A federal bankruptcy judge has issued a temporary restraining order so that Calais Regional Hospital (CRH) can apply for federal Paycheck Protection Program (PPP) funding to help prevent it from closing. The hospital had earlier not been allowed to apply for the funding because of a Small Business Administration (SBA) rule preventing organizations that have filed for bankruptcy, as CRH did last year, from being eligible for funding, although the CARES Act itself does not block companies in bankruptcy from participating in the PPP. The hospital has been seeking $1.835 million through the program. Because of its inability to receive PPP funding, the hospital recently laid off 20 of its 212 full-time equivalent positions.
     "Calais Regional Hospital remains focused on the health needs of the Calais area, and the court's order is an important step forward in ensuring the hospital has the resources it needs at this time," says Rod Boula, CRH's chief executive officer.
     Andrew Helman, an attorney with the law firm Murray, Plumb & Murray, which is representing CRH, states, "In our view, the hospital is losing revenue because they are complying with state and federal recommendations to pause all non‑essential procedures and were then told that they need not apply for a government program that Congress put in place to help them. All CRH is seeking is a chance to stand in line and have an application considered the same as every other small business."
     In his May 1 ruling, Judge Michael Fagone of the U.S. Bankruptcy Court for the District of Maine agreed with the hospital's assertion that without the funding it might be forced to discontinue business operations by early June. The decision states that the SBA, which administers the CARES Act funding program, must reserve sufficient funds under the PPP to guaranty a loan to CRH in an amount the hospital may be qualified to obtain. The order also states that the First National Bank, as a lender participating in the PPP, cannot deny an application from the hospital because it has filed for bankruptcy protection. The bank, along with the SBA, had filed an objection to the hospital's request for a temporary restraining order, arguing that the bank "should not be required to risk its own financial well-being" without knowing how the SBA and federal government will reimburse lenders for any extension of funds to a debtor in bankruptcy.
     While federal law does not prohibit the awarding of PPP funds to businesses or nonprofits that have filed for bankruptcy protection, the SBA argued that the law gives the agency "broad discretion" to consider bankruptcy status.      Disagreeing with the SBA, Judge Fagone ruled that the public interest is served by the issuing of the restraining order, since the risk of harm to the hospital outweighs any harm to the SBA. The court's order states: "The court is sympathetic to the significant challenges faced by the [SBA] administrator in the implementation of measures taken by the federal government in response to the extraordinary public health crisis and the resulting economic devastation. The SBA was under -- and continues to be under -- immense pressure to distribute aid without delay. Time is truly of the essence. That said, this country's laws cannot be pushed aside, even inadvertently, during times of crisis."
     The issuing of the restraining order is not a final decision, though, and further hearings are expected.
     The SBA's decision to exclude companies in bankruptcy from PPP is an issue of national attention at this time. As of May 4, four bankruptcy courts have ruled against SBA and two have ruled in favor of SBA. Other cases are pending.
     On May 1, U.S. Congressman Jared Golden, Senator Susan Collins and Senator Angus King had pressed SBA Administrator Jovita Carranza to amend her agency's PPP interim rules to allow nonprofit critical access hospitals currently undergoing Chapter 11 reorganization, like CRH and Penobscot Valley Hospital in Lincoln, to be eligible for PPP relief. The members of Congress wrote, "While these entities are few in number, they are vitally important to the communities they serve, both as frontline healthcare providers during this public health emergency and as anchor institutions that provide the paychecks and local economic stability that Congress intended this program to preserve. These institutions need temporary financial assistance to weather sharp revenue decreases that have resulted from federal and state instructions to cancel elective medical procedures as part of COVID‑19 response preparedness."
Financial challenges lead to cuts
     On April 27, CRH announced a 10% reduction in staffing to stabilize the hospital's finances, with over 40% of the cuts being in high level or management positions. The anticipated annualized savings is roughly $2 million. In a release, the hospital stated that the action was necessary as "a result of the hospital's economic condition and Chapter 11 bankruptcy; the impact of COVID‑19; and the inability to qualify or secure adequate federal and state funding relief. The current pandemic has impacted CRH business so significantly that these very difficult personnel decisions must be made." Patient visits have dropped by nearly half.
     The CRH release states that the hospital "is working through a dual track course of action, making the changes necessary to come out of Chapter 11 on our own or with a partner. The changes are crucial for either option to be successful. We believe these measures will help us navigate this crisis, while we focus on the importance of ensuring the ability of CRH to provide needed healthcare services and maintain the hospital's presence as an economic engine for our community."
     Another reduction in staffing may be planned in the upcoming weeks that could affect services, according to Rod Boula. During an April 30 virtual roundtable discussion hosted by U.S. Senate candidate Sara Gideon, the hospital CEO said service areas that are being looked at for possible cuts include general surgery. While he's hoping that the patient visit numbers will start increasing in the coming weeks, he said any service areas that are cut perhaps could be brought back later. "If we can't get funds to help us until patient numbers come back up, then we have to make these difficult decisions," Boula said.
     During the roundtable discussion, several rural healthcare leaders and advocates from Washington County discussed the challenges facing rural hospitals amid the coronavirus outbreak. Calais City Manager Mike Ellis noted that the Calais hospital is "by far our largest employer." Noting the distance that people would have to travel to another hospital, he said its closure "is a scary thought," as it would affect area communities in many different ways.
     Boula noted that, while the hospital did recently receive $623,000 from the first round of CARES Act funding, it will cover not that much more than one week of payroll costs. "It's just a Band-Aid," he said, adding, "People in the community say, 'You've got that much money you can bring back the OB,'" referring to the obstetrics department that the hospital closed in 2017. "It can't happen," he said, noting the hospital's difficult financial position. Earlier he had noted that costs that had been allowable for federal reimbursement have no longer been allowed, along with other financial challenges. With the erosion of that reimbursement, the hospital can't make investments into other services and care.
     Rural hospitals across the U.S. have closed in increasing numbers in recent years due to declining populations, limited care offerings and uninsured patients, Gideon noted during the discussion, adding that the federal government "needs to ensure these hospitals stay open, and Congress and the administration should expedite emergency aid to facilities in need, coordinate the production and distribution of protective equipment and bolster the rural healthcare networks that are the last line of care for tens of thousands of Mainers."