North Star Health Alliance: Nonprofit Hospital System Files Chapter 11 in Northern New York

North Star Health Alliance, Inc. and three operating affiliates — Carthage Area Hospital, Claxton-Hepburn Medical Center, and Meadowbrook Terrace — filed chapter 11 in the Northern District of New York on February 10, 2026. The case covers a nonprofit health system employing approximately 1,600 people across two community hospitals, an inpatient psychiatric facility, and an assisted living campus in New York's North Country. Cash collateral access is the central liquidity mechanism — the debtors have no standalone DIP financing facility — and Northern Credit Union's objection to the initial cash collateral request shaped the adequate protection framework that now governs the case. Three interim cash collateral orders were entered in the first 16 days, with the third interim order extending authorization through March 4, 2026. The filing followed months of state-funding friction, including emergency payroll assistance from the New York State Department of Health through the Vital Access Provider Assurance Program (VAPAP) for roughly 1,700 employees in late 2025. NNY360 reported combined liabilities exceeding $100 million across the three operating affiliates.

Debtor(s)	North Star Health Alliance, Inc.
Court	New York Northern
Case Number	26-60099
Petition Date	February 10, 2026
Judge	Wendy A. Kinsella
Cash Collateral	Third interim order entered February 26, 2026; authorized through March 4; further hearing March 4
Claims Agent	Omni Agent Solutions, Inc

System Profile and Operating Footprint

North Star Health Alliance was established in September 1993 as the not-for-profit umbrella organization coordinating governance, strategy, and shared services — finance, HR, IT, compliance, and revenue cycle — for its operating affiliates under what the cash collateral motion describes as a Transformation Plan. The system serves communities across the North Country and the nearby Fort Drum military installation, providing primary care, specialty care, behavioral health, and assisted living services across a rural service area with limited alternative providers. WWNY reported that state and federal lawmakers including Congresswoman Stefanik and State Senator Mark Walczyk raised concerns about the funding delay's threat to approximately 1,700 healthcare workers in the region. North Country Public Radio noted that the system is the primary healthcare provider for communities in Jefferson and St. Lawrence counties, where the nearest alternative hospitals are more than an hour away for many residents.

Carthage Area Hospital was established in November 1921 and operates a 25-bed Critical Access Hospital in Carthage, New York, along with the Claxton Campus, a second 25-bed acute-care campus operating under a shared operating certificate. The critical access designation — a federal program designed to sustain rural hospital operations through the Medicare Rural Hospital Flexibility Program — entitles the facility to cost-based Medicare reimbursement rather than the standard prospective payment model. The transition to critical access status created temporary reimbursement timing gaps that multiple outlets identified as a contributing factor to the system's liquidity crisis. Spectrum News reported that the delayed payments during the transition compounded existing financial pressures on the system.

Claxton-Hepburn Medical Center now operates exclusively as a standalone Article 31 Inpatient Psychiatric Hospital, providing acute inpatient behavioral health services with 28 adult beds and 12 child/adolescent beds — the region's only acute inpatient unit for children and adolescents. The closure or disruption of that facility would leave the North Country without dedicated inpatient psychiatric capacity for minors, a concern raised by Spectrum News and other outlets in filing-day coverage. Claxton-Hepburn previously operated as a full-service community hospital before its role was restructured under the North Star system to focus exclusively on behavioral health — a shift that contributed to the operating cost and reimbursement transitions cited as factors in the filing.

Meadowbrook Terrace was established in December 2011 and operates a 60-bed assisted living facility with 58 assisted living program (ALP) beds and 2 adult home beds, serving elderly and medically fragile patients who require a level of care between independent living and skilled nursing placement. North Star, the parent entity, does not operate clinical facilities directly but coordinates shared services, strategic planning, and administrative functions across the system under its governance umbrella.

The system employs approximately 1,600 people across the four entities, spanning clinical, administrative, and support roles at the two hospitals, the psychiatric facility, and the assisted living campus. Biweekly payroll runs approximately $5.5 million based on state-funded payroll cycles documented in late 2025 coverage. Becker's Hospital Review reported that the system had received state assistance to meet payroll obligations immediately before filing. WWNY reported that the system was $2.5 million short of the next payroll at the time of the first hearing. In the months before the filing, the system cut more than 100 positions and permanently closed at least two clinics — the Morristown Health Clinic and the Hammond Area Health Center. The CEO resigned in mid-January 2026, and Rob Bloom was later appointed Chief Restructuring Officer, filing a declaration in connection with the critical vendor motion on February 17. Assemblyman Gray noted that three weeks passed between the CEO's departure and the filing without DOH finalizing a management services agreement.

