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Purdue Pharma, manufacturer of the blockbuster painkiller OxyContin, reached a tentative settlement yesterday with 23 states and more than 2,000 cities and counties that sued the company over its role in the opioid crisis, according to attorneys involved in the deal, the Washington Post reported. The executive committee of lawyers representing cities, counties and other groups in a federal lawsuit against Purdue and other drug companies is recommending the deal be accepted. But more than half the state attorneys general in the nation balked, saying they planned to continue pursuing the company and its owners, the Sackler family. Under terms of a plan negotiated for months, the Sacklers would relinquish control of Stamford, Conn.-based Purdue Pharma and admit no wrongdoing. The company would declare bankruptcy and be resurrected as a trust whose main purpose would be producing medications to combat the opioid epidemic. To date, Purdue has also settled with one state, Oklahoma, for $270 million, and won a victory when a North Dakota judge threw out that state’s case against the company.

A coalition of Philadelphia-area health systems led by Thomas Jefferson University Hospital Inc. won bankruptcy court approval yesterday to buy the residency program of Hahnemann University Hospital, effectively killing hopes of reviving the historic institution, which served the city’s poor, WSJ Pro Bankruptcy reported. Jefferson and its allies are purchasing the residency program for $55 million over the protests of companies that offered to save the hospital and an objection from the government. Bankruptcy Judge Kevin Gross rebuffed last-ditch attempts to save Hahnemann at a hearing in U.S. Bankruptcy Court in Wilmington, Del. The judge turned aside challenges from bidders that offered to pay more — and to keep Hahnemann in operation — after Hahnemann’s lawyers said that the offers from outsiders were risky. More than 150 years old, Hahnemann filed for bankruptcy less than two years after being acquired by investors led by Joel Freedman, a former California investment banker. Blaming insufficient federal reimbursement rates, the teaching hospital began closing down abruptly, unsettling the education plans of hundreds of new doctors who were beginning their residencies there.

Bankruptcy judges spurned requests for extra pay at PG&E Corp. and Insys Therapeutics Inc. in recent weeks—a rare restriction that reflects outrage over the damage from wildfires linked to the California utility’s equipment and the drugmaker’s role in the opioid crisis, WSJ Pro Bankruptcy reported. U.S. Bankruptcy Judge Dennis Montali last week in San Francisco turned down a proposal that would have added as much as $16 million to this year’s pay for a dozen top PG&E executives. The embattled California utility sought chapter 11 protection from claims for fire damages that could top $30 billion. A week earlier in Delaware, Judge Kevin Gross spurned a request from Insys to hand out severance pay after the drugmaker’s board of directors refused to certify that those on the receiving end hadn’t participated in the company’s criminal behavior. “In both of these decisions, bankruptcy judges are policing the edges of what debtors are allowed to do and promoting confidence in the bankruptcy system,” said Jared Ellias, professor at the University of California Hastings College of Law in San Francisco.

Mallinckrodt Plc yesterday downplayed a media report that the company had hired restructuring firms and may choose to seek bankruptcy protection, Reuters reported. The company will not specifically comment on what it called market speculation, Chief Executive Officer Mark Trudeau said, adding that “like any other company, we hire advisers for different types of things all the time.” Bloomberg reported on Wednesday that Mallinckrodt has hired law firm Latham & Watkins LLP and consulting firm AlixPartners LLP to help limit its potential legal liabilities from lawsuits related to the U.S. opioid crisis. The company’s shares fell as much as 44.8 percent to an all-time low of $1.43 yesterday. Opioid makers in the United States, including Mallinckrodt, face pressure from a crackdown on the addictive drug in the wake of the opioid crisis and as state attorneys general file lawsuits against manufacturers.

Medical equipment maker Medical Depot Inc. has begun restructuring talks with its senior lenders in advance of an expected liquidity crunch, the Wall Street Journal reported. The lenders recently signed a nondisclosure agreement to access privileged information about the medical equipment company. The company, which operates under the name Drive DeVilbiss Healthcare and manufactures wheelchairs, canes, walkers and other medical equipment, has more than $600 million of debt. Medical Depot is owned by private-equity firm Clayton, Dubilier & Rice, and was formed in 2015 via the merger of Drive Medical and DeVilbiss Healthcare. However, the merger didn’t result in achieving the synergies that were initially projected. In June, ratings agency Moody’s Investors Service cut Medical Depot’s ratings further into junk territory, to Caa2 from Caa1, saying that the company’s capital structure was “unsustainable absent significant improvement in operating performance.” Moody’s pegged the company’s revenue at around $900 million.

