Jackson Hospital & Clinic Inc. has returned to U.S. Bankruptcy Court with a second lawsuit against Blue Cross and Blue Shield of Alabama, claiming the insurer improperly withheld roughly $1.4 million following the hospital's Chapter 11 filing, in violation of federal bankruptcy protections.
This follows the hospital's December 2025 complaint, in which it sought more than $250 million over long-standing reimbursement disputes. Together, the two lawsuits highlight ongoing tensions between Jackson and its largest payer.
The 344-bed Montgomery hospital filed for Chapter 11 on Feb. 4, 2025, citing rising labor costs, stagnant reimbursement rates, a challenging payer mix and uncompensated care burdens. Court records show the hospital defaulted on roughly $60 million in bond debt in 2024 and operated with limited cash reserves, prompting debtor-in-possession financing to maintain operations.
In the February complaint, Jackson Hospital alleges Blue Cross violated the automatic stay, which bars creditors from collecting debts or taking other actions without court approval once a bankruptcy case is filed. The hospital is seeking recovery of the withheld funds, sanctions and a court order preventing future unauthorized actions. Jackson contends the withheld funds were part of ongoing reimbursement obligations and that Blue Cross acted without consent, further straining the hospital's finances and jeopardizing operations.
The dispute has also played out publicly. In February, Jackson Hospital published an op-ed claiming long-standing reimbursement disparities drained its finances and that Blue Cross's dominant market position contributed to cash-flow problems, paying the hospital significantly lower rates than other area facilities.
Blue Cross Director Sophie Martin responded by calling the allegations misleading. She said the insurer had voluntarily provided a $1.5 million cash advance and that any recoupment was contractually permitted and done with the hospital's knowledge.
Alabama Governor Kay Ivey has pledged $40 million in future capital funding for Jackson Hospital, stating the funds "would only be issued once Jackson Hospital emerges out of bankruptcy."
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