Offer for much less than hospital owes on its mortgage

PHYLLIS ZORN

Staff writer

Officers of a company that went into bankruptcy while running Hillsboros Community Hospital now run a firm that has submitted a $6.9 million bid to buy it back — for much less than the $9.8 million mortgage through Bank of Hays.

Larry Arthur, Jim Shaffer, Trent Skaggs, and Dennis Davis, officers of Rural Hospital Group Consolidated, which formed in 2017, previously ran Rural Community Hospitals of America, the firm that managed Hillsboro’s hospital before it was taken over by a receiver that filed for bankruptcy.

Larry Arthur, chief executive officer of the new company, was CEO of the former one. Trent Skaggs, president of the new company, was executive vice president of the former.

Dennis Davis, chief legal officer for Rural Hospital Group Consolidated, said the $6.9 million bid actually was submitted by Hillsboro Hospital, LLC, a subsidiary of Rural Hospital Group’s management company, RHG Consolidated LLC.

Bankruptcy trustee Brent King said although the bid is less than the $9.8 million the hospital was in debt before it filed for bankruptcy, a bankruptcy sale reflects the hospital’s market value.

Davis said the $6.9 million bid will establish a “floor” for any future bidders.

“The court organizes a public auction,” Davis said. “They open it up for some period of time for public bid. Then the bidding goes on until the bidding closes.”

When Rural Community Hospitals of America operated the Hillsboro hospital in the past, it broke ground on a new building in December 2010, but by October 2011, the company filed for bankruptcy, postponing construction.

RCHA emerged from bankruptcy 18 months later, and made new arrangements for construction in 2015.

The hospital’s current bankruptcy was instigated when mortgage holder Bank of Hays in January sued the hospital and nine other defendants for foreclosure of the $9.8 million owed on a mortgage backed by the United States Department of Agriculture.

Jessica Bowser, public information officer for USDA Rural Development in Kansas, said the agency guaranteed 70% of the mortgage. Bowser declined Tuesday to answer questions whether the agency had made any payment on the mortgage.

A Marion County district court judge ordered the hospital into receivership in March. Its receiver, Cohesive Healthcare Management and Consulting, then filed for chapter 11 protections.

RHG Consolidated also owns and operates Sumner Regional Medical Center in Wellington through a different subsidiary company, and a hospital in Marion, Kentucky, Davis said.

Davis said the company expects the bankruptcy court to decide the sale before the end of November.