Dynacq Healthcare: Rare POH License Anchors 363 Sale After Copper Theft

Dynacq Healthcare, Inc., a 33-year-old physician-owned hospital operator, filed for chapter 11 bankruptcy protection on December 8, 2025, in the U.S. Bankruptcy Court for the Southern District of Texas. According to the First Day Declaration, the company seeks to sell its Pasadena surgical facility—a 37-bed acute care hospital that at its peak generated over $138 million in annual gross revenues. Dynacq holds one of approximately 250 physician-owned hospital (POH) licenses remaining in the United States, a license that cannot be replicated under current federal law. The filing followed two events in 2025: a major surgical group departed for a competing facility, and vandals stripped copper wiring from the hospital, knocking out power to the facility.

Company Background and History

Founding and Corporate Evolution.

Dynacq Healthcare was founded in February 1992 by Chiu Moon Chan, who served as President, CEO, and Chairman of the Board for two decades. Under Chan's leadership, the company became publicly traded and earned national recognition as one of the 200 fastest growing small businesses in the United States from Forbes and FSB magazines. The company went public through a reverse merger on March 8, 1993, eventually listing on NASDAQ in 2000 before being delisted to OTC Markets in October 2012.

The corporate structure evolved over time. Originally known as Dynacq International, Inc., the company changed its name to Dynacq Healthcare, Inc. in November 2003—the same year it expanded into the Dallas market. The company opened a new surgical hospital in Garland, Texas, beginning inpatient surgeries in late November 2003, just 100 days after acquiring the assets for that facility.

Leadership Transition.

Chiu Moon Chan died on May 17, 2012, at age 59 after being incapacitated by an unexpected illness since January 2012. His obituary noted that his efforts resulted in gainful employment for hundreds of families and quality healthcare for thousands of patients in Houston, Pasadena, Dallas, and Baton Rouge. Chan had owned more than half of Dynacq's shares prior to his death.

Dr. Eric K. Chan, board certified in anesthesiology, assumed the role of President and CEO in January 2012 during the founder's incapacitation. Dr. Chan had been the sole owner of Redwood Health Corporation since March 2005 and provided declarations supporting the bankruptcy petitions and first day motions.

Hospital Operations and Facilities.

The company's primary asset—the Pasadena Facility operating as Surgery Specialty Hospitals of America—is a Medicare-certified 37-bed general acute care hospital located southeast of Houston, Texas. The facility includes 8 operating rooms and provides specialized surgical services including orthopedics, neurology, spine, bariatric, and general surgery.

The debtors in this case comprise seven entities: Dynacq Healthcare, Inc. (the holding company), Vista Community Medical Center L.L.P., Vista Land & Equipment L.L.C., Doctors Practice Management Inc., Surgery Specialty Clinicians Inc., Vista Hospital of Dallas L.L.P. (now dormant following the 2011 closure), and Ambulatory Infusion Therapy Specialists Inc.

The Physician-Owned Hospital License

POH License Constraints.

Dynacq holds a valid physician-owned hospital (POH) license—one of approximately 250 remaining in the United States. The license permits physician practices and specialty groups to refer surgeries internally.

The Affordable Care Act's Section 6001 reshaped the hospital marketplace in 2010 by effectively banning new physician-owned hospitals and freezing expansion of those already in existence. The law amended the Stark self-referral statute, prohibiting physician-owned hospitals from participating in Medicare if created after March 23, 2010. For facilities grandfathered under the law, expansion is prohibited—no new operating rooms, procedure rooms, or licensed beds beyond March 23, 2010 levels without special exception.

POH Performance Findings.

Multiple studies have found these facilities frequently deliver care at lower cost per episode, achieve equal or better outcomes on key quality measures, and report higher patient satisfaction than traditional hospitals. Specialty physician-owned hospitals focused on cardiology and cardiac surgery deliver higher-quality care than nonprofit hospitals in many analyses.

Nine of the top 10 performing hospitals nationally were physician-owned, as were 48 of the top 100. With only 238 physician-owned hospitals in the U.S. at the time of that ranking, scoring well on lists with more than 3,000 entries showed a high share of POHs among the top performers.

Policy Proposals on POH Expansion.

The American Medical Association and more than 90 state and national medical associations have pledged support for the Patient Access to Higher Quality Health Care Act of 2023 (H.R. 977/S. 470), which would lift the expansion freeze. The AMA says the law limits competition and likely contributes to higher prices for Medicare and reduced access to treatment.

Under current law, a buyer can acquire an existing licensed facility and continue operations with self-referral arrangements that are unavailable to new entrants. The law does not permit creation of new POH licenses.

