Green Valley Hospital, a two-year old, $79.0-million, 49-bed high-tech facility has filed for Chapter 11 bankruptcy. The bankruptcy process is expected to take five or six months. The hospital, which opened in June 2015, has a staff of about 300, including over 230 physicians on its medical staff.
Located in Green Valley, Arizona, the hospital is only two years old, but is already on its third administrator. John Matuska, the current CEO, said the hospital has been mismanaged and subject to bad financial decisions since it first opened its doors. Chapter 11 provides the new management team with an opportunity to reorganize the hospital, restructure debt, and make it financially successful.
“Chapter 11 does not mean that you close. This has no impact on hospital operations,” Matuska said. “We have the funds to pay for salaries, fringe benefits, doctors’ fees, supplies, equipment etc.”
“When they opened, the hospital was undercapitalized,” he said. “It’s a beautiful facility. But because hospital margins are so small, you have to maximize the use of your facility and not overbuild it. It probably was overbuilt and cost too much to build.”
Matuska also added that, “Some of the loans we have are very high interest rate/fee loans that we can’t afford,” with the assessment coming on top of that.
Going into bankruptcy, Green Valley Hospital had roughly $110.0 million in debt (secured and unsecured). Based on the current proposed plan, the hospital will have between $30.0 million to $34.0 million of debt coming out of bankruptcy.
In addition to filing Chapter 11, there is a lot of controversy about how the for-profit-hospital hospital raised the money necessary to be built. The vast majority of the cash came from the controversial EB-5 visa program.
The EB-5 visa program, which became law in the mid-1990s, encourages foreign investment in rural areas of the U.S. or other regions with high unemployment. Wealthy foreigners who invest a minimum of $500,000 that creates at least 10 U.S. jobs is “rewarded” with a green card for themselves and their family. This provides them with permanent residence, but not citizenship.
U.S. Senators Diane Feinstein of California and Chuck Grassley of Iowa, believe the program is rife with fraud and could be an easy way for terrorists to buy their way into the U.S. Grassley told a Senate hearing in May that the EB-5 program should be stopped and that EB-5 investors are not investing in the U.S. at all, they are simply buying visas.
Financial records show that investors used the EB-5 visa program to raise approximately 80% of the money, or $50.0 million, needed to build Green Valley Hospital. Now, many of the 110 foreign investors who paid for the vast majority of the hospital’s initial financing are concerned as it regroups under Chapter 11.
Individuals that make up the foreign investor group, operating as Green Valley Medical Investments LLLP, come mostly from China, Brazil, France, Russia, Taiwan, and Ukraine.
While there are three investor categories involved (secured, unsecured, and equity) the members of Green Valley Medical Investments LLLP are considered to be senior secured lenders. If there is a default, Green Valley Medical Investments would be repaid first.
“Green Valley Hospital Files for Chapter 11 Bankruptcy,” Arizona Public Media, June 26, 2017.
“‘They’re scared’: Foreign investors nervous over GV Hospital,” Green Valley News, June 24, 2017.
“Green Valley Hospital says Chapter 11 is part of a long-term success plan,” Arizona Daily Star, April 1, 2017.