North Philadelphia Health System enters bankruptcy

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File: St. Joseph's Hospital, at 16th Street and Girard Avenue, closed in March of 2016.

North Philadelphia Health System, which stopped paying numerous vendors in 2015 and then closed St. Joseph's Hospital last March after state officials halted a long-running subsidy, filed for bankruptcy protection late last week in Philadelphia.

NPHS said it will continue to provide drug and alcohol services and psychiatric care at Girard Medical Center, at Eighth Street and Girard Avenue.

"While the behavioral health business will become self-sustaining and will operate on a break-even basis, NPHS lacks the financial ability to pay legacy liabilities from its now-shuttered acute-care hospital," NPHS said in a statement.

The tax-exempt organization said it owed $24.8 million to its 30 largest unsecured creditors. Independence Blue Cross topped the list, with $10.87 million owed for employee benefits.

NPHS officials told Independence as recently as last summer that they intended to repay the health insurance company in full, according to IBC spokeswoman Donna Crilley Farrell.

Todd Strine, chief financial officer of Keystone Quality Transport, said his company is owed $135,000, with most of the unpaid bills from Jan. 1 to Sept. 15, 2015, when Keystone stopped providing services to NPHS because it had not received a substantial payment since early that year.

Keystone was waiting for signatures on an agreement to receive full payment when NPHS filed for bankruptcy, Strine said.

In a court filing Monday, NPHS said its secured debt amounted to $1.9 million on an $8.5 million revolving credit line and a balance of $11 million on a federally insured mortgage, counting about $3 million in cash held by the trustee on the mortgage.

The system filed for Chapter 11 bankruptcy protection right before the end of the year because it could not afford a $400,000 mortgage payment due Jan. 1, said NPHS' bankruptcy attorney, Lawrence G. McMichael, of Dilworth Paxson.  The board decided it wanted to be in bankruptcy before defaulting on the mortgage to protect the cash held by the trustee, McMichael said.

Formed in 1990 out of two bankrupt organizations, NPHS was on political life support, in the form of special state aid since 1993 and a 1997 bailout through a $24 million federally insured mortgage, for decades until the Pennsylvania Department of Human Services in 2015 decided to pull the plug.

NPHS was unusual among tax-exempt health systems in that it had a paid chairman, Domenic Sabatini, who was managing director of Penn's Landing Corp. from 1980 to 2003 and in the orbit of former State Sen. Vincent J. Fumo. Sabatini was paid $197,401 in 2014.

NPHS paid its chief executive, George Walmsley III, $670,004 in 2014. The organization had $107.4 million in revenue in the year ended June 30, 2015, which means that Walmsley was the highest-paid health-system CEO in the Philadelphia region relative to the revenue of his organization, according to the latest 990 tax forms.

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