OxyContin maker Purdue Pharma LP is preparing to seek bankruptcy protection before the end of the month if it does not reach a settlement with U.S. communities over widespread opioid litigation after some states balked at the company’s $10 billion to $12 billion offer in August to end their lawsuits as part of a negotiated chapter 11 case, Reuters reported. On Friday, Purdue lawyers had documents prepared for a chapter 11 filing at a moment’s notice. A federal judge, who expects plaintiffs to update him on settlement progress this week, wants 35 state attorneys general on board with a deal, a threshold that has not yet been reached. Purdue lawyers have told lead attorneys for local governments and some state attorneys general for weeks, and again in recent days, that the company will have to file for bankruptcy without a settlement if one is not reached soon. This approach is known as a “free-fall” bankruptcy filing because it lacks consensus on a reorganization beforehand. Strong opposition from some attorneys general such as those in Massachusetts and New York emerged last week after confidential discussions on Purdue’s settlement talks became public in media reports, with Connecticut’s calling for Purdue to be “broken up and shut down,” and sold in parts. Purdue faces more than 2,000 lawsuits from cities, counties and states alleging it helped fuel the U.S. opioid epidemic, and Reuters reported in March that the company and family began exploring bankruptcy options for Purdue to halt lawsuits and attempt to resolve litigation with plaintiffs rather than fight every single case. 

Insys Therapeutics Inc. is selling the fentanyl painkiller Subsys out of bankruptcy, unloading the opioid drug at the center of racketeering convictions against the drugmaker’s former top brass, WSJ Pro Bankruptcy reported. Subsys, a mouth-spray version of fentanyl, fueled the company’s success and helped turn co-founder John Kapoor into a billionaire. But management’s tactics in promoting sales of the drug sparked lawsuits and criminal investigations against Insys, pushing it into bankruptcy in June and wiping out investors. Insys said in a securities filing yesterday that Wyoming-based BtCP Pharma LLC, which makes the Lazanda fentanyl nasal spray, agreed to buy Subsys in exchange for royalty payments on future sales and the assumption of some liabilities. Insys didn’t put a total value on the deal. The royalty rate is 45 percent, with adjustments for the cost of goods sold, legal and settlement payments, and overhead. Insys would also receive post-closing payments for accounts receivable and certain inventory. If the deal is approved in bankruptcy court, the proceeds would generate cash for the company to divvy up among thousands of companies, people and state and local governments that have alleged they were harmed by the misuse of Subsys.

Senator Bernie Sanders is proposing to cancel an estimated $81 billion in past-due medical debt owed by Americans as he vies for the 2020 Democratic presidential nomination using a platform focused on health care Bloomberg News reported. The plan is still being formulated and details — including how it would be financed — weren’t addressed in an emailed release from the Sanders campaign on Saturday. The full proposal will be announced within a month. “Your financial life and future should not be destroyed because you or a member of your family gets sick,” the Vermont senator said in a statement. “I am sick and tired of seeing over 500,000 Americans declare bankruptcy each year because they cannot pay off the outrageous cost of a medical emergency or a hospital stay.” Under Sanders’ plan, the federal government would negotiate and pay off past-due medical bills in collections that have been reported to credit agencies. Sanders proposes to repeal what his campaign termed “the worst elements” of a 2005 bankruptcy reform law, and allow other existing and future medical debt to be discharged. The plan also would ensure that unpaid medical bills didn’t hurt people’s credit scores.

A major showdown in the bankruptcy of Hahnemann University Hospital and St. Christopher’s Hospital for Children is slated for Wednesday afternoon, when a judge in Wilmington, Del., will be asked to approve the sale of Hahnemann’s medical residency programs to a consortium of six Philadelphia-area health systems for $55 million, the Philadelphia Inquirer reported. The unexpectedly high price is potentially a “game-changer” for the bankruptcy, Mark Minuti, the bankrupt hospitals’ lead attorney, with Saul Ewing Arnstein & Lehr LLP, said in court on Aug. 19. The children’s hospital will be subject to a separate sale process this month. But federal regulators at the Centers for Medicare and Medicaid Services (CMS) want the judge to block the proposed sale, which would ultimately redistribute Hahnemann’s 570 residency slots to the coalition members, saying it “is contrary to law and contravenes CMS regulations.” If the judge rules in favor of CMS, that could force Hahnemann’s parent company to find a new strategy to begin paying off creditors. Also at risk for the Philadelphia region, a health-care hub, is the loss of hundreds of highly sought doctors-in-training paid for by Medicare. Read more. 

For more on hospital and health care insolvencies, be sure to pick up a copy of the ABI Health Care Insolvency Manual, Third Edition from the ABI Bookstore. 

When Penobscot Valley Hospital entered bankruptcy in January amid a drop in patients in recent years, it planned to cut the number of doctors that staff the 25-bed facility, the Lincoln, Maine-based hospital said in a court filing this month, the Bangor Daily News reported. But the hospital has changed that plan after seeing a surprising uptick in patient visits this year. Now, it intends to maintain its existing services and staffing levels, according to CEO Crystal Landry. It now employs around 116 people. “We have no plans to make any changes to our service lines,” she said last week. However, at least two of the hospital’s creditors are unhappy with that position and said the facility will have to make some operational changes if it hopes to pay back its debts and stay in business. In January, Penobscot Valley Hospital sought chapter 11 protection after accruing up to $10 million in debt to creditors, including the U.S. Department of Agriculture, the Maine Department of Health and Human Services, Machias Savings Bank and the federal Centers for Medicare and Medicaid Services.