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LifeCare Hospitals' parent company files for bankruptcy

By , - Last modified: December 17, 2012 at 12:01 PM

LifeCare Holdings Inc., which owns LifeCare Hospitals of Mechanicsburg, has voluntarily filed for bankruptcy and announced an agreement to be acquired.

LifeCare, which currently operates 27 long-term acute care hospitals in 10 states, said hospital operations and patient care will continue without interruption.

“The agreement will allow us to dramatically improve our debt structure and enhance our ability to pursue strategic growth opportunities,” said LifeCare Holdings chairman and CEO Phillip B. Douglas.

LifeCare Hospitals of Mechanicsburg is a 68-bed, specialty acute care hospital accredited by The Joint Commission.

According to a news release, the acquisition agreement is with Hospital Acquisition LLC, which is owned by LifeCare's senior secured lenders. LifeCare said it will also be seeking approval of procedures to facilitate other potential interested parties' participation in a court-supervised sale process. The company expects the transaction to be substantially completed within six months.

According to a court filing by Douglas, LifeCare was founded in 1992 and acquired by investment funds associated with The Carlyle Group in 2005 for approximately $570 million. Last year, LifeCare purchased five facilities from HealthSouth Corporation for approximately $120 million and bought part of Vibra Specialty Hospital of Dallas LLC for $10.9 million.

Douglas wrote that Hurricane Katrina destroyed LifeCare’s three facilities in New Orleans shortly after the 2005 transaction and then rate reductions by Medicare and other reimbursers “had a materially negative impact” on the company’s finances.

Attempts to address the problems by growing were foiled by various regulations, including a congressional moratorium on constructing or expanding long-term acute care facilities that began in 2007 and is scheduled to expire Dec. 28, Douglas wrote.

“For example, Medicare regulations set a maximum threshold of 25 percent for admissions to an LTAC facility from any single hospital,” Douglas wrote. “Although an LTAC can admit patients from a hospital in excess of this threshold, reimbursement rates for these additional patients are substantially reduced.”


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