Hospital bankruptcies continue to skyrocket: 3 things to know

https://www.beckershospitalreview.com/finance/hospital-bankruptcies-continue-to-skyrocket-3-things-to-know.html?origin=ceoe&utm_source=ceoe

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More than 20 hospitals have filed for Chapter 11 bankruptcy since 2016, according to an Oct. 30 report from the law firm Polsinelli.

The Polsinelli-TrBK Distress Indices Report details how healthcare trends have affected the U.S. economy. Researchers determined that while the economy, specifically Chapter 11 bankruptcies across all industries and the real estate industry, have remained stable during the past several quarters, healthcare exhibited consistently high levels of distress during eight of the last 11 quarters.

To compile the report, researchers use Chapter 11 bankruptcy data as a proxy for measuring financial distress in the overall U.S. economy and breakdowns of distress specifically in real estate and healthcare.

Here are three things to know from the report:

1. Southwestern states have been hit the hardest by healthcare bankruptcy filings. For example, increased competition, insurance payer pressure and overexpansion contributed to Neighbors Legacy Holdings in Houston, a freestanding emergency facility operator with more than 30 facilities, to file for bankruptcy earlier this year.

2. While general Chapter 11 bankruptcies have decreased 53 percent from the 2010 benchmark, healthcare industry distress increased by 305 percent during the same period.

3. The law firm’s Health Care Services Distress Research Index was 405 for the third quarter of 2018, an increase of 65 points from the second quarter of 2018. The third-quarter figures represent a year-over-year increase of 82 points.

To learn more, click here.

California health system’s bankruptcy challenged by employee union

https://www.beckershospitalreview.com/finance/california-health-system-s-bankruptcy-challenged-by-employee-union.html

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El Segundo, Calif.-based Verity Health System, the nonprofit operator of six hospitals, filed for bankruptcy protection Aug. 31. The bankruptcy proceedings are being challenged by SEIU-UHW, a union representing 2,000 workers at Verity Health hospitals.

The hospitals were originally owned by Los Altos, Calif.-based Daughters of Charity Health System. The financially troubled system began seeking a buyer for the hospitals in 2014, and Integrity Healthcare, a company created by BlueMountain Capital Managementtook over the facilities in 2015 and renamed them Verity Health System. Billionaire Patrick Soon-Shiong, MD, bought Integrity in July 2017, according to the Los Angeles Times.

Dave Regan, president of SEIU-UHW, expressed concern about Verity entering bankruptcy.

“When Verity bought these hospitals from Daughters of Charity four years ago, they made promises to these communities that they would not lose access to the care they needed,” he said in a press release. “Now it looks like Verity’s billionaire owner wants to go back on those commitments.”

In the bankruptcy filing, Verity seeks court permission to sell the hospitals from any liens and encumbrances. SEIU-UHW contends this shows Verity’s “intent to nullify their obligations both to their union collective bargaining agreements and the conditions of sale imposed by former Attorney General Kamala Harris when Verity purchased the hospitals.”

By challenging the bankruptcy filing, SEIU-UHW intends to ensure the hospitals are kept open and continue to meet pension obligations and maintain current services and levels of employment.

 

 

California’s Verity system files bankruptcy, faces $175M in annual losses

https://www.healthcaredive.com/news/californias-verity-system-files-bankruptcy-faces-175m-in-annual-losses/531524/

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Dive Brief:

California-based Verity Health System filed for Chapter 11 bankruptcy late last week. The nonprofit operator blamed ongoing losses and debt, along with aging infrastructure and an inability to renegotiate contracts, for its tenuous operating position. The system secured debtor financing of up to $185 million, and plans to keep its six hospitals open during the bankruptcy proceedings.

The Friday filing follows a statement in July noting that Verity was exploring different avenues to pull the system out of its slump, including the potential sale of some or all of its hospitals and other facilities.

Last year, billionaire investor and entrepreneur Patrick Soon-Shiong purchased Integrity Healthcare, the company that manages Verity, with the intent to revitalize the system and upgrade its technology while continuing to serve lower-income populations. Yet, “after years of investment to assist in improving cash flow and operations, Verity’s losses continue to amount to approximately $175 million annually on a cash flow basis,” and more than $1 billion overall, Verity CEO Richard Adcock said in the company’s bankruptcy announcement.

Dive Insight:

The company has been struggling for a while and can “no longer swim against the tide” of its operating reality, which includes a legacy burden of more than a billion dollars of bond debt and unfunded pension liabilities, an inability to renegotiate burdensome contracts, the continuing need for significant capital expenditures for seismic obligations and aging infrastructure,” Adcock said.

Verity’s problems come in an caustic environment for U.S. hospitals, many of which are suffering from costs that are rising faster than revenues. Credit rating agency Moody’s warned just last week that the nonprofit provider industry was on an “unsustainable path.”

A recent MorganStanley analysis found that about 18% of American hospitals were at risk of closure or performing weakly, a high figure in historical context. Only 2.5% of hospitals closed over the past five years, yet Moody’s estimated 8% of the 6,000 hospitals studied were apt to close their doors. Additionally, more nonprofit hospitals suffered credit downgrades in 2017, and Moody’s revised its outlook for the hospital sector from stable to negative.

But it’s not only industry pressure that’s causing Verity to fold. Another burden is the management of Soon-Shiong, who’s been hit with backlash for the way he runs his businesses and methods.

The South Africa-born surgeon and investor purchased the hospitals in July 2017, following a 2015 acquisition by New York hedge fund BlueMountain Capital Management. The system had struggled financially for years and needed the influx of cash both buys gave it.