Key professionals. Barclay Damon LLP serves as debtors' counsel, with Janice B. Grubin, Jeffrey A. Dove, and Ilan Markus as named attorneys. The firm received a $1.22 million retainer for the bankruptcy cases, funded by the Claxton-Hepburn Medical Center Foundation, a related nonprofit entity. Pre-petition payments to Barclay Damon totaled $1,562,000, including $110,048 for pre-petition legal fees and $75,000 forwarded to proposed conflicts counsel. Robert J. Keach, Roger A. Clement Jr., Jennifer Novo, and Nathaniel R. Hull were admitted pro hac vice on the debtors' side.

Cash Collateral and Creditor Dynamics

Cash collateral is the sole near-term liquidity source — the docket does not include a standalone DIP financing motion. The debtors filed a motion on February 11, 2026, seeking interim and final authority to use cash collateral generated by operations, describing the authority as necessary to fund daily healthcare operations, meet payroll, and pay vendors to preserve estate value and avoid facility closures. The motion attached a 13-week cash flow budget as Exhibit C, with weekly line items for receipts, salaries and wages, payroll taxes, fringe benefits, leased employees, physician fees, operating expenses, and bankruptcy professional fees. Separate budgets cover each debtor entity. Carthage Area Hospital's weekly receipts were projected in the range of $2.48 million to $2.57 million for the initial three-week period, reflecting the facility's role as the system's primary revenue generator. The court entered the first interim order two days later on February 13, providing limited authorization while the parties continued negotiations on adequate protection.

Northern Credit Union's objection. Northern Credit Union filed an objection on February 11, asserting that the proposed adequate protection was insufficient. NCU holds a line of credit with an original maximum principal of $2 million, temporarily increased to $3.1 million through a Temporary Loan/Amended Line of Credit. Its security interest attaches to amounts deposited in the operating accounts of Carthage Hospital and Claxton-Hepburn held at NCU. North Country Now reported that NCU stated it received no advance notice of the bankruptcy filings before they were submitted to the court. In the objection, NCU argued that the debtors' proposed rollover liens were "illusory" because projected cash burn at Carthage ($5.37 million) and Claxton ($412,898) meant no new cash would be available for those liens to attach to. NCU also noted that at least six other lenders claim interests in the debtors' cash, with no delineation of collateral sources, allocation, or relative priorities in the budget. The objection identified Exhibit B to the cash collateral motion as listing additional secured parties but argued the debtors had not provided a framework for allocating cash among competing secured interests. NCU demanded superpriority claims and additional adequate protection liens under Section 364(c).

Interim order sequence. The court entered interim orders on a weekly cadence, reflecting the tension between the system's need for immediate cash access and NCU's demand for adequate protection. WWNY reported that Judge Kinsella initially declined to authorize cash collateral use to pay workers at the February 12 first-day hearing, reflecting the limited record available on two days' notice. North Country Now later reported that the court permitted continued employee pay through a limited window with protections for NCU, including priority repayment provisions. The second interim order was entered on February 18, extending authorization through February 25 and incorporating additional adequate protection terms negotiated between the debtors and NCU during the intervening week.

The third interim order, entered February 26, extended authorization through March 4. The order granted NCU a superpriority claim under Sections 363 and 507(b), a first priority perfected security interest and lien on all unencumbered assets, and a junior perfected security interest and lien on all encumbered assets. All Cash Collateral Secured Creditors received roll-over security interests on post-petition acquired assets. The order imposed a 110% per-line-item budget variance cap and barred the debtors from using cash collateral to pay prepetition claims absent further court order or NCU consent. The debtors were required to file an updated 13-week projection by March 3, covering through the week ending May 22, plus a reconciliation report. A 60-day challenge period from the petition date preserves the right of the U.S. Trustee and any future unsecured creditors' committee to investigate NCU's claims and liens. The debtors may not use cash collateral to fund any challenge to NCU's liens or claims. Updated 13-week cash flow projections were filed February 23 as an exhibit to the original motion, providing the court with revised revenue and expense assumptions across all four debtor entities for the period ahead.

