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University General Health System files for bankruptcy after failed acquisition

The health system said in a statement that it was never able to turn a profit on the $30 million acquisition of South Hampton Hospital in 2012.

Photo of University General in Dallas from <a href="http://msmagazine.com/">msmagazine.com</a>.Photo of University General in Dallas from msmagazine.com.

The Houston-based University General Health System has filed for Chapter 11 bankruptcy and will restructure its business after an expensive acquisition and maligned managed care agreements put its finances in peril.

According to the company, University General will be able to fulfill all of its financial obligations during the restructuring through debtor-in-possession funding from MidCap Financial Trust.

The health system said in a statement that it was never able to turn a profit on the $30 million acquisition of South Hampton Hospital in 2012. University General closed that facility December 2014, after sinking more than $40 million into the business, according to the Dallas Business Journal.

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University General also blamed several managed care arrangements that it said led to lost revenue and mismanaged claims.

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"The filing was a difficult decision, but one that the Board believes will allow the Company to focus on improving operations at its flagship Houston hospital and creating a stronger financial foundation upon which to build its comprehensive strategic plan," said Hassan Chahadeh, M.D., University General CEO, in a statement.

Chapter 11 bankruptcies allow organizations to stay in business while restructuring and reducing, their debt. They are not liquidations.

According to University General, the health system had already started to trim divisions that are draining its finances. In addition to closing the Dallas hospital, the health system has shuttered several outpatient departments and has placed its senior living facility on the market. It also outsourced its revenue cycle management, the company said. Those measures, however, weren't enough the stave off bankruptcy.

“These operational changes have already reduced our costs by $13 million per year with additional savings of approximately $1 million per month as a result of the Dallas hospital closure," Chahadeh said.

University General said its compensation and benefit packages for employees will need to be approved by the court, but it expects those to be left in tact.

Twitter: @HenryPowderly