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Delaware Bankruptcy Litigation Information on Corporate Bankruptcy Proceedings in Delaware and Throughout the United States

Laboratory Partners, Inc. (aka “MEDLAB”), Files for Bankruptcy Citing Low Reimbursement Rates

Posted in Bankruptcy Case Summaries

Laboratory Partners, Inc., and various affiliates (collectively, “MedLab” or the “Debtors”), filed chapter 11 petitions for bankruptcy on October 25, 2013.  MedLab filed for bankruptcy protection in the United States Bankruptcy Court for the District of Delaware.  The company provides laboratory services to long-term care facilities, doctors’ offices and hospitals.  As for long-term care clients, Debtors operate in Illinois, Indiana, Kentucky, Maryland, Michigan, Missouri, Ohio, Virginia and Washington D.C..  Debtors provide lab work to physicians’ groups in Indiana and Illinois and service two hospitals in Indiana.  See Laboratory Partners’ Declaration in Support of First Day Relief (“Decl.”) at *3.  Going in to bankruptcy, MedLab employs approximately 1,034 employees, most of which are hourly employees working in the company’s long-term care division.  Id.

Debtors cite multiple causes for seeking bankruptcy protection.  Topping the list is declining revenues “resulting from government-imposed permanent reductions in rates of reimbursement.”  Decl. at *10.  Debtors operate under a Medicare Clinical Laboratory Fee Schedule.  In 2010, Congress reduced reimbursement rates under the schedule for clinical laboratory services, which directly affected the Debtors.  This year the Medicare Physician Fee Schedule Proposed Rule was released, proposing additional cuts in laboratory reimbursement rates.  Further cuts to the Fee Schedule will go in effect in 2014 and 2015.  As expected, the reimbursement rate cuts are negatively affecting the company’s revenues.   Decl. at *10-11. 

Much of Debtors’ debt was set to mature in 2012.  The company sought extensions with its lenders while it pursued restructuring options.  In March of 2012, Debtors began looking at the sale of assets and a partial recapitalization of debt.  Decl. at *12.  In June of 2013, the company was able to sell some assets netting approximately $9.1 million, the majority of which went to the Debtors’ lenders.  Id.

The company’s current forbearance agreement expired October 7th.  Debtors have also defaulted on their notes and certain noteholders issued notices of intent to proceed with an enforcement action.  Realizing that an out of court restructuring was not an option, Debtors lined up debtor-in-possession financing so as to fund their bankruptcy proceeding while they seek to sell their assets.  Decl. at *15-16. 

The MedLab bankruptcy is the Honorable Peter J. Walsh of the Delaware Bankruptcy Court.  MedLab is represented by the law firms Pillsbury Winthrop Shaw Pittman LLP and Morris, Nichols, Arsht & Tunnell LLP.  This case is proceeding under Case No. 13-12769(PJW).

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP. Jason is a creditors’ rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware. You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com.

Below are some additional posts Jason has written concerning Delaware bankruptcy litigation:

Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

Seeking Relief from the Automatic Stay in Delaware.

A Tale of Two Bankruptcy Auctions.

What Information is Required in a Chapter 11 Disclosure Statement?