The Associated Press

PADUCAH, Ky. - A bankruptcy judge has denied an objection by Birchtree Healthcare over a plan to lease the facility, which is at the center of a sex scandal involving Birchtree owner Tina Conner and Gov. Paul Patton.

U.S. Bankruptcy Judge David T. Stosberg approved a plan last month for EPI Corp. of Louisville to lease Birchtree, close it, then reapply for federal and state licenses. The plan also gave EPI a purchase option.

The plan called for EPI to lease the home for $22,794 a month, which Ms. Conner complained was too low.

In an objection filed last month, Birchtree said that amount would cover payments to only one of the home's creditors - First National Bank of Clinton, the mortgage holder.

However, U.S. Bankruptcy Judge Thomas H. Fulton denied the objection last week. Birchtree filed notice Wednesday that it will appeal to U.S. District Court.

But EPI has in the meantime said it may no longer want to lease the home in light of Medicaid cuts announced last week by Mr. Patton. The state will no longer cover nursing-home residents considered "low intensity" - generally, those receiving only personal care, such as help with bathing, eating, dressing and other tasks.

That change could make it difficult for the Birchtree home to achieve high occupancy, EPI President John Snyder said Friday. "If a nursing home is going to have problems with occupancy, it's better that it never open" because care will suffer, he said.

EPI has agreed in principle to lease and manage the facility, but hasn't signed a contract. Mr. Snyder said he doesn't know if EPI will decide not to run the home, but that it's a possibility.