Workers' Compensation Revenue Model

Out-of-Network Reimbursement Challenges.

Most of Dynacq's revenues came from workers' compensation insurance and commercial insurers on an out-of-network basis. This business model exposed the company to complex and protracted disputes over payment.

The Texas workers' compensation system operates through managed care networks where employees who live in the service area must use doctors and hospitals in the network for care related to work injury. Balance billing of injured employees is not permitted in the Texas system. Reimbursement for services not provided through a workers' compensation health care network is determined by Division of Workers' Compensation fee guidelines.

Two Decades of Stop-Loss Litigation.

The Debtors have been engaged in stop-loss litigation for over 20 years concerning reimbursement for workers' compensation hospital admissions. The litigation involves the former Texas inpatient hospital fee guideline known as 28 TEX. ADMIN. CODE § 134.401, which governed reimbursement for inpatient services in acute care hospitals from August 1997.

Under the old rule, when a hospital's total audited bill exceeded $40,000, the Division's Stop-Loss Exception applied, and the hospital was reimbursed at 75% of its total audited bill. The regulation applied to services related to admissions prior to March 1, 2008. Disputes over whether specific charges qualified for stop-loss reimbursement, and the correct calculation of the 75% amount, generated years of administrative proceedings and litigation.

The Division of Workers' Compensation provides dispute resolution mechanisms for payment disagreements, with contested case hearings before the State Office of Administrative Hearings available for amounts greater than $2,000.

Path to Bankruptcy

Vista Hospital of Dallas closed in 2011. The state had investigated Dynacq for kickback allegations in 2004, and Vista Hospital in Garland was later described as a precursor to Forest Park Medical Center. Not long before closing, Dynacq sued Forest Park's founders, claiming they were responsible for Vista's demise.

2025 Events Preceding the Filing.

The filing followed two events in 2025:

Surgical Group Departure. In Spring 2025, a large surgical group left the Pasadena Facility and entered into an arrangement with a different venue.

Copper Theft Vandalism. The Pasadena Facility was vandalized when thieves stole the copper wiring, causing the facility to lose power. Houston has seen a 17% increase in the number of cable lines cut by thieves looking for copper, driven by a 500% surge in copper prices.

The DIP financing is intended to fund repairs from the copper theft vandalism and support operations while the Debtors seek reimbursements from insurance.

Healthcare Industry Headwinds.

Dynacq's case occurred during a period of elevated healthcare bankruptcies. The year 2024 saw the second-highest level of healthcare bankruptcies in six years, with 57 filings. While hospital sector bankruptcies declined from 12 in 2023 to 5 in 2024, physician practice bankruptcies reached their highest level in six years with 10 filings.

Total hospital expenses grew by 5.1% in 2024, higher than the overall inflation rate of 2.9%. Labor makes up the largest portion of hospitals' expenses at 56%, and workforce shortages have forced hospitals to offer competitive wages to recruit and retain staff.

The American Hospital Association reports that Medicare reimbursed just 83 cents for every dollar hospitals spent caring for patients in 2023. From 2022 to 2024, general inflation rose by 14.1%, while Medicare inpatient payment rates increased by only 5.1%. Practices of certain Medicare Advantage plans, including increased delays, denials, and underpayments, are exacerbating financial burdens.

Texas hospitals face particular challenges. According to the Texas Hospital Association, half the facilities in the state are operating in the red, facing below-cost reimbursement, inflationary pressures, higher drug costs, workforce shortages, and sicker patients.

S&P noted negative outlooks for not-for-profit hospitals are at their highest in over a decade, affecting 24% of the sector. Fitch reported a credit downgrade-to-upgrade ratio of 3:1. Smaller hospitals with annual revenues under $500 million face the greatest struggles.

Section 363 Sale Process

DIP Financing Structure.

The court approved $5 million in debtor-in-possession financing from Caliburn Capital LLC under a DIP Financing Motion filed the day after the petition.

The Interim DIP Order authorized $2 million on December 16, 2025. The Final DIP Order entered on January 6, 2026, authorized the remaining $3 million after the Texas Taxing Authorities' objection was resolved consensually by preserving their statutory tax lien priority.

Sale Timeline and Bidding Procedures.

The Debtors are pursuing a 363 Sale of substantially all assets, including the Pasadena surgical hospital and the POH license. Section 363 of the U.S. Bankruptcy Code allows a debtor to use, sell, or lease its property outside the ordinary course of business, with the benefit that a buyer can acquire assets free and clear of virtually all liens, claims, and interests.

