn’t immediately respond to a request for comment.

The Calais and Lincoln hospitals have both released projections showing their cash reserves could fall from more than $1 million in late April to less than $200,000 by June. Without outside funding, that would make it impossible for them to keep paying their payroll and other ongoing expenses.

Calais Regional Hospital has also said that it is cutting 10 percent of its staff as a result of the ongoing financial challenges.

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.

In recent weeks, Calais Regional Hospital has also received additional stimulus payments of $623,160 from the federal government and $108,779 from the state, according to court records.

Penobscot Valley Hospital has also received recent payments of $326,160 from the feds and $84,322 from the state.

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