) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

Transcription

1 STATE OF SOUTH CAROLINA COUNTY OF CHEROKEE Gaffney H.M.A., LLC d/b/a Mary Black Health System Gaffney, vs. Plaintiff, Cherokee County, South Carolina, Defendant. IN THE COURT OF COMMON PLEAS SEVENTH JUDICIAL CIRCUIT C.A. No CP-11- SUMMONS TO THE DEFENDANT ABOVE-NAMED: YOU ARE HEREBY SUMMONED and required to answer the complaint herein, a copy of which is herewith served upon you, and to serve a copy of your answer to this complaint upon the subscriber, at the address shown below, within thirty (30 days after service hereof, exclusive of the day of such service, and if you fail to answer the complaint, judgment by default will be rendered against you for the relief demanded in the complaint. s/william R. Thomas William R. Thomas, SC Bar #16348 Walter H. Cartin, SC Bar #78405 PARKER POE ADAMS & BERNSTEIN LLP 1221 Main Street, Suite 1100 (29201 Post Office Box 1509 Columbia, South Carolina Telephone: ( Facsimile: ( willthomas@parkerpoe.com waltcartin@parkerpoe.com January 23, 2018 Columbia, South Carolina Attorneys for Plaintiff Gaffney H.M.A., LLC d/b/a Mary Black Health System Gaffney SCCA 401 (5/02

2 STATE OF SOUTH CAROLINA COUNTY OF CHEROKEE Gaffney H.M.A., LLC d/b/a Mary Black Health System Gaffney, vs. Plaintiff, Cherokee County, South Carolina, Defendant. IN THE COURT OF COMMON PLEAS SEVENTH JUDICIAL CIRCUIT C.A. No CP-11- COMPLAINT (DECLARATORY JUDGMENT NOW COMES the Plaintiff, Gaffney H.M.A., LLC d/b/a Mary Black Health System Gaffney ( Hospital and, complaining of the Defendant Cherokee County, South Carolina ( County, would respectfully show unto the Court as follows: NATURE OF ACTION 1. This is an action for declaratory judgment under the South Carolina Uniform Declaratory Judgment Act, S.C.CODE ANN , et seq. (1976, as amended. In this action, Hospital seeks a declaration from the Court concerning the rights and obligations of the Hospital and the Defendant County under a series of contracts entered into or assumed by the Hospital. 2. Specifically, Hospital and County disagree whether the Hospital has the right to terminate certain services addressed in the agreements and/or the agreements themselves. Therefore, the declaration and judgment of the Court in this action concerning the rights and obligations of the parties under the contracts will settle the dispute between the parties. Thus, a justiciable case or controversy exists in this case.

3 PARTIES AND JURISDICTION 3. Hospital is a South Carolina limited liability company which operates Mary Black Health System Gaffney, a 125-bed acute care hospital facility located in the city of Gaffney in Cherokee County, South Carolina. 4. Defendant Cherokee County is a political subdivision of the State of South Carolina. 5. Based on the subject matter of this action, the activities of the Parties, the contracts governing the Parties relationships, and the residence of the Parties, this Court has subject matter and personal jurisdiction in this matter and venue is proper. FACTS 6. Prior to 1984, the citizens of Cherokee County were provided hospital services by Cherokee County Memorial Hospital, which was the 162-bed county-owned hospital facility located in Gaffney, South Carolina (the Existing Hospital. 7. In February, 1984, the County and the Cherokee County Memorial Hospital Board of Trustees ( Board determined that the Existing Hospital was outdated and could not be renovated or modernized at a reasonable or economically feasible cost when compared to constructing a replacement facility. Therefore, the County and the Board decided that it would be in best interests of the public to transition the provision of hospital services from the governmental sector to the private sector. To accomplish this transition, the County and the Board entered into a series of agreements with National Medical Enterprises, Inc., a Nevada corporation, and its wholly-owned subsidiary, NME Hospitals, Inc., a Delaware corporation, (collectively NME, pursuant to which NME ultimately agreed to design, construct and operate 2

