2012-02-10 / Top Stories

Revival Solidifying Power, And It’s Not Always Pretty

By Howard Schwach

Over the last two months, the new owners of Peninsula Hospital Center have moved to solidify their hold on the vital Rockaway institution, insiders say.

New doctors, new administrators, new contracts, new procedures and plans, all part of making the hospital viable again, officials of the new regime say.

But, not everybody agrees.

An anonymous letter with wide circulation in the hospital community and addressed to Revival says, “We will be forever grateful to the [Revival] family for seeing the enormous potential in our PHC family, and many of us still believe you entered into this relationship with the intent to succeed… Sometimes, though, we wish you’d never come along. As difficult as it would have been to see our beloved hospital close last summer, it would have been better than watching it exsanguinate before our eyes…

Staffing and morale are at an all-time low. You’ve blatantly disregarded and disrespected our physicians, abruptly firing highly-respected Doctors Sussman and Grossman, two huge supporters in our fight to stay open last summer.”

The letter charges that Revival and its hand-picked CEO, Todd Miller, have turned a deaf ear to the staff and administrators who complained about the direction in which the hospital is moving.

Miller, however, told The Wave on Monday that, “while aware of the letter and its charges, the hospital’s board is satisfied with the way it is being operated.”

He added that the letter has “lots of inaccuracies.”

He said, for example, that both Dr. Sussman (Chief of Surgery) and Dr. Grossman (Director of Palliative Care at the hospice) still work for the hospital and have not been fired, as the letter charged.

“It’s hard to give any credit or consideration to an anonymous letter that is just one person’s opinion and is filled with inaccuracies,” Miller said. “It does nothing to help the hospital move ahead and get out of bankruptcy.”

The letter, as damaging as it may be, however, might well be the least of Revival’s problems. The hospital’s planned rescue by Revival could be derailed by the hospital’s creditors.

The unsecured creditors of the bankrupt hospital this week asked a judge for permission to have a say in the hospital’s restructuring. If the bankruptcy court judge grants that request, Peninsula’s financing deal with a Revival Home Health Care entity could well unravel.

According to a published report in Crain’s New York Business, Robert Hirsh, a partner at the law firm Arent Fox who represents the unsecured creditors, said he wants the court to grant the unsecured creditors “co-exclusivity” with Peninsula to find restructuring alternatives. “It is appropriate to have shared exclusivity to determine if there are other transactions out there to maximize value to creditors,” Hirsh told Crain’s on Thursday.

According to the report, Peninsula and Revival Funding Co., the financing arm of Revival Home Health, told the unsecured creditors committee that they are unaware of alternatives. But the creditors have disagreed with that position for months. Peninsula has not “pursued any possible avenues—other than a deal with Revival,” reads a motion filed this week by Hirsh.

The unsecured creditors said they plan to hire investment banker Fuel Break Capital Partners to find other deals, in part because they have little confidence that the Revival deal will actually go through and let them recoup some of their money. Revival’s proposed debtor-in-possession financing is set to expire in about six weeks, and if Revival “decides not to continue to operate the debtors’ businesses or pulls its commitment to fund the plan,” Peninsula and its creditors “will have few options,” wrote Hirsh.

A hearing is set for February 14.

The new strategy by the unsecured creditors coincides with the release this week of a 50-page report by a court-appointed examiner who was hired to investigate Peninsula after serious questions were raised by the Office of the U.S. Trustee over possible conflicts of interests.

The relationship between Peninsula Hospital and Revival Home Health Care has “at minimum the appearance of conflicts of interest” between the hospital’s current management and the hospital, concluded the examiner, Richard McCord of the law firm Certilman, Balin, Adler & Hyman.

McCord said the bankruptcy court must determine whether Peninsula’s board of directors and its management have done enough to “dispel any appearance of a conflict of interest between the debtors and Revival, as the debtors owe fiduciary duties to all creditors, not only to Revival, and whether current management is properly managing the debtors.”

Those statements by the examiner “cannot be taken lightly,” wrote Hirsh, adding the unsecured creditors believe “that the conclusions of the examiner reinforce the concerns with relying solely on Revival.”

The examiner was appointed in December in the Peninsula bankruptcy case after the U.S. Trustee objected to elements of the Revival deal. Both the U.S. Trustee and the state Department of Health have had serious concerns about Peninsula because Todd Miller was named its president at a time when he worked for Revival.

The examiner’s report offers evidence of that strategy. Peninsula made three deals with entities controlled by the Zakheim family, the same family that controls PHC and Revival.

The examiner uncovered a June payment from Peninsula to Metropolitan Home Health Products for $625,500. Peninsula’s director of finance said Metropolitan was contacted after Peninsula filed for bankruptcy “because it was the only medical supply company that offered seven-day payment terms” until new accounts could be created with big suppliers. The finance director said she was unaware if Metropolitan was connected to Revival companies. But the examiner’s report states that Zakheim was the chairman or CEO of Metropolitan. Peninsula also asked the court to reject its current home health care contract with New York Home Health Care—and then signed a contract with Revival Home Health.

In the third Zakheim deal, Peninsula negotiated a 10-year lease with the Ahava Group II, of which Zakheim is the sole member, and which does business as Peninsula Pharmacy Center, according to the report. The base rent for the pharmacy would be $10,200 a year. The lease has an unusual provision that if Peninsula determines within 90 days that the rent is too low compared with “fair rental value,” it can notify Ahava what it thinks the rent should be.

A spokesperson for Zakheim told Crain’s that Zakheim’s deals mentioned in the examiner’s report have been made “at no profit to him.” Revival’s financing package also beat the terms of competing offers.

“There is this sense that Mr. Zakheim is gaining something,” the spokesperson said. “The Revival entities, time and time again, come in as in the best interests of Peninsula. Each time, the best offer coming in has been from Revival.”

The hospital now has more than 80 patients on a daily basis, a vast improvement over its near-closure this summer.

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