Calais Regional Hospital (right) and Penobscot Valley Hospital in Lincoln (left) Credit: BDN file photo

The BDN is making the most crucial coverage of the coronavirus pandemic and its economic impact in Maine free for all readers. Click here for all coronavirus stories. You can join others committed to safeguarding this vital public service by purchasing a subscription or donating directly to the newsroom.

A judge has dismissed the lawsuits filed by two bankrupt Maine hospitals that haven’t been allowed to receive funds from a federal loan program aimed at propping up businesses during the coronavirus pandemic.

Now, the hospitals hope that Maine’s congressional delegation may be able to find a solution to their financial challenges.

In late April, Calais Regional Hospital and Penobscot Valley Hospital in Lincoln both warned that they could have to close their doors by the end of June without funds from the Paycheck Protection Program, which offers forgivable loans to help businesses keep their staff employed through the pandemic.

The Small Business Administration’s interim rules for the program bar any applicants in bankruptcy proceedings from applying for the loans, which are extended by commercial banks with backing from the federal government and can be forgiven if at least three-quarters of the funds are spent on payroll and wages, among other conditions.

The two hospitals have more recently found some breathing room and do not expect to immediately close, after they each received funds totaling at least $3.5 million from separate federal coronavirus stimulus programs, according to court records. Both of them are in the middle of Chapter 11 bankruptcy proceedings to restructure their debts.

Like many hospitals, they have both suffered steep revenue shortfalls after following state and federal guidance to cancel lucrative elective services during the pandemic, according to their lawsuits. The Calais hospital in late April started cutting 10 percent of its staff.

But on Wednesday, U.S. Bankruptcy Judge Michael Fagone ruled against the hospitals in their lawsuits against the head of the Small Business Administration.

The hospitals have argued they should qualify for the program in part because the law that created the PPP — the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act — doesn’t include a restriction against applicants that are in bankruptcy.

Fagone had previously granted a temporary restraining order against the head of the Small Business Administration allowing the hospitals to apply for the funds, but Calais Regional Hospital has had trouble finding a bank to loan the $1.8 million it’s seeking.

In his 31-page ruling against the hospitals, Fagone called the hospitals “particularly sympathetic,” but wrote that the Small Business Administration “made reasonable choices about how to allocate a large but finite amount of aid among struggling businesses.

“Those choices may produce seemingly harsh results, but they are not illegal,” he wrote.

Now, the hospitals are looking to Maine’s congressional delegation for a solution.

U.S. Rep. Jared Golden, Sen. Susan Collins and Sen. Angus King have pushed the Small Business Administration for a regulatory workaround for critical access hospitals, according to Golden’s office. Golden has also sponsored legislation that would exempt bankrupt hospitals from that interim rule.

“We are very disappointed with the court’s ruling and stand by our argument that the CARES Act was clear about eligibility requirements and that meant that SBA did not have discretion to exclude companies in bankruptcy,” DeeDee Travis, a spokesperson for Calais Regional Hospital, said in a statement. “Congress should set the eligibility for organizations in bankruptcy, especially for critical access hospitals as such an important component in battling the COVID-19 pandemic.”

The CEO of Penobscot Valley Hospital did not immediately respond to a request for comment late Wednesday.

Watch: What Maine is doing to expand contact tracing

[bdnvideo id=”2979219″]