CUOMO SAYS HUD RECOVERS $16 MILLION FOR SALE OF HOSPITAL IN PUERTO RICO

WASHINGTON - Housing and Urban Development Secretary Andrew Cuomo today announced that HUD has recovered $16 million in cash after the sale of Hato Rey Community Hospital in San Juan, Puerto Rico. The facility was acquired by HUD after years of mismanagement by former owners Dr. and Mrs. Roberto Kutcher.

HUD sold the hospital for $15 million to PaviaHealth Inc. ($14 million for the hospital and adjacent real estate , plus an additional $1 million for the hospital's outstanding accounts). In addition, HUD recovered $1 million in cash from the Kutchers.

The terms of the sale require PaviaHealth to upgrade the hospital and continue operating it for the benefit of the local community for at least the next five years. The sale also protects the jobs of some 400 employees of the hospital.

HUD's takeover of the Hato Rey Community Hospital marked the first time the Department has kept a hospital in operation after taking control following a default on a HUD-insured mortgage.

"We could have taken the easy way out on this hospital and simply foreclosed or sold it as is," Cuomo said. "Instead, we brought this hospital back to life so we could get back taxpayers' money and preserve jobs and health care for this community."

The Kutchers turned over the hospital to HUD in 1996 to settle federal civil charges against them. They recently also gave HUD $5 million in real estate and equipment - much of which was sold to PaviaHealth as part of its $15 million hospital purchase. Much of the real estate consists of parking lots next to the hospital.

When HUD took possession of the hospital two years ago it had a leaking roof, a broken emergency generator, only one functioning elevator and inadequate security. HUD then hired Charter Medical of Puerto Rico, Inc., a hospital management company, to operate the hospital.

HUD put together a team to revive the hospital, making critical repairs and putting in place an effective management plan. HUD proceeded to package the assets and sell the property to ensure that it remained a viable, operating hospital for the community.

A public bid offering was held earlier this year and PaviaHealth was the highest bidder. The company owns and operates several hospitals throughout the United States.

HUD first became involved with the hospital in 1974 when it insured a $12.5 million loan. The loan went into default in 1979, causing HUD to pay an insurance claim of $12.1 million.

The Kutchers purchased controlling interest in the hospital in 1988, but made virtually no mortgage payments and allowed the facility to deteriorate into very poor physical condition.

A criminal investigation of mismanagement accusations against the Kutchers began in 1994 by HUD's Caribbean Office of Inspector General and the FBI. The investigation concluded that the owners had skimmed nearly $6 million from the hospital for their personal use.

The U.S. Attorney's Office in Puerto Rico filed criminal and civil charges against the Kutchers accusing them of equity skimming. Working with the U.S. Attorney, HUD was able to get the Kutchers to settle the civil charges against them by agreeing to pay back the $6 million in cash, real estate, and property. Criminal charges, however, are still pending against them.