BY JIMMY LAWTONNorth Country This Week

OGDENSBURG — A federal bankruptcy judge has given North Star Health Alliance temporary permission to keep using its operating money so its hospitals and care facilities can stay open while the system works through bankruptcy.

The decision follows objections from Northern Credit Union, which provided a 3.1 million dollar line of credit to North Star. 

The credit union raised concerns about how its loan would be protected after North Star and several affiliated providers filed for Chapter 11 bankruptcy earlier this month.

Northern Credit Union said it was not warned in advance about the bankruptcy filings and initially opposed allowing the health system to use money tied to its loan.

After a court hearing on Feb. 12 the judge ruled that North Star is allowed to use limited funds to cover expenses like payroll and supplies through Feb. 18. 

The judge will review the situation again at a future hearing.

The order places limits on how the money can be spent. It also requires reporting of said spending.

To protect the credit union, the judge granted Northern Credit Union added safeguards. If the value of its loan is reduced while North Star uses the funds, the credit union will receive priority repayment and added claims against the system’s assets.

North Star Health Alliance  and its affiliates filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of New York. Those providers include Carthage Area Hospital, Claxton Hepburn Medical Center and Meadowbrook Terrace. 

Together, the facilities employ about 1,600 people and provide hospital care, behavioral health services and long term care across Jefferson and St. Lawrence counties.

North Star officials say the bankruptcy filing is meant to give the system time to reorganize its finances, not to close hospitals or sell off facilities.

Court documents show the system has been struggling financially for months. Costs have continued to rise while payments from insurers and government programs have been delayed. The filings also cite billing problems and multiple cyberattacks that disrupted operations.

The system has told the court it is seeking emergency state funding, looking for new financing and considering staff and service reductions to cut costs.

State lawmakers say the situation is becoming urgent.

Assemblyman Scott Gray, R-Watertown, said the bankruptcy filing raises serious concerns for rural communities that rely on North Star hospitals for care.

Gray said the state Department of Health must act quickly to stabilize the system and ensure patients, employees and local vendors are protected. He said efforts to work with the department over the past several months have not led to meaningful progress.

Gray also pointed out that the system’s chief executive resigned several weeks ago and that a state backed management agreement intended to stabilize operations has still not been finalized.

State Sen. Dan Stec, R Queensbury, voiced support for Gray’s concerns.

During a recent state budget hearing, lawmakers questioned Health Commissioner Dr. James McDonald about delays in funding for rural hospitals. Gray said it is not acceptable for funding decisions to remain pending while hospitals are at risk.

Gray urged the Department of Health to finalize management plans, send staff to assist on site and provide a clear timeline for financial support.

McDonald responded that leadership problems within the health system contributed to the crisis but said the department now has the information it needs to move forward. He said he has been in regular contact with North Star officials and believes bankruptcy protection may help the system survive.

More than 120 employees have already lost their jobs during the financial crisis. While state takeover through receivership remains possible, the Department of Health has not said when or if that step will happen.

Bankruptcy proceedings are ongoing, and future court hearings will determine whether North Star can continue operating while it works with lenders and other creditors.

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