Independence Blue Cross LLC's $10.4 million priority claim for unpaid health insurance premiums in North Philadelphia Health System's bankruptcy could leave nothing for general unsecured creditors if the Philadelphia insurer does not agree to take less, NPHS's bankruptcy lawyers warned in a filing Wednesday.
"NPHS is investigating the extent, validity and priority of this claim," according to the filing, which laid out the worst-case scenario for creditors. The attorneys are also "engaged in negotiations with Blue Cross to consensually reduce the claim," it said.
In all, the bankruptcy estate is expected to have roughly $1 million to distribute to creditors, NPHS attorney Lawrence G. McMichael said Thursday. Vying for that money are unsecured creditors who say they are owed $29 million. NPHS filed for bankruptcy at the end of 2016.
Until this month, Independence was one of four creditors on the committee representing the interests of all unsecured creditors. The firm stepped down from the committee, citing a potential conflict of interest. The attorney for the committee is Edmond M. George of Obermayer Rebmann Maxwell & Hippel LLP, whose chairman, Thomas A. Leonard, is on Independence's board.
Jim McDevitt, of Atlantic Diagnostic Laboratories LLC in Bensalem, previously had resigned from the committee, which faced an uphill battle from the beginning, given that NPHS had $17 million in secured debt. Atlantic Diagnostic, according to its web site, has a contract with Philadelphia's Community Behavioral Health. CBH struck a deal with NPHS that allowed the bankrupt nonprofit to keep providing services.
The two companies that remain on the committee are Peco, which filed a claim for $537,048, and Keystone Quality Transport Co., a medical transportation company with a $147,539 claim.
"You don't really know whether priority creditors have interests that are inconsistent with general unsecured creditors until you know what the distribution looks like," McMichael said. "Here, where priority claims could swallow up the entire pool, that would result in a conflict."
It is possible that not all of the $10.4 million will qualify as a priority claim. That status is for tax claims and certain claims related to employee compension before the bankruptcy filing. But there are limits, McMichael said. If a claim is too old, it might not qualify. There are also caps per employee on priority claims.
"We expect that our claim will be evaluated and analyzed in accordance with the bankruptcy laws," an Independence spokeswoman said in an email. "The approach we are taking is consistent with how we have handled similar issues in the past and appropriate given the circumstances."
Independence said its representative on the creditors' committee resigned "when information was received suggesting that Independence's priority claim might impact other unsecured creditors."
Under the deal with Community Behavioral Health, which manages mental health benefits under Medicaid for Philadelphia residents, NPHS has continued drug-treatment and psychiatric services at Girard Medical Center and the Goldman Clinic. Those facilities employ 575 and treat 1,000 patients a day, including 200 inpatients.