In rare move, Trios Health files for Chapter 9 bankruptcy protection

Trios Health has filed for bankruptcy protection.
Trios Health has filed for bankruptcy protection. Herald file

The only public hospital district in the Tri-Cities has officially filed for bankruptcy protection.

Trios Health filed the voluntary petition under Chapter 9 of bankruptcy code on Friday morning in federal court, the day after the district’s governing board approved the move in a 6-0 vote.

The hospital district isn’t closing its doors. In fact, leaders said the step demonstrates a commitment to the future.

“While today’s news may seem like a death sentence for Trios Health, let me assure you, it is not. It absolutely is not the end,” CEO Craig Cudworth said Friday.

“Relieving our leadership and staff of the daily pressure of our finances — through Chapter 9 — gives us some breathing room while our attorneys work a debt restructuring plan through the court system,” he said. “This is a beginning.”

The district doesn’t anticipate layoffs, changes to patient care or price increases as a result of the action, officials said.

“As we turn things around, we ask that our community continues to turn to us for its health care needs,” Cudworth said.

The district is “focused on every patient, every time. And we are delivering what this community needs,” he said.

Chapter 9 gives insolvent municipalities protection as they reorganize debt. It’s meant to ensure that the entities can keep functioning while their financial crises are resolved.

Trios Health, based in Kennewick, has debt totaling about $221 million and very little cash on hand — about five day’s worth, when the target is 122 days.

Marv Kinney, president of the Trios board, said the decision to file wasn’t made lightly.

“We sought to avoid this process by working with our creditors. Unfortunately, a few are not amenable to negotiation, so filing Chapter 9 became our best option to sustain operations,” he said.

The next step is filing a plan of adjustment and disclosure statement, describing a fuller picture of the debt and how the district will pay back its creditors.

Those documents will be filed when the structure of the plan is finalized, officials said. The court then will assign a date to present them.

The district has about 800 creditors. Most with the largest unsecured claims are from out of state, but a couple are familiar names in the Tri-Cities. Tri-Cities Laboratory has a claim of about $360,000 and Chaplaincy Health Care about $91,000, according to bankruptcy paperwork.

Trios Health includes two hospitals — its original hospital downtown, dating to the 1950s, plus the new Trios Southridge Hospital — along with a network of clinics and services.

The district employs about 1,100 people. Last year, it saw thousands of patients between its hospitals and clinics.

The district’s financial woes have been building for some time.

Faced with a cramped and aging hospital, an expanding base of physicians and outpatient services, and mounting competition, the district built the new Southridge hospital and neighboring outpatient center a few years ago. A feasibility study had projected revenues would grow enough during and after construction to support the cost.

But that didn’t turn out to be the case.

In bankruptcy paperwork, Trios officials said actions by Kadlec Regional Medical Center in Richland hurt the district in that respect, including negotiating for the exclusion of Trios from coverage under HMO and PPO plans offered by Group Health and opening a standalone emergency department in Southridge near where the district planned its new facilities.

Kadlec officials declined to comment.

As Trios sunk deeper into a financial hole, it became harder to dig out, the paperwork shows.

Last year, the Trios board hired consultants Quorum Health Resources to conduct an assessment and put together an improvement plan. The plan includes everything from restructuring the workforce through attrition, scheduling changes and some layoffs which happened earlier this year — to considering bankruptcy.

Trios also is exploring affiliation or other partnerships with an outside health system, and it’s seeking $150 million in refinancing through the U.S. Department of Housing and Urban Development.

In both those cases, bankruptcy protection should help and not hurt, by making the district more financially stable, officials said.

Amit Ranade, a Seattle bankruptcy attorney and lecturer at the University of Washington School of Law, said Chapter 9 proceedings are unusual in the state.

Some high-profile filings, including by the city of Detroit, have made headlines in recent years. But in Washington, only a handful of other filings showed up in a case locator — two water districts and a city and a housing authority on the west side.

Trios Health has hired the law firm Foster Pepper to handle the bankruptcy.

It hopes to emerge from bankruptcy in one to three years.

Kinney, the board president, said he wants the community to know that “we remain confident in the current administration’s efforts to return Trios Health to financial health and in our employees who continue to push through this difficult time.”

Also, “our commitment to providing quality health care services for our community is unwavering,” he said. “Trios Health will be here for its community for years to come.”

A website is set up with legal documents, frequently asked questions for both the community and creditors, and more. It’s at cases.gardencitygroup.com/kphd.

Sara Schilling: 509-582-1529, @SaraTCHerald