4 a new hospital facility in Gaffney (the New Hospital and the County ultimately agreed to close the Existing Hospital and transition the provision of hospital services to NME. 8. The three phase process for the transition of hospital services was to be accomplished primarily by the following agreements: (a Agreement to Provide Management Services ( Management Services Agreement, dated January 19, 1984; (b Lease Agreement dated February 3, 1984, with a commencement date of August 1, 1984, Addendum to Lease, dated February 3, 1984, and Amendment to Lease entered into in 1987 (collectively, the Lease Agreement ; (c Purchase and Sale of Assets Agreement ( Asset Purchase Agreement, dated February 3, 1984; (d Indigent Patient Agreement ( Indigent Care Agreement, dated February 3, 1984; and (d General Agreement, dated February 3, 1984 and amended on February 3, 1984 (collectively, the General Agreement. The listed agreements are collectively referred to as the County Agreements. 9. The Management Services Agreement, dated January 19, 1984, covered the first phase of the transition. Under this agreement, NME agreed to manage operations at the Existing Hospital on behalf of the County until such time as all governmental approvals were obtained for NME to lease the facility and operate it for its own benefit. 10. On July 31, 1984, the County dissolved the Cherokee Memorial Hospital Board of Trustees and discontinued its duty and authority to provide hospital services in Cherokee County. Upon dissolution, the County assumed all rights and obligations of the Board under the County Agreements. 11. The next day, on August 1, 1984, the Lease Agreement, which was entered into in February, 1984, went into effect and the second phase of the transition began. Under the Lease Agreement, NME leased the Existing Hospital building in order to operate a hospital facility (the 3

5 Interim Hospital under its own license for a period of three years or such longer time as NME needed to complete construction and open the New Hospital. The Lease Agreement provided that, during the Lease period, when NME was operating its Interim Hospital in the building owned by the County, NME would continue to provide the same services as were offered by the Existing Hospital and would continue to provide care to indigent patients, unless the County agreed otherwise. 12. The Asset Purchase Agreement, dated February 3, 1984, provided for the purchase by NME of substantially all of the capital assets and other personal property used in the operation of the Existing Hospital. This transfer of assets was effective as of the commencement date of the Lease Agreement and allowed NME to use such assets for its own benefit in the operation of the Interim Hospital. 13. The final phase of the transition of hospital services, i.e., the construction and commencement of operations at the New Hospital, was addressed by the parties primarily in the General Agreement and the Indigent Care Agreement, both dated February 3, A copy of the General Agreement, without exhibits, is attached hereto as Exhibit A and a copy of the Indigent Care Agreement is attached hereto as Exhibit B. (Plaintiff Hospital notes that, after searching its own files and after receiving documents in response to a Freedom of Information Act request made to the County, all copies of agreements attached hereto are, to the best information and belief of the Hospital, the most accurate copies of these thirty year old agreements available at this time. 14. The General Agreement, dated February 3, 1984, contains NME s promise to design, construct, equip and complete the New Hospital within three years of the receipt of all governmental approvals required for such construction and operation. The General Agreement 4

6 also addresses the services to be provided at both the Interim Hospital and the New Hospital to require in sections 2 and 6 of the General Agreement that the New Hospital offer substantially the same emergency and non-emergency services as the Existing Hospital, including providing such services to indigent patients in accordance with the Indigent Care Agreement. Under the General Agreement, emergency services include the provision of ambulance services. 15. With regard to the New Hospital specifically, section 17 of the General Agreement contains a covenant not to compete pursuant to which the County agrees not to compete with the New Hospital for a period of 10 years from the opening date. 16. Section 19 of the General Agreement contains NME s covenant and agreement that for a period of at least one year after the opening of New Hospital, [NME] will not sell, transfer or otherwise dispose of the New Hospital, and during said one-year period, for itself, operate New Hospital in accordance with the terms and conditions of the General Agreement. 17 The General Agreement contains no provision specifying the term of the agreement and termination of the agreement is only allowed prior to the commencement date of the Lease Agreement and only in the event that the required governmental approvals for the lease of the Interim Hospital or for the construction of the New Hospital were denied. 18. The Indigent Care Agreement, dated February 3, 1984, obligated NME to provide specified emergency and non-emergency services to indigent patients at the New Hospital in exchange for certain reimbursement to be paid by the County to NME. Among the emergency services required to be provided were emergency transport (ambulance services. 19. Section 3 of the Indigent Care Agreement provides that the term of the agreement is at least twenty years, at the option of the County. NME was allowed to terminate the agreement under section 4 of the agreement on fifteen days notice to the County but only for 5

