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Drama Unfolds In San Diego Hospice Bankruptcy

— San Diego Hospice faces off today in bankruptcy court with its creditors to determine whether a third party will step in and take over management of its remaining assets.

It’s a drama that’s been playing out for weeks in motions filed in court. The unsecured creditors, who are owed money but don’t have collateral, claim they can’t trust the hospice to act in their interest. San Diego Hospice counters that it has done nothing to warrant outside supervision.

Judge Margaret Mann is supposed to decide the issue at a hearing Wednesday afternoon.

At the heart of the matter is whether San Diego Hospice, once the largest hospice provider in California and a leader nationally, has been a good steward of its assets, which include its Hillcrest property that is assessed at more than $18 million.

Reeling under the weight of a federal audit, which may result in reimbursements of $50 million, the hospice sought bankruptcy protection last month. It has since decided to dissolve the venerable institution.

Last week, a committee representing the unsecured creditors asked the court to appoint an independent trustee who would monitor the hospice’s estate. These creditors contend the hospice cannot be trusted to manage its assets alone.

San Diego Hospice has been working with Scripps Health, which only recently started providing hospice care, to place many of its patients. The creditors suggest the hospice's intention was to "gift its business to its hand-picked successor, Scripps Health." Scripps has bid $10.7 million for the hospice property, and at one point in the bankruptcy, offered to lend the hospice $5 million that could be repaid as part of the property sale, if its bid was successful.

The creditors point to two potential offers from other hospice providers that they say would have been beneficial to the estate -- one offer for $25 million from VITAS to buy all of the hospice's assets, and another from Gentiva, a national hospice provider.

But they say San Diego Hospice wasn’t interested. "...in an effort to stymie the Committee's efforts to get real value for the Debtor's assets, the Debtor was doing everything it could to undermine the sale to others by encouraging its patients to leave the Debtor and move to Scripps, thereby giving away its assets," the creditors said in court papers.

San Diego Hospice strongly opposes the appointment of a Chapter 11 Trustee.

"... the Debtor has not taken any action which has either dissipated or damaged the Debtor's alleged 'going concern value,’” San Diego Hospice countered in its court filings. The Hospice suggests its value was "negligible" to begin with due to its crumbling financial state. It told the court that by winding down its business as fast as possible, it was eliminating risk of liens against its most valuable asset, its property in Hillcrest.

Scripps Health also took issue with the idea that the hospice and Scripps had a predetermined arrangement.

"With disregard to the facts or circumstances, the Committee (of creditors) suggests at some conspiracy or collusion between Hospice and Scripps to transfer Hospice's patients to Scripps,” Scripps said in a court filing. “The Committee's assertions regarding Scripps are wholly and completely false and unfounded."

San Diego Hospice no longer has any patients in its care, according to court documents.

Meanwhile, Medicare joined the creditors in supporting the appointment of a trustee. In its court filing, Medicare made clear its intent to file a claim against San Diego Hospice for potentially $50 million. The hospice has been under audit by Medicare for two years.

Last week the KPBS and inewsource Investigations Desk revealed the hospice had been visited by government inspectors at least 15 times in 2011 and 2012, raising serious questions about patient care.

The Investigations Desk has created an interactive timeline as a guide through key court filings from San Diego Hospice's bankruptcy case.

San Diego Hospice Bankruptcy Timeline

Above: A chronology of all motions and orders filed in the San Diego Hospice bankruptcy case.

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