Critical Vendor and Employee Relief

The debtors filed a critical vendor motion on February 13 seeking authority to pay prepetition obligations owed to vendors, suppliers, and service providers deemed essential to maintaining the system's going-concern value and continued healthcare operations. The estimated total prepetition critical vendor exposure is $29.2 million, broken down by entity as follows:

Carthage Area Hospital	$18,095,392
Claxton-Hepburn Medical Center	$11,109,207
Meadowbrook Terrace	$18,069
North Star (parent)	$0

The motion identifies criticality factors including geographic location (rural North Country), sole-source status, and vendor familiarity with the debtors' systems, regulatory structures, and operational requirements. The critical vendor motion emphasized that many of the debtors' vendors and suppliers are specialized healthcare providers with knowledge of the system's particular patient populations and regulatory compliance requirements — factors that make substitution difficult or impossible in a rural service area. Vendors receiving prepetition payments must agree to continue supply on terms at least as favorable as those in effect before the petition date, or on other mutually acceptable terms. The U.S. Trustee filed an objection on February 17 challenging the scope of the requested critical vendor authority. CRO Rob Bloom filed a supporting declaration the same day in connection with the motion. The critical vendor motion was listed on the second-day agenda for the February 18 hearing alongside the cash collateral continuation, employee wages, and claims agent matters.

Employee wages and benefits. The court entered an interim order on February 19 authorizing payment of prepetition employee wages, salaries, business expenses, contributions to employee benefit plans, payroll deductions and withholdings, and related processing costs. Payments are capped at $17,150 per employee under Section 507(a)(4) and are subject to any limitations in the applicable cash collateral order. For a system with approximately 1,600 employees and biweekly payroll of $5.5 million, the employee relief motion addressed payroll obligations that had been a central concern since the pre-petition period, when the state funded two emergency payroll cycles in December 2025. The motion was listed in the second-day agenda and heard on February 18 alongside the cash collateral, critical vendor, and claims agent matters. The order to shorten time for the second-day motions was entered February 13 to ensure a February 18 hearing date. The debtors sought shortened notice to avoid a gap between the first interim cash collateral authorization and the resolution of the employee wages and other first-week motions.

Prepetition Financial Distress and State Funding Dispute

The filing followed a prolonged dispute over the timing and documentation of state support for the health system's transition. North Star's press release described the chapter 11 petition as a "difficult but necessary action" to stabilize finances and ensure continuity of care. Local and trade reporting attribute financial distress to a combination of reimbursement timing delays during transitions to critical access hospital status, increased operating costs, legacy revenue-collection challenges, and multiple cyberattacks — including the February 2024 Change Healthcare breach, which disrupted claims processing across the system. NNY360 reported combined liabilities exceeding $100 million across the three operating affiliates. The Malone Telegram reported the same liability figure and noted that the state had suspended VAPAP payments pending documentation of how prior allocations were spent. Assemblyman Scott Gray's office described approximately $120 million in unpaid charges and $90 million in accounts payable stemming from a DOH-mandated restructuring.

VAPAP and state funding timeline. The Vital Access Provider Assurance Program (VAPAP) is a New York State DOH program designed to support financially distressed healthcare facilities that serve as essential access points. The DOH paused VAPAP grants to North Star in late 2025, citing the system's failure to provide documentation on how prior allocations were spent. WWNY reported in December 2025 that the state sought "basic information" before releasing additional funding. Then-CEO Rich Duvall responded that while Governor Hochul had provided $142 million since 2024, only $57.6 million of a committed $84 million in transformational funding had been disbursed, leaving a $26 million gap. The $142 million figure includes both VAPAP grants and other state funding streams directed to the system during its multi-year transition period. By late December, the state stepped in to cover two payroll cycles for roughly 1,700 employees through the VAPAP program, with biweekly payroll at approximately $5.5 million. The emergency payroll assistance came after the system indicated it could not meet its obligations without state intervention.

Political engagement. The North Star funding dispute drew attention from both federal and state officials before and after the filing. Congresswoman Elise Stefanik asserted that the state owed Medicaid funds to North Star and demanded a federal investigation into DOH administration under Governor Hochul, specifically citing the impact on North Country hospitals following what she characterized as a funding lapse. Stefanik requested that the Department of Justice investigate potential mismanagement of federal funds directed to the state health system. Assemblyman Gray called on the state to act on receivership planning after the filing, criticizing DOH for not finalizing a management services agreement in the three weeks between the CEO's resignation and the petition date. MyChamplainValley reported that the filing followed disputes over missing financial disclosures and delayed VAPAP grants. Assemblyman Ken Blankenbush emphasized that DOH should be part of the solution, not part of the problem, as the funding halt threatened healthcare access across the North Country. WWNY captured exchanges in Albany on filing day as legislators and Health Commissioner Dr. James McDonald debated responsibility — with McDonald pointing to failed leadership at the organization and difficulty obtaining financial information, and legislators arguing that DOH delays contributed to the crisis. North Country Now reported that DOH remained silent on receivership plans even as local officials called for immediate intervention.