7 nonpayment by the County of the reimbursement owed under the Agreement and only after a five-day cure period. 20. Finally, the Indigent Care Agreement purports to require arbitration as the sole means for the settlement of disputes under the Agreement. The Agreement, however, does not contain the legend required by law to validate the arbitration clause. (S.C.CODE ANN (1976, as amended. 21. On May 9, 1985, the South Carolina Department of Health and Environmental Control ( DHEC issued a Certificate of Need to NME approving the construction of the New Hospital to consist of 125 acute care beds and to be known as Upstate Carolina Medical Center. Thereafter, NME began construction of the New Hospital while operating the Interim Hospital pursuant to the Lease Agreement. 22. On September 29, 1987, NME notified the County that it had received an offer from Health Management Associates, Inc. and its subsidiary, Gaffney H.M.A., Inc. (collectively HMA to purchase the New Hospital, together with certain equipment, fixtures and other related personal property to be used in the operation of the hospital, for a purchase price of $19,600,000. NME notified the County of the HMA offer to purchase pursuant to section 8 of the General Agreement, which gave the County the right of first refusal for any offers to purchase the New Hospital. As part of the notice, NME requested that the County waive the requirements of section 19 of the General Agreement and requested that NME be released from all of its obligations under all of the County Agreements upon closing of the sale to HMA. As noted above, section 19 of the General Agreement prohibited the sale of the New Hospital for one year after opening and required NME to operate the New Hospital in accordance with the terms of the General Agreement for a period of one year after opening. 6

8 23. On October 27, 1987, the County passed an ordinance ( 1987 Ordinance that (a declined to exercise the County s right of first refusal to buy the New Hospital from NME; (b waived the requirements of section 19 of the General Agreement and approved the sale to HMA; (c approved certain amendments to the General Agreement; and (d released NME from its obligations under the County Agreements, provided HMA agreed to assume all such obligations. 24. On February 8, 1988, the New Hospital received a license from DHEC to open and to begin providing services to patients. 25. On February 16, 1988, the County passed an ordinance (the 1988 Ordinance amending the 1987 Ordinance to reflect and approve HMA s decision not to assume all of the County Agreements and to indicate that NME would remain obligated under all County Agreements not assumed by HMA. 26. On February 22, 1988, the County, NME and HMA entered into an agreement (the 1988 HMA Agreement memorializing the parties rights and obligations with respect to the purchase of the New Hospital by HMA. The 1988 HMA Agreement, without exhibits, is attached hereto as Exhibit C. Under the 1988 HMA Agreement, the County waived its right of first refusal, approved the sale of the New Hospital to HMA and consented to HMA s assumption of NME s obligations under the following County Agreements: (a the General Agreement, as amended and modified (the Amended General Agreement ; (b the Indigent Care Agreement; (c the Hill Burton Trust and the Hill-Burton Waiver Agreement, which addressed the reimbursement to the federal government triggered by the lease of the Hospital to NME; and (d certain other listed agreements, all of the assumed agreements being collectively referred to as the Assumed County Agreements. 7

