New York Hospital’s Bankruptcy Proceeding Enters Critical Stages
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New York Hospital’s Bankruptcy Proceeding Enters Critical Stages

March 14, 2012

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A bankruptcy judge supervising the bankruptcy filing of Peninsula Hospital Center in New York has ordered that a trustee take over financial operations at the hospital, suggesting that the medical center is in deeper financial trouble than previously thought.

Peninsula filed for Chapter 11 bankruptcy last September after the hospital had suffered for years from inadequate care and sinking revenues, according to a report from Crain’s New York Business.

The bankruptcy judge became alarmed when the trustee assigned to the case was reportedly told by state inspectors that hospital workers were handling lab samples without gloves and that the medical center was using expired blood plasma.

But, in addition to health concerns, the trustee has also had its suspicions about the quality of the hospital’s financial leadership, which is why the judge has appointed the trustee to completely take over Peninsula’s financial operations.

Such a takeover is a relatively drastic step, but U.S. bankruptcy law allows trustees to request such an action if the court suspects that current management of the bankrupt company has engaged in "fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor."

In the wake of the trustee takeover, some observers are worried that the hospital, which is based in Queens, could lose access to a proposed financial rescue. judge overseeing Peninsula Hospital Center's bankruptcy proceedings has ordered the appointment of a Chapter 11 trustee to take over all operations at the Queens hospital—a move that could derail its proposed financial rescue that is being funded by a controversial entrepreneur, Steve Zakheim.

Sources indicate that Zakheim has been targeted by regulators in recent years, and is held in such suspicion that the Department of Health in New York asked him to sign an affidavit in 2005 promising that he would not have any involvement in another hospital’s operations or finances.

Peninsula, however, is in a desperate situation, as the recent violations that turned up in its lab led to a partial shutdown of its operations. Until it is cleared by regulators, the hospital cannot accept new patients, which could put a further dent in its already pathetic bottom line.

Not all is lost at Peninsula, but the Chapter 11 trustee will be taking over the company’s operations at a very sensitive time. The trustee must negotiate with the hospital’s board and its creditors to settle on a mutually agreeable financing plan that could lead the struggling hospital out of bankruptcy.

And the trustee must perform this feat with the controversial Zakheim looming in the background.


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