Quincy Medical Center’s pay to adviser opposed
Jack Encarnacao, The Patriot Ledger, July 30, 2011
Quincy – The US Department of Justice has filed an objection opposing the way Quincy Medical Center is paying a Chicago-based consultant to guide it through bankruptcy and sale proceedings.
The office of William Harrington, the region’s United States trustee – it represents creditors in bankruptcy cases – said in its July 27 motion that the compensation structure does not conform with elements of bankruptcy law.
Quincy Medical Center is paying Navigant Consulting Inc., an investment bank with a track record of working with struggling hospitals, a flat $75,000 monthly fee for its work facilitating the sale.
Navigant is also contracted to do financial advisory work for the hospital, such as keeping track of its books to ensure compliance with bankruptcy law. For that type of work, Navigant is paid an hourly fee.
The hospital reported in its initial Chapter 11 bankruptcy filing on July 1 that it paid Navigant a total of $1.6 million, plus a $500,000 retainer, between March 1 and June 30.
In his motion, Harrington states that Quincy Medical Center does not spell out in enough detail the work for which it pays Navigant a flat fee.
“Other than this general statement, (the hospital has) not provided information detailing when Navigant’s bills or invoices were issued, when particular services were provided, or when exactly each invoice or bill was paid,” the motion reads. “(The hospital has) provided the court with no evidence that the terms of Navigant’s compensation are reasonable.”
Through bankruptcy, Quincy Medical Center is seeking to resolve $56 million in debt. The hospital’s creditors would receive less than they are owed in a bankruptcy restructuring, but that restructuring would guarantee that Steward Health Care buys Quincy Medical Center for $38 million and makes $34 million in improvements to its facilities.
State Attorney General Martha Coakley has also filed an objection in the bankruptcy case. The motion reserves her office’s right to take longer to complete a required review of the sale to Steward, a for-profit company, than is called for in a sale timeline the hospital filed in court.
Cash-strapped Quincy Medical Center is using borrowed money to pay its operating expenses, including the contract with Navigant, which it hired in March.
In addition to Navigant’s compensation structure, Harrington also objects to the indemnity from any liability that Quincy Medical Center granted Navigant in their agreement.
Harrington said Navigant should be liable for claims if it takes any bad-faith actions or breaches its fiduciary duty. Similar obligations, he writes, are borne by other professional advisers in Quincy Medical’s bankruptcy case.
“Given the magnitude of the amount of the fees that Navigant has already been paid and is seeking to be paid,” Harrington writes, “there is no reasonable (sic) for excusing Navigant from these requirements.”
John Morrier, Quincy Medical Center’s bankruptcy lawyer, said Harrington’s motion are rooted in “technicalities” of the bankruptcy code that regulate an entity retaining advisers in a case.
“It’s a fairly standard objection from the office to say they have no basis to evaluate a fixed fee,” Morrier said. “I think the objection on those issues will be worked out consensually among Quincy, Navigant and the US trustee. I fully expect that to happen.”
Morrier said Harrington is objecting largely because the hospital’s filings don’t give him a way to verify that Navigant is actually performing any services in exchange for its fixed monthly fee. This is not considered an issue when an adviser like Navigant is paid by the hour, Morrier said, because hourly services require more detailed work records.
A committee of Quincy Medical Center’s creditors filed a motion supporting the hospital’s arrangement with Navigant. The motion says the cost of retaining Navigant is not high relative to the $38 million Steward is willing to pay for the hospital, and to upset the arrangement would risk disrupting and delaying the sale process.
Reach Jack Encarnacao at jencarnacao@ledger.com.
Copyright 2011 The Patriot Ledger. Some rights reserved
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