Post-petition DOH payment. On February 17, debtors' counsel filed a letter advising the court that North Star had received $2.6 million from the Department of Health. The letter indicated the parties would address court-approval mechanics for that payment and related distributions at the February 18 hearing. The payment arrived one week after the petition, and the court-approval mechanics for distributing state funds within a cash collateral framework were discussed at the February 18 hearing. As of late February 2026, DOH had not announced any additional VAPAP disbursements beyond the $2.6 million received on February 17.

First-Month Case Timeline

The case moved on a compressed schedule from the February 10 petition date through three interim cash collateral orders. The first-day hearing on February 12 at 12:00 p.m. ET before Chief Judge Kinsella in Syracuse addressed cash collateral, joint administration, and venue transfer to the Syracuse Division. The court also entered orders on the consolidated creditor list and PII redaction motion and the schedules extension at the first-day hearing. The second-day hearing on February 18 at 10:00 a.m. ET covered the remaining first-week motions, resulting in the second interim cash collateral order, Omni retention, and employee wages relief. Attendance at hearings was available in person or by Microsoft Teams, with pre-registration required by 3:00 p.m. one business day prior per the court's procedures.

Date	Event
Feb 10	Chapter 11 petitions filed for four entities
Feb 11	Cash collateral motion; NCU objection; first-day agenda
Feb 12	First-day hearing; joint administration order; venue transfer to Syracuse
Feb 13	First interim cash collateral order; critical vendor and claims agent motions filed
Feb 17	DOH funding letter ($2.6M received); CRO Bloom declaration; U.S. Trustee critical vendor objection
Feb 18	Second-day hearing; second interim cash collateral order; Omni retention order; employee wages/benefits interim order
Feb 23	Updated 13-week cash flow projections filed
Feb 26	Third interim cash collateral order (through March 4); 341(a) meeting noticed for March 20
March 4	Further cash collateral hearing (scheduled)
March 20	341(a) meeting of creditors (scheduled)
April 10	Schedules and SOFA deadline

Stakeholder Landscape and Notable Appearances

The Pension Benefit Guaranty Corporation filed a pro hac vice motion for attorney Michael I. Baird and a notice of appearance, indicating defined benefit pension obligations at one or more debtor entities. 1199SEIU, the healthcare workers' union, entered an appearance on February 26 through attorney Jessica Isa Apter. The New York State Attorney General filed an appearance on the first business day after filing.

ARHC NCWTNNY01 filed an appearance through Lauren Kiss on February 20. LC Real Estate filed an appearance on February 26 through Merritt S. Locke. David Rosner filed a separate appearance through Heath Douglas Rosenblat on February 18.

The PBGC appearance indicates defined benefit pension obligations at one or more debtor entities. The 1199SEIU appearance indicates the presence of a collective bargaining agreement covering healthcare workers in the system. The real estate appearances — from both ARHC NCWTNNY01 and LC Real Estate — suggest facility-level lease or ownership interests that will be addressed as the case progresses. The full scope of these obligations remains undetermined until schedules are filed by the April 10 deadline.

Professionals and pro hac vice admissions. In addition to Barclay Damon LLP as debtors' counsel, the court admitted six attorneys pro hac vice on the debtors' side: Robert J. Keach, Roger A. Clement Jr., Jennifer Novo, and Nathaniel R. Hull were admitted at the February 18 hearing, followed by Frank Oswald and Minta Nester. The PBGC obtained pro hac vice admission for Michael I. Baird through a motion filed February 17 and granted at the February 18 hearing.

Schedules and the SOFA are not due until April 10, so the full liability picture — including pension obligations, executory contracts, unexpired leases, and litigation claims — remains incomplete. The 341(a) meeting is set for March 20, 2026 at 10:00 a.m. The debtors filed a motion to extend the schedules deadline on the first business day after the petition, and the court granted the extension on February 12, setting the April 10 deadline that now governs. The consolidated creditor list order entered February 18 authorized a single consolidated mailing matrix across all four debtor entities, with provisions to redact and seal personally identifiable information. The consolidation order streamlines noticing across the jointly administered cases but does not substantively consolidate the estates — each debtor entity maintains its own separate estate and creditor pool for distribution purposes.

