CMS’ Secret Financial Standards In Action

Editor’s Note:  CRE repeatedly attempted to compel CMS to disclose the “applicable financial standards specified by the Secretary, taking into account the needs of small providers” that DME providers are required to meet to be eligible in the competitive bidding program.  CMS prevailed in maintaining secrecy regarding exactly what financial standards/algorithm they used in evaluating bidders.  The consequences of CMS’ refusal to meaningfully propose their financial standards for notice and comment are starting to become apparent.

From: HME News

Rotech to file for bankruptcy

ORLANDO, Fla. – Rotech Healthcare announced late on Friday that it plans to restructure and reorganize under Chapter 11 of the U.S. Bankruptcy Code.

The provider plans to file its consensual plan and petitions in the coming weeks. Once it has filed, it expects to complete the process within 90 to 120 days.

“After careful planning and consideration, we are pleased to have reached this major milestone of substantially reducing our debt,” stated President and CEO Steven Alsene in a release. “The company has struggled for years under the debt burden placed on it when it was spin off from its former parent company in 2002. Since that time, dramatic reimbursement reductions have made it essential that we reduce our debt to a manageable level.”

As part of the restructuring:

•    the holders of a $23.5 million term loan would be paid full;

•    the $230 million of 10.75% first lien notes would be amended and the maturity potentially extended;

•    the $290 million in 10.5% second lien notes would be converted into 100% of the common equity of the reorganized company;

•    all outstanding shares would receive a distribution of 10 cents per share (but not exceeding $2.6 million) and then can be cancelled; and

•    trade creditors and vendors would be paid in full in the ordinary course of business as long as they maintain or reinstate existing payment terms.

Rotech is also in negotiations with certain of its secured creditors to obtain debtor-in-possession (DIP) financing to ensure sufficient liquidity throughout what is expected to be a relatively short Chapter 11 process, according to the release.

“With this debt reduction, we believe we will be able to further take advantage of our inherent strengths to grow the company, both organically and through carefully selected acquisitions,” Alsene stated.

Rotech has filed for bankruptcy before. It emerged from bankruptcy in 2002 as a separate company from its troubled parent, Integrated Health Services.

In a filing with the Securities and Exchange Commission (SEC) in 2010, the provider, struggling uner $514.6 milion in debt, indicated it was considering bankruptcy.