A Chapter 11 Filing by Charter Behavioral

Charter Behavioral

Make sure you look at the year 1997......remember when his wife, Darla Moore fired Richard Scott. You know the same Richard Scott involved with Columbia and Columbia/HCA and God only knows who or what else!

By BARRY MEIER
Published: February 17, 2000

Charter Behavioral Health Systems, the nation's biggest operator of psychiatric hospitals and treatment centers which has gone into a financial free fall, filed for Chapter 11 bankruptcy protection from creditors yesterday.
Charter, which is 90 percent owned by Crescent Operating Inc., a company led by Richard E. Rainwater, the financier from Fort Worth, said it made the filing to ''ensure continued services to patients'' in its units.
Charter listed less than $50 million in assets and more than $100 million in debts in filings yesterday at the United States Bankruptcy Court in Wilmington, Del.
The Crescent Real Estate Equities Company, a real estate investment trust also led by Mr. Rainwater, already owns the buildings used by Charter's hospitals and treatment centers.
Three years ago, Charter ran roughly 90 psychiatric hospitals and treatment centers for more than 8,000 patients, many of them children. Operations have now dwindled to 37 units with a capacity of 2,000 patients.
Since last year, the Justice Department and the Department of Health and Human Services have been investigating Charter and Magellan Health Services Inc., which once owned the chain, for Medicaid billing fraud and patient abuse.
In 1997, Magellan Health entered into a complex $400 million deal in which it sold Charter's buildings to Crescent Real Estate and a 50 percent stake in the chain to Crescent Operating, an affiliate of Crescent Real Estate. Because real estate investment trusts cannot operate companies, Crescent Operating was formed by Mr. Rainwater and his associates to hold the Charter stake.
The 1997 deal came as the industry faced cutbacks by insurers on treatment payments. Many former officials of the chain have said that the plan -- which saddled Charter with some $125 million annually in new franchise fees and rapidly escalating rents -- contributed to Charter's financial collapse, undermining patient care in the process.
Officials of Magellan Health, Crescent Operating and Charter Behavioral have said that the chain's problems were caused by the insurance cutbacks, and that the 1997 plan did not affect patient care.
Last year, Magellan Health, the nation's largest behavioral health care company, transferred all but 10 percent of Charter to Crescent Operating.
Yesterday's filing comes a month after Charter said it would close and sell about 35 hospitals and centers. Former employees at some units have filed lawsuits contending that Charter violated federal law by failing to give them sufficient notice of the unit's closings and paying them severance benefits.
Mary E. Olson, a lawyer in Mobile, Ala., representing former Charter employees in three of those actions, estimated that about 5,000 former workers at the chain had been affected by the recent closings.
Karen Keiser-Jenkins, a spokeswoman for Charter, which is based in Alpharetta, Ga., declined to comment on the lawsuits. But in a news release, Charter said it was ''unable to fully fund all benefits'' to staff members dismissed before yesterday's filing.
In a release, Crescent Operating said that Mr. Rainwater would guarantee a bank loan that Crescent Operating plans to use to buy the reorganized company. Mr. Rainwater would be compensated for that guarantee, the company said. He is the largest shareholder in both companies and was the biggest stakeholder in Magellan Health at the time of the 1997 deal.
Last Friday, Jeffrey L. Stevens, an official of Crescent Operating and an associate of Mr. Rainwater, told Charter executives that the chain had $60 million in debts, according to a former Charter official who was informed about that meeting.
Ms. Keiser-Jenkins said that she was not aware of the meeting. Mr. Stevens did not return calls in recent days seeking comment.
Under a proposed plan, Crescent Real Estate would initially lease the 30 Charter facilities it owns to Crescent Operating for $20.3 million, a 13.3 percent annual return, the company said. That rate would rise by 5 percent annually.

Crescent Real Estate would also receive the proceeds of any sales of buildings once used by Charter.