9 27. The 1988 HMA Agreement also amended the 1984 General Agreement in three significant respects. Section 7 of the General Agreement was amended to require HMA to establish a local advisory board to render advice on various policy issues and matters which both affect the community and concern the operation of the New Hospital and the services to be rendered by HMA hereunder. This amended section indicates that the board s role is advisory only and that HMA shall have the final authority and responsibility for all decisions relating to the management and operation of the New Hospital. 28. Section 8 of the 1984 General Agreement was amended to give the County the right of first refusal on all future sales of the New Hospital, whether or not the County had failed to exercise previous rights, and to make such provisions binding on all successors and assigns of the New Hospital. to state: 29. Finally, the 1988 HMA Agreement amended section 19 of the General Agreement HMA (and any subsequent purchaser from HMA covenants and agrees that, for a period of at least one year after its acquisition of the New Hospital, it will not sell, transfer or otherwise dispose of the New Hospital and that, during such one-year period, it shall, for itself, operate the New Hospital in accordance with the terms and conditions hereof. This provision shall be binding upon HMA, its successors and assigns. All references to HMA in the General Agreement shall collectively mean Health Management Associates, Inc. and Gaffney HMA, Inc. 30. There are no term or termination provisions stated in the 1988 HMA Agreement itself and, other than the amendments to the General Agreement, the Assumed County Agreements remained unchanged upon HMA s purchase of the New Hospital. 31. Since its inception in February 1988, the New Hospital has operated under the ownership of the same legal entity, Gaffney H.M.A., Inc., which converted to Gaffney H.M.A., LLC in March In April 2015, Gaffney Medical Center and Mary Black Hospital in 8

10 Spartanburg, South Carolina, were placed under the oversight of common local leadership to create a health system, with the New Hospital assuming its current name as Gaffney H.M.A., LLC d/b/a Mary Black Health System-Gaffney. 32. For the past 30 years, the Hospital has been the safety net hospital and sole community provider to the citizens of Cherokee County. In its current form, the Hospital operates 125 acute care beds and employs 400 full time and part time clinical and nonclinical staff. The medical staff of the Hospital is comprised of 159 physicians. The Hospital provides a full array of inpatient and outpatient services to its patients, including the provision of $1,376,631 in 2017 of indigent care to patients without the ability to pay. When combined with its partner, Mary Black Health System Spartanburg, the system has 332 licensed acute care beds, more than 1400 employees, and more than 400 physicians on the medical staff. Spartanburg and Gaffney are approximately 22 miles apart 33. Since 1988, the Hospital has also been providing and/or subsidizing the countywide emergency medical services system ( EMS Services in Cherokee County directly or through contracts with third party ambulance service providers without any financial assistance from the County. 34. As a rural hospital, Plaintiff Hospital faces significant financial pressures from a variety of sources, including the reduction in reimbursement by commercial and governmental payors, the lack of Medicaid expansion in South Carolina (unlike in other states, increased competition from regional medical centers, and a rising uninsured rate. These same financial pressures are confronting all rural hospitals and, if not addressed, lead ultimately to the inability of a hospital to continue to operate. According to The North Carolina Rural Health Research 9

11 Program, there have been 83 rural hospital closures since January (See, In an effort to address these concerns, Plaintiff Hospital has made the necessary decision to implement two measures relevant to this action. In December 2017, Hospital announced its decision to cease providing scheduled, inpatient labor, and delivery services at the Hospital. Thus, as of April 1, 2018, the Hospital s obstetrics program would be consolidated with and performed at Mary Black Health System-Spartanburg. The decision to consolidate obstetrics services was prompted by the declining utilization of those services at the Hospital and by the desire to maintain financial viability and quality of care with regard to those services. 36. In addition to the consolidation of obstetric services, the Hospital was also forced to make a difficult decision with regard to its provision of EMS Services. After suffering years of financial stress from having to subsidize EMS Services with no financial assistance from the County, Hospital notified the County that it would not be able to provide EMS Services after March 1, 2018, unless the County agreed to make emergency supplemental payments to support EMS Services at the rate of $45,000 per month beginning March 1, 2018 through the end of May, 2018, at which time the Hospital would end its provision of EMS Services and the County would assume all responsibility therefor. 37. In his December 7, 2017 memorandum to the County, the Hospital s Chief Executive Officer explained that Hospital s two contracted EMS Services providers had notified Hospital that they would terminate their contracts effective January 14, 2018, because of continued, unsustainable financial losses, which losses were occurring despite the Hospital s payment of an annual subsidy of $960,000. (Exhibit D, attached hereto. Hospital s request for an emergency supplemental monthly payment from the County was an effort by the Hospital 10