The Bidding Procedures Order entered on January 13, 2026, established the sale timeline and protections. The sale procedures include protections for a potential stalking horse bidder who establishes a floor price: a breakup fee of up to 3% of the cash purchase price and expense reimbursement of up to $150,000. In healthcare bankruptcy sales, a patient care ombudsperson protects patient interests, while buyers benefit from acquiring assets free and clear of liens, claims, and interests.

First Day Relief and Operations

The court granted first day relief based on declarations filed by Dr. Eric K. Chan.

Authorization Amounts.

Professional Retentions and Key Parties

Retained Professionals.

Stout is a global advisory firm founded in 1991, specializing in corporate finance, valuation, restructuring, and dispute advisory services.

Notable Parties in Interest.

Competitive Landscape

Pasadena Healthcare Market.

The Pasadena, Texas healthcare market includes HCA Houston Healthcare Southeast, a 350-bed general medical and surgical facility that has been the leading provider in the area for more than 50 years.

HCA Houston Healthcare Southeast, with over 1,500 colleagues and 250 physicians, operates as part of HCA Houston Healthcare's 13-hospital network serving over one million patients a year in the greater Houston area. The facility includes a Level III Trauma Center, accredited Chest Pain Center, and Level III NICU.

Frequently Asked Questions

What is Dynacq Healthcare?

Dynacq Healthcare, Inc. is a 33-year-old holding company that owns and operates Surgery Specialty Hospitals of America, a 37-bed physician-owned surgical hospital in Pasadena, Texas (southeast Houston). The company specializes in orthopedic, bariatric, neuro-spine, and general surgeries, with revenues primarily from workers' compensation and out-of-network commercial insurance.

Why did Dynacq file for bankruptcy?

Two events in 2025 preceded the filing: a major surgical group departed the facility for a competing venue, and vandals stole copper wiring from the hospital, causing the facility to lose power and requiring repairs. Additionally, the company has been engaged in stop-loss reimbursement litigation for over 20 years.

What is a physician-owned hospital (POH)?

A POH is a hospital in which physicians hold ownership or investment interests. POHs can refer patients internally from affiliated physician practices. Since 2010, the Affordable Care Act has banned the creation of new POHs and frozen expansion of existing facilities, leaving approximately 250 remaining POH licenses that cannot be replicated.

What will happen to Surgery Specialty Hospitals of America?

The Debtors are pursuing a 363 Sale of substantially all assets, with a bid deadline of February 10, 2026, and auction scheduled for February 18, 2026.

How much DIP financing was approved?

The court approved $5 million in debtor-in-possession financing from Caliburn Capital LLC, with $2 million available immediately under an interim order and an additional $3 million following the final hearing scheduled for January 5, 2026. The financing carries a 15% annual interest rate and 5% commitment fee.

What caused the copper theft at the hospital?

The Houston area has experienced a 17% increase in cable line theft, driven by a 500% surge in copper prices. Thieves stripped copper wiring from the Pasadena Facility, causing the hospital to lose power. Similar copper theft incidents have affected medical clinics in San Antonio with hundreds of thousands of dollars in damage. The DIP financing is intended to fund repairs and support insurance recovery efforts.

Who founded Dynacq Healthcare?

Chiu Moon Chan founded Dynacq in February 1992 and led the company as President, CEO, and Chairman for 20 years. Under his leadership, the company went public and earned national recognition as one of the 200 fastest growing small businesses in the United States. Chan died on May 17, 2012, at age 59, after being incapacitated by an unexpected illness since January 2012. Dr. Eric K. Chan assumed leadership that same month.

What happened to Dynacq's Dallas facility?

Dynacq operated Vista Hospital of Dallas in Garland, Texas, which opened in late November 2003 but closed in 2011. The state investigated Dynacq for kickback allegations in 2004, and the company later sued Forest Park Medical Center's founders, claiming they were responsible for Vista's demise.

Why does the POH license matter in the sale?

The Affordable Care Act banned new physician-owned hospitals after 2010 and froze expansion of existing facilities. Only approximately 250 POHs remain nationwide, and no new licenses can be created under current law. A buyer acquiring Dynacq's POH license can continue self-referral arrangements that are unavailable to new market entrants under current law. Studies show POHs often deliver care at lower cost with equal or better outcomes.

How does this case fit into broader healthcare bankruptcy trends?

The year 2024 saw the second-highest level of healthcare bankruptcies in six years, with 57 filings. Hospital expenses are growing faster than inflation (5.1% vs. 2.9%), Medicare reimburses only 83 cents per dollar of care costs, and half of Texas hospitals operate in the red. Smaller hospitals under $500 million in revenue face the greatest struggles.

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