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Supreme Court approves E.J. Noble Hospital transformation to Gouverneur Hospital

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CANTON — The New Year will see a financially sustainable hospital in Gouverneur that will provide services in a more collaborative way through an asset purchase agreement authorized Friday by state Supreme Court Justice David R. Demarest.

“This has been a very difficult time for the hospital,” Judge Demarest said in court. “I commend Canton-Potsdam Hospital for taking on this burden. It means a lot to both communities. Good luck everybody.”

Judge Demarest authorized Gouverneur Hospital, a newly created nonprofit organization, to purchase the assets of E.J. Noble Hospital and its affiliate, Kinney Nursing Home. The closing is expected to take place before Jan. 1.

Gouverneur Hospital will operate under a two-hospital health-care organization — St. Lawrence Health System — which also includes Canton-Potsdam Hospital, Potsdam. E.J. Noble’s board will continue on an interim basis to ease the transition. Marlinda L. LaValley, former vice president of administrative services at CPH, is CEO of Gouverneur Hospital.

The arrangement is the start of a comprehensive health-care system that will benefit the region by delivering services in a more quality-focused and coordinated fashion that allows for better recruitment of medical professionals and improved partnerships, Canton-Potsdam Hospital Administrator David B. Acker said.

“This is not about an acquisition,” he said. “This is a mission.”

The reorganization plan provides a way for health services to continue in Gouverneur under an entity that is solvent, which E.J. Noble was not.

The deal involves a complicated financial arrangement to dispose of E.J. Noble’s $16 million debt and operating losses amassed over a number of years.

Few of E.J. Noble’s creditors emerge whole, but virtually all will receive some return. Local vendors were previously paid and certain unsecured critical vendors, such as utilities, will receive their full due. The plan provides $396,000 for other unsecured creditors, of which there are many.

Those claims could reach $800,000, although a total is uncertain. The court will decide the financial distribution at a later date.

The $396,000 for the unsecured creditors will come from CPH’s return of its fees for managing E.J. Noble. CPH also provided E.J. Noble with a cash infusion of $500,000 which it will forgive, Mr. Acker said.

Of a $9.3 million Healthcare Efficiency and Affordability Law grant through the state Health Department, $4 million went to the National Automatic Sprinkler Pension Fund, which holds the $11 million in bonds on E.J. Noble’s recent building expansion. The pension fund also received debt service reserve funds of nearly $1 million. When Gouverneur Hospital takes over E.J. Noble, the pension fund will receive a base amount of $2.5 million, along with about $2.15 million from accounts receivable, which CPH will then try to collect.

Restricted donor funds in E.J. Noble’s endowment of $943,000, which the court had earlier allowed to be used as collateral for credit, will not be tapped for the pension fund, but will instead likely be the subject of another court petition to transfer them to Gouverneur Hospital, said Deanna R. Nelson, assistant attorney general, who was also in court.

Other state funding may be available to give the pension fund an additional $900,000. If it is not forthcoming, the investment group will be satisfied with its settlement, Mr. Acker said.

Money from the HEAL grant also went to pay back the bulk of a $5.3 million loan from the Dormitory Authority, but because the state was unable to provide additional funding for E.J. Noble’s projected fourth quarter operating losses for 2013, Gouverneur Hospital will start off with $1.5 million still owed the Dormitory Authority.

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