East Orange General Hospital has filed for Chapter 11 bankruptcy. The move is voluntary, according to the hospital, which is currently in the process of a sale to the California-based for-profit company Prospect Medical Holdings.The move is voluntary, according to the hospital, which is currently in the process of a sale to the California-based for-profit company Prospect Medical Holdings.
“The hospital had been struggling financially for some time, but has grown steadily stronger in the last year,” said Martin Bieber, interim CEO, in a statement.
“The problem is old debt,” he said.
“In 2014, monthly losses before interest, depreciation and amortization averaged 12 percent. We’ve reduced those losses to 2 percent in the most recent month. Still, meeting old obligations on top of current obligations has contributed to the institution’s deteriorating cash position. This filing will enable the hospital to remain current with its ongoing obligations while we renegotiate some contracts and emerge stronger.”
East Orange General’s sale to Prospect was approved Oct. 28 and is now going through the state’s regulatory review process.
“The organization’s liquid resources have been depleted to a point that it is unable to complete the transaction without having the ability to financially restructure its operations,” Bieber said.
Attorney for the hospital Kenneth Rosen of Lowenstein Sandler LLP said East Orange General is in negotiations with six independent lenders to provide Debtor in Possession financing.
“The financing, combined with the hospital’s cash on hand, will enable the hospital to pay its vendors and employees on a timely basis,” said Rosen. “It’s business as usual. And the new financing builds stability for the future.”
In a prepared statement, Prospect said the filing will not affect the sale.
“Prospect remains highly interested in acquiring East Orange General Hospital and intends to work closely with EOGH through the bankruptcy process to complete the transaction. Prospect has invested in EOGH for more than two years while we jointly went through the regulatory approval process. We believe Prospect is the best solution for EOGH in this rapidly changing health care environment, and we look forward to successfully concluding the transaction and becoming part of the East Orange community.”
“Although there has been much progress in the preceding year, it was determined that the best way to successfully and rapidly address the financial difficulties of EOGH — and to assure that the hospital would continue to provide uninterrupted critical care for the community — was to commence a reorganization bankruptcy case,” Rosen said.