Amid bankruptcy and probe, Borrego Health plans to liquidate

Barely two months after turning to bankruptcy court to protect itself from creditors owed tens of millions of dollars, the Borrego Community Health Foundation plans to sell its remaining assets to the highest bidder.

The nonprofit healthcare provider known as Borrego Health has informed a bankruptcy judge that it wants to liquidate its assets at an auction to be held among qualified bidders as soon as January.

Officials said the decision was in the best interests of the organization, its creditors, its patients and other stakeholders.

“This announcement is the first step in a careful, deliberate process that is expected to take several months to complete, pending bankruptcy court and regulatory approvals,” said Sandra Hansberger, the chair of Borrego Health‘s board.

“We are confident in our ability to chart the right path forward to advance our mission and to ensure our patients continue to have access to the Borrego Health care and caregivers they know and trust,” she said.

The request came just after Borrego Health agreed to a mediation process to try and resolve the debts of up to $100 million. It also comes as a criminal investigation by state and federal agents pushes forward.

Judge Laura Taylor must sign off on the sale before any auction may proceed. Creditors and others also will be invited to weigh in on the option ahead of any final decision.

Borrego Health still operates more than a dozen health clinics in San Diego and Riverside counties that treat some 94,000 patients a year. It also owns millions of dollars worth of property and equipment.

It is not clear what will happen to the nonprofit entity established decades ago if all or most of its assets are sold. A spokesperson said the proposed sale would allow the board to decide later whether to dissolve the organization.

“The bid procedures motion allows the Borrego Health board of trustees to evaluate all its options,” spokesperson Daniel Kramer said. “If a decision is made to transfer the clinics, the board will consider what role, if any, Borrego Health would continue to have.”

Under a schedule proposed by Borrego Health, a hearing will be held Nov. 28.

If the judge agrees, a procedure would be formally adopted, and potential buyers would have until Dec. 12 to indicate their interest in bidding on the assets. The deadline to receive qualified bids would be Dec. 22, and the auction would be held Jan. 13.

A follow-up hearing would be scheduled later in January, and federal regulators would then have an estimated six months to approve the transfers.

Borrego Health said it already has set up a “data room” where approved bidders could access proprietary information in order to submit viable purchase offers. But no one has yet been allowed to review the internal documentation, the organization said.

“To be clear, as of the date of filing this motion, no potential purchasers have yet obtained access to the data room,” Borrego Health lawyers said in the filing.

Officials from the California Department of Health Care Services declined to comment on the proposed auction, citing the ongoing bankruptcy.

But lawyers representing state regulators filed a motion last week opposing the proposed sale because taxpayers may not be able to collect what they are owed.

“For the intended assumption and assignment to occur, either Borrego must pay all of the outstanding Medi-Cal debt incurred before the closing of the sale, or any outstanding debt on Borrego’s Medi-Cal accounts must be paid by the buyer through joint and several liability,” the filing said.

Regulators previously worked to transfer Borrego Health’s patients to other clinics, saying they were no longer satisfied that the federally qualified health center, or FQHC, was capable of effectively meeting regulatory requirements.

FQHCs are designated entities that collect higher Medi-Cal and Medicaid reimbursements for delivering medical, dental and mental health services to needy rural and poor patients.

The state Department of Health Care Services suspended reimbursements to Borrego Health in late 2020, after the FBI and state agents executed search warrants at multiple clinics and administrative offices in San Diego and Riverside counties. Some reimbursements later resumed, but the state moved to halt them again in August.

The bankruptcy judge later ruled that the state payments must be reinstated while the bankruptcy process unfolds.

An attorney representing a committee of creditors that are owed money by Borrego Health agrees with the proposed strategy.

“The committee strongly believes in the value and importance of Borrego Health’s facilities and clinics and supports a reorganization that ensures the strongest future financial position for the organization,” creditors’ lawyer Jeffrey Pomerantz said.

“The committee looks forward to working closely with Borrego Health to ensure access to care remains uninterrupted for patients and communities,” he added.

The potential liquidation is the latest in a series of improbable developments for the nonprofit health care provider. Just two years ago, the provider was among the largest FQHCs in the country, reporting annual revenue of more than $340 million.

But in October 2020, dozens of FBI and state agents executed search warrants at the original clinic and administrative offices in Borrego Springs as well as locations across San Diego and Riverside counties.

According to a civil lawsuit later filed earlier this year by a reconfigured board of directors, the state and federal governments are investigating a broad criminal scheme that included falsified patient records and reimbursements, largely in dental services.

The investigation also was examining inflated rental payments and billing practices, excessive salaries as well as nepotism within senior leadership.

“While Borrego Health was attempting to complete its mission of providing healthcare to underserved communities, certain individuals and entities, both inside and outside of Borrego Health, siphoned off money from Borrego Health that should have benefited the community it serves,” the lawsuit said.

According to the September bankruptcy filing, Borrego Health has between $50 million and $100 million in both debts and assets. The nonprofit has spent millions of dollars in recent months on the bankruptcy proceeding, court filings show.

State and federal investigators have declined to discuss the investigation beyond confirming its existence on the day the search warrants were executed.

It is not clear how a liquidation of assets or potential dissolution would affect the criminal probe.

It also remains unclear how an auction might affect the health provider’s ability to move forward with its civil litigation.

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