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In what Borrego Health Board of Trustees is calling, “A proactive decision to protect continuity of care for at risk patients,” a media release dated Nov. 11, 2022, announced, “A formal process to explore options for transferring operations of Borrego Health clinics to a like-minded Federally Qualified Health Center (FQHC). The process, which will take place through Borrego Health’s pending Bankruptcy Case proceedings, is designed to help secure continued access to care for the patients and communities Borrego Health serves.

“We’re taking this step because it allows us to further secure continuity of care for the people and communities we serve, ensuring our patients can continue receiving the care and support they need from Borrego Health for generations to come,” said Rose MacIsaac, Chief Executive Officer of Borrego Health.

“As a vital FQHC for our communities, we remain guided by our mission and committed to doing everything we can to protect the ability of our caregivers and facilities to continue serving our patients.”

According to the media release and an accompanying Court Document, Borrego Health is requesting the Court to approve an option for transferring operations through a “363 sale.”

A 363 Sale:

“The Board of Trustees will begin to market our assets to potential bidders. Utilizing the criteria they have outlined, the Board will select the highest and best offer to act as the stalking horse bidder. A stalking horse bidder works as the base price and terms for an auction conducted by Borrego Health, and the other bidders will use this bid as a benchmark,” explained Dan Kramer, spokesperson for the organization.

“After the preparation of an asset purchase agreement, our organization will seek Court approval for the sale of assets at an auction commissioned by the Bankruptcy Court. After the close of the bidding, and announcement of the winning bidder, the Court must approve the sale of the asset before it is transferred to the successful bidder. We will share information throughout each step in the process as it’s available.”

Recent filings in the bankruptcy case disclose Borrego Health has just over $70 million in assets, including about $5 million in cash.

Nine potential purchasers have already signed a confidentiality agreement; and Borrego Health and the Chief Reorganization Officer, Isaac Lee (CRO) of Ankura Consulting Group have identified additional potential buyers for the assets; and plan to reach out to these parties regarding the sale.

Borrego Health has the option for a private sale or public auction, and decided that selling through a public, competitive auction will obtain the highest bidder and best offer for the assets. The process will take place through the bankruptcy proceedings, including consultation with the Creditors Committee.

Jeffery Pomerantz, an attorney for the Official Committee of Unsecured Creditors of Borrego Health, reported in a statement that, “The creditors welcome the Borrego Health Board’s decision to explore a formal sales process to another FQHC that shares the mission and values of providing high quality, culturally competent care to underserved populations;

“and welcomes the opportunity to work with the Foundation in supporting a reorganization that ensures the strongest financial future for Borrego Health’s facilities and clinics, including the ability to pay creditors that have, and may continue to support this essential healthcare mission.”

Opposition to the sale can be found at https://www.kccllc.net/borregohealth/

At the time of writing the article the arguments were not accessible. However, Both the state (DHCS) and the federal department of Health and Human Services (HHS), along with others, placed documents with the Court against the sale request.

According to Kramer, “The Board is seeking an organization that will continue to invest in Borrego Health employees. Borrego Health recognizes the value of its people, and the organization’s ability to provide excellent patient care is only made possible through the dedicated service of the employees, physicians and APPs.

“The Board is also seeking a buyer that has a strong financial position to ensure access to care for the communities Borrego Health serves in the long-term future, as well as an organization with the ability to pay creditors, who have previously provided goods and services essential to Borrego Health’s mission.”

In the legal document seeking Court approval for the sale, the Foundation explains the planned process of the sale.

“Borrego Health, the debtor, seeks entry of an order (a) Approving a process by which interested parties may bid to purchase substantially all of the debtors assets collectively, including the assignment and assumption of assumed Executory Contracts or unexpired leases held by the debtor, together with the payment of Cure Costs;

“(b) Approving a process by which, at the Debtor’s election, a stalking- horse bidder may be selected from those parties making a Bid, and bidding protection may be granted to such stalking horse bidder without further notice of the Court; (c) Setting bid procedures to establish guidelines for parties interested in making an initial Bid and overbids to such initial Bids; (d) If multiple Qualified Bids are received, scheduling an auction of Purchased Assets; and (e) Scheduling a safe hearing for the Court to approve the highest and best Qualified Bid.”

Time Table:

The Time table is November 28, hearing on Motion; November 29, service of approved Bidding Procedures, Auction and Sale Notice; December 12, deadline to submit Indications of Interest; December 22, Bid deadline for Qualified Bids; January 13, Auction; and (TBD) Deadline to file objections to the sale; and January 19, 2023, Sale Hearing. Approximately, six months after Court approval of Sale, the federal Health Resources and Services (HRSA) Administration must approve the of Sale; and the buyer must be a qualified, Federally Qualified Health Center (FQHC).

CRO Lee, of Ankura Group, on October 28, 2022, created a plan for a data room, which will be made available to potential purchasers, following the execution of a confidentiality agreement.

A Qualified Bidder:

A Qualified Bidder must deliver by wire transfer an amount greater than $200,000 or 10% of the proposed purchase price; and demonstrate that it has the financial capacity and ability to consummate the sale. Also required by Borrego Health is that the bidder demonstrate a commitment to operating the facilities as a FQHC; and providing culturally competent care to its patients. A bidder may also state if it is willing to serve as a stalking horse bidder, including specifying any requested bidding protection, which includes a break-up fee and or expense reimbursement in an amount not to exceed the aggregate 2.5 % of the proposed purchase price of the bid.

Other considerations include: disclosing any connections to Borrego Health and affiliated persons. The procedures further provide that the bid should propose cash consideration and that bids will be evaluated based on the amount of cash proposed.

Borrego Health Trustees blame the state Department of Health Care Services (DHCS) for forcing the network of clinics to file for bankruptcy and, now, approval from the Court to initiate a public auction to sell its assets.

“In August, Borrego Health, our health plan partners and others in the community received a notice from DHCS informing all parties of the state’s plans to institute a 100% suspension of Medi-Cal payments to Borrego Health.

“On September 12, driven by the potential for significant harm to our patients resulting from DHCS’ intention to impose a Medi-Cal payment suspension, Borrego Health commenced a bankruptcy case under Chapter 11, of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California. The Borrego Health Board of Trustees has identified a clear set of criteria for evaluating potential organizations to which they could transfer operations.

“Mission-Driven. Borrego Health is seeking an organization with a similar care philosophy, ensuring the overall health, security and well-being of all its patients. The Board is committed to finding the right cultural fit for the organization – one that understands and shares Borrego Health’s commitment to the communities it serves and the people it employs.

“Throughout this process, we will continue to operate under the normal course of business. Our clinics remain open, our staff and providers will continue to be accessible to our patients, and our patients will continue to receive the best care possible. We are confident about the stability this process will eventually bring for Borrego Health and those we serve. We will continue to share updates as they are available throughout this process.”