BEHAVIORAL HEALTH: Charter Files for Bankruptcy
Charter Behavioral Health Systems, the nation's largest psychiatric hospital operator, yesterday filed for Chapter 11 bankruptcy protection in Wilmington, Del., listing in court documents less than $50 million in assets and more than $100 million in debts, the New York Times reports. The filing is the latest setback in the company's "financial free fall," coming just a month after Alpharetta, Ga.-based Charter announced it would close and sell about 35 facilities. That move also has prompted some former employees to sue the system for violating federal law by failing to give them sufficient notice of the closings or to pay severance benefits.
Fraud Investigations Faulted
In 1999, the Justice Department and HHS began investigating Charter and former owner Magellan Health Services -- the country's largest behavioral health care company -- for Medicaid billing fraud and patient abuse. But some observers say the company's troubles date back to 1997, when Magellan sold Charter's buildings to Crescent Real Estate Equities, a real estate investment trust, and sold a 50% stake in the hospital chain to Crescent Operating, an affiliate of the real estate company. The deal left Charter with millions of dollars in new franchise fees and escalating rents, contributing to its collapse and undermining patient care, according to former Charter officials. But officials at Charter, Magellan and Crescent pin their financial problems on reimbursement cutbacks (Meier, 2/17).
Under a proposed bailout plan, Crescent Operating -- which now owns 90% of Charter after an additional sale by Magellan last year -- would buy the system's hospitals for $24.5 million. The purchase would be financed with a bank loan guaranteed by Richard Rainwater, who leads both Crescent Real Estate and Crescent Operating. The company would then sell shares in Charter, first to its own shareholders and subsequently to other investors (Fuquay, Ft. Worth Star-Telegram, 2/17).