A car drives along the entrance road to Calais Regional Hospital on Aug. 21, 2019. Credit: Bill Trotter / BDN

Down East Community Hospital in Machias said Friday that it plans to purchase the only other hospital in Washington County, Calais Regional Hospital, which has been in bankruptcy since 2019.

Calais Regional Hospital, which would become Calais Community Hospital under the new ownership, filed for Chapter 11 bankruptcy in 2019 after several years of operating in the red. The hospital had cut services in recent years, including outpatient cancer care in 2018 and labor and delivery services the year before that.

Down East had been looking to purchase Calais Regional for several months, the Machias hospital said Friday in announcing its intention to purchase the Calais hospital. Hospital President Steve Lail said he hopes to bring several services back to the hospital, including full-time general surgery.

Down East Community Hospital has been working with many of the Calais hospital’s creditors on the acquisition plan.

Under that plan, the leadership at Down East Community would oversee both hospitals. Down East hopes to rebuild Calais Regional by improving the hospital’s profits while reducing expenses, Lail said.

“We will be two hospitals, with one team, and one focus,” Lail said.

In 2018, the last year for which financial data are available, Calais Regional Hospital posted a loss of $550,000, down from losing $2.2 million the previous year. In the 13 months after it filed for bankruptcy in September 2019, the hospital posted more than $4 million in losses, according to documents filed in U.S. Bankruptcy Court. The hospital has also incurred more than $800,000 in costs — largely legal expenses — related to its bankruptcy filing, according to those documents.

Down East Community Hospital, meanwhile, has operated in the black in recent years, a feat that hasn’t been universal among Maine’s small hospitals, according to the Maine Health Data Organization. The Machias hospital posted a gain of $426,000 in 2018, the last year for which data are available, down from a $739,000 gain the previous year.

Under plans filed in U.S. Bankruptcy court, an entity affiliated with Down East Community Hospital, called Calais Community Hospital, would assume debt to buy the Calais hospital out of bankruptcy and pay some of the largest creditors. The plans filed in bankruptcy court estimate the Calais hospital’s assets at $14.2 million.

Julie Hixson, a Down East spokesperson, declined to comment further on the details of the proposed acquisition.

Leaders at Calais Regional Hospital were surprised to see Down East Community Hospital’s acquisition plan proposed in bankruptcy court because discussions between the two hospitals had “died off” last year, said Dee Dee Travis, a spokesperson for the Calais hospital.

Calais Regional Hospital’s board of directors generally supports the plan, Travis said, noting that several details still have to be worked out. The hospital’s “ultimate goal is to ensure that the community will continue to have hospital services close to home,” she said.

Last spring, as the COVID-19 pandemic forced health care providers to cancel many procedures, depriving them of crucial revenue, Calais Regional Hospital warned it might have to close its doors by the start of summer without more federal aid. It also said it would cut 10 percent of its workforce.

The Calais hospital, along with Penobscot Valley Hospital in Lincoln, which was also in bankruptcy, was unable to qualify for a Paycheck Protection Program loan because program rules didn’t allow loans to go to businesses in bankruptcy.

At one point, the Calais hospital proposed temporarily exiting bankruptcy so it could qualify for a Paycheck Protection Program loan, but later abandoned those plans. It also unsuccessfully sued the U.S. Small Business Administration to change program rules to allow businesses in bankruptcy to qualify for aid.

Until November, the Calais hospital had been in the midst of a prolonged contract dispute with employees, including registered nurses, medical laboratory scientists, laboratory technologists and radiology technologists. Eighty-four percent of the hospital’s unionized employees last fall signed a petition of no confidence in Calais Regional’s CEO, Rod Boula, demanding that he be fired.

The employees later planned to strike, before calling off those plans after reaching a contract agreement with hospital management in mid-November.

“We are hopeful that this is a new beginning for our hospital,” said Alison Monaghan, a nurse and union steward. “This has been a long road for all of the employees and for the community that we serve. We are ready to help put our hospital on a new path where everyone’s voices are heard.”

The 25-bed Calais hospital has 259 employees, according to bankruptcy filings, and it owed about $25 million to nearly 1,900 creditors. It owed the largest sums to the U.S. Department of Agriculture, Katahdin Trust Company, First National Bank and the Maine Department of Health and Human Services. It owed more than $3 million to vendors, including a medical staffing firm and a Tennessee-based company that previously managed the hospital.

If the Down East Community Hospital acquisition is completed by March 31, the Calais hospital — which would no longer be in bankruptcy — would apply for a Paycheck Protection Program loan, according to bankruptcy court documents describing the transaction. Calais Regional is also expecting reconciliation payments from the federal Centers for Medicare and Medicaid Services and the Maine Department of Health and Human Services that could also brighten the hospital’s financial outlook, according to the court documents.

Down East Community Hospital’s purchase of Calais Regional needs to be approved by a judge presiding over the bankruptcy before it is finalized.