21st Century Oncology seeks bankruptcy protection

Fort Myers-based 21st Century Oncology announced Thursday it is seeking Chapter 11 bankruptcy protection, a decision that follows years of declining revenue, two recent multi-million dollar settlements related to billing fraud allegations and a long list of ongoing lawsuits.

The company said the restructuring plan would reduce its debt by $500 million, about half of its long-term obligations. Interim CEO Paul Rundell said he doesn't expect the process to disrupt existing clinics, appointments or treatment schedules.

21st Century Oncology has also asked the court to approve the payment of all employee salaries and benefits. In the meantime, the company’s primary lenders have agreed to provide $75 million in cash to allow business to continue as usual.

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“Operationally, very little, if anything, should change during the Chapter 11 process,” Rundell said in a written statement. “Our ability to continue to operate as usual and have no disruption to patients was a critical factor in our decision to use Chapter 11 to implement this debt restructuring.”

Even so, the move could eventually have huge implications for the company’s roughly 4,000 global employees, scores of whom live and work in Southwest Florida. As of March, 21 Century Oncology operated 179 treatment centers, including 143 centers in 17 states. It has another 36 centers in seven Latin American countries.

It’s also unclear how this move might affect the multiple lawsuits against the company now in the federal courts."

"The company intends to use the Chapter 11 process to assist with resolving the pending litigation," said Steven Goldberg, a Los Angeles-based company spokesman. "Beyond that, I can't really speculate specifically on what the effect or outcome will be."

Goldberg said the company has no immediate plans to lay off employees.

"However, as always, we will continue to evaluate our staffing levels to make sure they are appropriate to meet the needs of our busnesses," he said.

The petition was filed in the U.S. Bankruptcy Court for the Southern District of New York. The filing does not include 21st Century Oncology's non-U.S. subsidiaries.

In such bankruptcies, creditors typically agree on a plan to reorganize existing debt without dismantling a business. Pending lawsuits are, at least temporarily, put on hold.

"You're trying to reorganize so that there's still an ongoing entity that's employing people and providing good services," said Fort Myers bankruptcy attorney Richard Johnston. "And creditors, even though they're taking a haircut, they get a substantial benefit too — more than they would get if the place shut down." 

Dr. Catherine Kowal, president of the Collier County Medical Society, said the restructuring is welcome.

The company’s turmoil contributed to physicians leaving practices in Collier that are owned by the company. In particular, five or six urologists had left and that’s a lot, especially in the middle of snowbird and tourism season, Kowal said.

“You always worry more will leave,” she said. “Hopefully none of the other doctors will want to leave. From our perspective, we think it is a good thing they are restructuring so we can keep the physicians here and our local patients can continue to get their care.”

Rumors about a possible bankruptcy have circulated for months, particularly after the company failed to make a $20 million debt payment in November.

The company’s last public financial disclosure in November reported a net loss of $92.9 million during the nine-month period ending Sept. 30, and a $133.9 million net loss during the same period in 2015 – a decreased loss made largely through job and administrative cuts.

It has more than $1.1 billion in long- term debt. The company reported $1 billion in annual revenue last year, the vast majority of which came from its North America operations.

Despite those figures, then-CEO William Spalding said at the time that 21st Century Oncology’s “business strategy is fundamentally sound.”

Spalding, who had been in the post less than six months, and Chief Financial Officer LeAnne Stewart announced their resignations three months later.

The company replaced them with executives at Alvarez & Marsal Healthcare Industry Group in Chicago, a firm that specializes turning around troubled companies. Rundell is a managing director there.

21st Century's recent troubles began in earnest — and quickly snowballed — after an "unauthorized third party" accessed 2.2 million patient records in late 2015.

The company notified affected patients months later, blaming the delay on the ongoing criminal investigation into the breach. Within weeks, scores of patients throughout the country began filing lawsuits. Those cases are pending.

Not long after the breach and unrelated to it, the company paid a combined $54.5 million to settle two federal investigations into alleged billing fraud.

Those cases, initiated by company whistleblowers, centered around claims that the company and its doctors were billing insurers for tests that were not medically needed. 
 

21st Century Oncology pays $35M to settle federal investigation

A number of 21st Century Oncology doctors separately paid out their own multimillion-dollar settlements to resolve those investigations.

Later that year, company CEO and founder, Dr. Daniel E. Dosoretz, announced he would step down from his post. The board hired Spalding, a board member and former CEO of PharMEDium Healthcare Holdings, to take the job.

In December, the company notified shareholders that it had missed a $19.8 million debt payment and would have to work with lenders to restructure its payments.

A month later, a prominent Washington, D.C., lobbyist sued the company for $11 million he claimed the company owed him in back pay. That lobbyist, Andrew Woods, chairman of Liberty Partners Group, said the company officials fired him without cause after telling him they could not longer afford to pay him.

Despite all of this, Rundell on Thursday described 21st Century Oncology as "a fundamentally strong and profitable business."

"(H)owever, we simply have too much debt given the size of the business and the way industry dynamics, particularly the challenging (insurance) reimbursement environment, have affected our ability to maximize revenue in the aftermath of these unprecedented, ongoing changes."

— Liz Freeman, a reporter for The USA Today Network - Florida, contributed to this report.

Follow this reporter on Twitter: @FrankGluck