12 to postpone the termination of the services until June, 2018 in order to give the County additional time to assume operation of the EMS Services. The memorandum indicates that in the absence of these supplemental payments, the Hospital will terminate EMS Services as of March 1, In response to Hospital s notice of termination and request for supplemental payments, the County Council met on December 18, 2017 and stated its position that the Assumed County Agreements required Hospital to continue to provide the covered services in perpetuity and that Hospital should continue to do so. 39. Both before and after sending its notice of termination of EMS Services, Hospital attempted to engage County in negotiations with regard to immediate funding assistance, the eventual assumption by the County of the EMS Services, and with regard to the Hospital s right to have final authority and responsibility for all decisions related to the management and operation of the Hospital, including the right to determine what services are provided. In these discussions, the Hospital asserted its position that the 1988 HMA Agreement and the Assumed County Agreements contemplate the Hospital s eventual authority over these essential management decisions and, even if Hospital s authority is not clear, because these thirty-plusyear-old agreements lack expiration dates or reasonable termination provisions, they are contracts in perpetuity, which are disfavored under the law and are terminable upon reasonable notice. 40. To date the parties continue to disagree as to Hospital s rights and obligations under the 1988 HMA Agreement and the Assumed County Agreements, and no resolution has been reached. 11

13 FOR A FIRST CAUSE OF ACTION (DECLARATORY JUDGMENT 41. Each and every allegation set forth in paragraphs 1 through 40 is incorporated by reference as if restated verbatim herein. 42. The Hospital is currently experiencing significant financial stress. In 2017, the Hospital lost approximately $200,000 per month. The Hospital must be able to take certain operational measures to remain financially viable and to continue as a going concern. 43. In order to protect the financial viability of the Hospital and to ensure its ability to continue to provide safety net services to the citizen of Cherokee County and to gain relief from the uncertainty posed by the existence of these thirty-year-old agreements, Hospital believes that it is entitled to, and by this declaratory judgment action seeks, the declaration of the Court as follows: (A this action; (B The Court has jurisdiction over the parties and subject matter of The Court may exercise its jurisdiction over the controversy insofar as it involves the Indigent Care Agreement, notwithstanding that agreement s arbitration clause, because such clause does not comply with the requirements of S.C.CODE ANN (1976, as amended and, therefore, is void and of no effect; (C A genuine controversy exists as to the rights of the parties under the agreements which are the subject matter of this Complaint; (D A declaratory judgment will resolve the controversy between the parties by determining finally the parties rights and obligations with respect to the agreements at issue; 12

14 (E Under section 19 of the Amended General Agreement, the Hospital is only obligated to provide services in accordance with the terms of the General Agreement and the Indigent Care Agreement, including EMS Services, for a period of one year after HMA s acquisition of the New Hospital, which obligation expired in February, Therefore, Hospital has the final authority to determine what services it will or will not provide without reference to the Amended General Agreement or the Indigent Care Agreement; (F Neither the Amended General Agreement, the Indigent Care Agreement, nor the 1988 HMA Agreement contain a provision which states a period for the duration of the agreement and none of these agreements contain a provision which expressly states a term in perpetuity. Therefore, these agreements are perpetual contracts, which are disfavored in the law, and are subject to termination upon reasonable notice; (G Hospital has already provided the County with reasonable notice of the termination of obstetric services and the termination of EMS Services; (H To the extent that circumstances surrounding the Amended General Agreement, the Indigent Care Agreement, and the 1988 HMA Agreement can be interpreted to imply a defined time of duration, all such time periods have long expired, and Hospital is under no obligation to provide new services or to continue to provide any existing services, 13

15 including the obstetric services and the EMS Services, in accordance with the terms and conditions of the agreements. WHEREFORE, Plaintiff Hospital respectfully prays for judgment against the Defendant County and for an order of the Court determining and declaring as set forth in 43 (A through (H above and further granting Plaintiff such other and further relief as the Court deems just and proper. January 23, 2018 Columbia, South Carolina Respectfully submitted, s/william R. Thomas William R. Thomas, SC Bar #16348 Walter H. Cartin, SC Bar #78405 PARKER POE ADAMS & BERNSTEIN LLP 1221 Main Street, Suite 1100 (29201 Post Office Box 1509 Columbia, South Carolina Telephone: ( Facsimile: ( Attorneys for Plaintiff Gaffney H.M.A., LLC d/b/a Mary Black Health System Gaffney 14