Health Care Distress: “Disruption” Ain’t Easy

By: Laura Day DelCotto

Yes, the health care industry is being “disrupted” every single day with technology, regulatory,  and other service provider changes, all designed to improve quality and cost of patient care.    And, health care bankruptcy filings went up 38 percent nationwide between 2010-15.  We expect more to come.   Turns out, regulatory compliance and improving care is damn expensive for our health care providers, who already operate on small margins and many of which are non-profits.

Each sector of healthcare  – be it a SNF, hospital, outpatient care, nursing home, home health, etc. –  is different in how it bills and collects, and has its own challenges.   The revenue cycles and billing practicalities are key to the success in a fiscal distress situation, both within and outside of any official bankruptcy filing.   While a health care situation is different from other industries, the mantra that  “Cash is king” holds true across the board.

Emory Healthcare reported that consumer health care costs rose as a percentage of household income from 7% in 2008 to 18% in 2013, and is projected to rise to over 30% of household median income by 2020.  Baby boomers, even those who may be high net worth individuals, are hitting age 65 and moving in to Medicare coverage as opposed to private or employer-provided insurance.

Smaller providers often can no longer scale to profitability with the numerous regulatory demands in place under ACA – the old world of paper files behind the front desk is gone.  Further, the metrics needed to prove your “performance” and quality standards being required today are expensive and cumbersome to implement.  The M&A activity is also at a high point over recent years and will continue.  Rural hospitals and critical access facilities are increasingly full of empty beds, again because of treatment changes and more outpatient care.

Add all of these challenges to dealing with CMS recoupment and past year audit issues, and we are seeing more health care fiscal challenges at our Firm.  We have had several nursing homes and a home health agency within the last year.  A 363 bankruptcy sale may be a good option to consider in these trying circumstances, since a larger system/provider may come to the table in this forum when a sale outside a chapter 11 ( or chapter 9) bankruptcy setting may be more difficult to accomplish.   And dealing with CMS in a bankruptcy may create some better outcome than an out of court setting.   The issues with the look- back on liabilities associated with the provider agreement are complex and challenging even in chapter 11 situations.

Every health care provider experiencing financial distress should explore a going-concern bankruptcy sale process as one of the tools in the toolbox.


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