Frequently Asked Questions

Why did North Star Health Alliance file chapter 11?

Management cited reimbursement timing delays during transitions to critical access hospital status, increased operating costs, legacy revenue-collection challenges, and cyberattacks — including the February 2024 Change Healthcare breach that disrupted claims processing across the system. The system required state-funded payroll assistance for roughly 1,700 employees in late 2025 and continued to face liquidity pressure as VAPAP grants were paused. NNY360 reported combined liabilities exceeding $100 million across the operating affiliates. The CEO resigned in mid-January 2026, and the debtors' press release described the filing as a "difficult but necessary action."

Which entities are in the filing?

The jointly administered cases include North Star Health Alliance, Inc. (parent); Carthage Area Hospital, Inc.; Claxton-Hepburn Medical Center, Inc.; and Meadowbrook Terrace, Inc. All four filed petitions on February 10, 2026 in the Northern District of New York. The cases are jointly administered under case number 26-60099, with related case numbers 26-30078, 26-30079, and 26-60100 for the individual debtor entities.

What facilities does the system operate?

Carthage operates a 25-bed Critical Access Hospital in Carthage, NY, and a second 25-bed acute-care campus. Claxton-Hepburn operates a standalone inpatient psychiatric hospital with 40 beds — 28 adult and 12 child/adolescent, the region's only such facility. Meadowbrook Terrace operates a 60-bed assisted living facility.

Did the debtors get authority to use cash collateral?

Yes. The court entered three interim orders on February 13, 18, and 26. The third interim order authorized use through March 4 with a 110% per-line-item budget cap, superpriority claims for Northern Credit Union, and replacement liens for all Cash Collateral Secured Creditors. A further hearing is scheduled for March 4.

What is Northern Credit Union's role in the case?

NCU holds a $3.1 million line of credit secured by Carthage and Claxton operating accounts. NCU objected to the initial cash collateral proposal, arguing that the debtors' proposed rollover liens were "illusory" given projected cash burn at both hospitals. The resulting negotiations produced enhanced adequate protection terms in the third interim order, including superpriority status, first-priority liens on unencumbered assets, and a 110% per-line-item budget variance cap. NCU also noted that at least six other lenders claim interests in the debtors' cash.

What is the status of state DOH funding?

The DOH paused VAPAP grants in late 2025 pending financial documentation. Then-CEO Duvall stated that while the state had provided $142 million since 2024, only $57.6 million of a committed $84 million in transformational funding had been disbursed. On February 17, debtors' counsel reported receipt of $2.6 million from DOH, with court-approval mechanics to be addressed at the next hearing.

How large is the critical vendor exposure?

The debtors estimated $29.2 million in critical vendor claims across the system, with Carthage at $18.1 million, Claxton at $11.1 million, and Meadowbrook Terrace at $18,069. The critical vendor motion cited geographic isolation, sole-source supplier status, and healthcare regulatory requirements as criticality factors. The U.S. Trustee filed an objection to the motion on February 17, and CRO Rob Bloom filed a supporting declaration the same day detailing the operational necessity of the requested vendor payments.

Are the hospitals still operating?

All four debtor entities continue to operate during the chapter 11 proceedings. The debtors' press release stated that patient care services would continue without interruption. However, the Morristown Health Clinic and Hammond Area Health Center were permanently closed around the time of the filing, and more than 100 positions were cut in the months before the petition.

What is the near-term case calendar?

A further cash collateral hearing is set for March 4. The 341(a) meeting is scheduled for March 20 at 10:00 a.m. Schedules and the SOFA are due April 10. The debtors must also file updated 13-week cash flow projections by March 3 and a reconciliation report under the terms of the third interim cash collateral order.

Who is the claims agent for North Star Health Alliance?

Omni Agent Solutions serves as the claims and noticing agent. The court entered a retention order on February 18, 2026, appointing Omni nunc pro tunc to the petition date. Omni's services include maintaining the official claims register, administering the creditor mailing matrix, processing claim transfers, operating the case website and call center, and distributing case notifications to creditors and parties in interest. Omni's fees are treated as an administrative expense under Section 503(b)(1)(A).

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