Faced with the likelihood that it would be shut down by one of its creditors, the operator of two Hawaii Medical Center hospitals on O'ahu yesterday filed for Chapter 11 bankruptcy protection.

Hawaii Medical Center LLC, which runs the former St. Francis hospitals in Liliha and 'Ewa, filed the bankruptcy petition in Delaware. Hawaii Medical Center LLC listed assets of between $10 million and $50 million, but liabilities of $50 million to $100 million, according to its court filing.

Danelo Canete, HMC chief executive officer, said the company was forced to file for bankruptcy protection because its lead creditor, Siemens Finance, was unwilling to extend an existing loan agreement. The agreement was set to expire today.

Siemens was owed about $5.5 million.

"We faced the threat that our lenders would freeze our cash, creating a liquidity crisis that would force the hospitals to shut down," Canete said. "We are seeking protection so that we can continue to operate and provide care to our patients, with no noticeable changes or interruptions."

Canete said HMC has adequate cash on hand to meet its employee obligations and will ask the bankruptcy court to freeze wages and benefits. HMC also is proposing to sell its accounts receivables to fund full payment of its vendors and other unsecured creditors, he said.

Hawaii Medical Center LLC, the state's only for-profit hospital, has struggled since it purchased the financially strapped medical centers from St. Francis Health Care System in January 2007. The buyers consisted of Kansas-based Cardiovascular Hospitals of America LLC and a group of local doctors that owns 49 percent of the company.

As losses mounted, HMC hired turnaround expert Salim Hasham four months ago to come up with a plan to get the company out of the red.

EARLIER LAYOFFS

In June, HMC laid off 89 employees in its business and information management departments and outsourced the positions to a Tennessee-based firm. Earlier this month, HMC said that it would lay off about 80 more employees to bring staffing levels in balance with the number of patients at its hospitals.

Hasham said yesterday that he doesn't expect any further layoffs. He said he believes HMC needs from four to six months to restructure its operations.

"Our plan is within a year to become profitable, especially with this situation of protection," Hasham said. "We actually get a bit of breathing room, so in fact it's a better position for us to be in."

Hasham said HMC was headed in the right direction and had been successful in generating more cash for the hospitals and increasing the number of patients while reducing the length of stay. But with a tight credit market, he said creditor Siemens was not willing to take on more risk.

He said one of the major challenges at HMC is it runs the state's only for-profit hospitals.

"We are not exempt from certain taxes. There are other obligations that we have," Hasham said. "So in a way, our obligations are more onerous, which means we have more cash needs than other institutions do."

The HMC bankruptcy filing is an extreme example of the crisis in the healthcare industry. Hospitals statewide are facing similar financial problems because of government reductions in Medicare and Medicaid reimbursements.

HMC also has been hit hard by the reimbursement problem.

"Medicare, Medicaid, in terms of the level at which they're reimbursed, is at cost and sometimes below," Hasham said. "Every single institution is being challenged in terms of reimbursement in healthcare, so this is nothing new. In terms of how institutions deal with this, seeking protection is just one method to seek restructuring support. In our circumstance right now, it's the best choice for us."

HMC has a workforce of about 930 employees and has a combined 342 beds at the two hospitals.