“There’s going to be a huge capital need,” Soon-Shiong said at the time. “There’s been little investment because these hospitals could not afford it.” He said he planned to bring in new equipment and technology, along with expanded oncology, transplant, cardiology and orthopaedic services. Through his company NantWorks, Soon-Shiong funneled more than $300 million into the system within the year, but Verity’s losses continued to mount.

At the time of the acquisition, Soon-Shiong, who has founded and sold multiple biotech companies and now owns a stake in the Los Angeles Times and L.A. Lakers, heralded the charity work done by the hospital, but said the restructuring was “inevitable” due to years of underinvestment.
Touted plans to revitalize the flagging hospital system didn’t pan out, and some of Soon-Shiong’s critics say it was intentional.

“It has become crystal clear by the bankruptcy announcement that he virtually had no intention of keeping these hospitals open and to continue to serve the poor,” San Mateo County Supervisor David Canepa told news outlets following the announcement.

Labor unions are similarly displeased. SEIU-UHW representative David Miller reportedly said “there were other paths out of this” and that it’s a “very destructive approach,” as the bankruptcy filing could put employee pensions at risk.

But in the press release, Adcock said the bankruptcy filing was the best thing for all involved, and told Reuters that the 1,650-bed, 6,000-employee company has already received interest from more than 100 parties. Potential suitors include large national operators. Any sales will now be supervised by the bankruptcy court and approved by regulators

 

 

6-hospital Verity Health files for bankruptcy

https://www.beckershospitalreview.com/finance/6-hospital-verity-health-files-for-bankruptcy.html

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El Segundo, Calif.-based Verity Health, which operates six hospitals in Northern and Southern California and maintains ties to billionaire former surgeon Patrick Soon-Shiong, MD, filed for bankruptcy Aug. 31, Reuters reports.

Verity Health CEO Richard Adcock told Reuters he expects the system to remain in bankruptcy protection for at least a few years as it restructures and continues working with potential buyers.

The bankruptcy announcement comes on the heels of several deals that left the system with more than $1 billion in pension liabilities and bond debt. Verity Health reportedly secured a $185 million loan to remain operational.

Mr. Adcock added the system has been losing nearly $175 million per year on a cash flow basis.

In July, Verity Health revealed it is examining all strategic options, including a sale, of some or all of its hospitals. Mr. Adcock told Reuters the system has received a number of offers, including from several large national hospital operators.

Dr. Soon-Shiong, who has founded and sold several biotech companies and recently purchased the Los Angeles Times and other newspapers for $500 million, acquired Verity Health’s management company in 2017. At the time, he said his goal was to revitalize the health system, which has come to employ 6,000-plus people as of 2017.

Mr. Adcock said the health system is re-examining all of its contracts, including the management deal with Dr. Soon-Shiong, Reuters reports.

 

6 latest hospital bankruptcies

https://www.beckershospitalreview.com/finance/6-latest-hospital-bankruptcies-082018.html

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From reimbursement landscape challenges to dwindling inpatient volumes, many factors lead hospitals to file for bankruptcy.

Here are six hospitals that have filed for bankruptcy protection since Jan. 1:

1. Rockdale, Texas-based Little River Healthcare, its parent company and several of its affiliated entities entered Chapter 11 bankruptcy July 24. One of the hospitals included in the bankruptcy filing, Crockett, Texas-based Timberlands Hospital, closed in 2017.

2Florence (Ariz.) Hospital at Anthem entered Chapter 11 bankruptcy in late May after it failed to contest an involuntary bankruptcy petition from creditors within the required 21-day timeline.

3. Gilbert (Ariz.) Hospital, which is affiliated with Florence Hospital at Anthem, entered Chapter 11 bankruptcy May 24.

4. The Miami Medical Center, a 67-bed hospital that suspended services in October 2017, filed for Chapter 11 bankruptcy protection March 9. The hospital was sold in auction in late June.

5. Iron County Medical Center, a critical access hospital in Pilot Knob, Mo., filed for Chapter 9 bankruptcy Feb. 21. The hospital is owned by the Iron County Hospital District.

6. Surprise Valley Health Care District, which operates 26-bed Surprise Valley Hospital in Cedarville, Calif., filed for Chapter 9 bankruptcy Jan. 4.

 

‘No profit, no mission’ — Why this CEO believes every healthcare leader needs a strong understanding of finance

https://www.beckershospitalreview.com/hospital-management-administration/no-profit-no-mission-why-this-ceo-believes-every-healthcare-leader-needs-a-strong-understanding-of-finance.html

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In this special Speaker Series, Becker’s Healthcare caught up with Mark R. Anderson, CEO of AC Group, a healthcare technology and advisory research firm based in Montgomery, Texas.

Mr. Anderson will speak on a panel at Becker’s Hospital Review 7th Annual CEO + CFO Roundtable titled “The CEO paradox: Can you really have volume and value?” at 12:00 p.m. on Monday, Nov. 12. Learn more about the event and register to attend in Chicago.

Question: What keeps you excited and motivated to come to work each day?

Mark Anderson: The knowledge that we are finally moving away from fee-for-service billing to value-based reimbursement. For example, at AC Group, we have been able to cut medical costs for diabetic patients by 38 percent just by tracking blood sugar levels at home. Pay for results — don’t pay for just seeing the patient.

Q: What major challenges, financial or otherwise, are affecting hospitals in the markets you serve? How is your hospital responding?

MA: With hospital bankruptcies on the rise, we need to change how we deliver cost effective care and how we are paid. Because of high deductible health plans, the patient portion of the bill has increased from 9.4 percent in 2019 to 26.9 percent in 2017. How do we collect from the patient? How can we share clinical information about the patient with all providers without hurting our financial position?

Q: What initially piqued your interest in healthcare?

MA: It was my high school graduation present from my father. I wanted a trip to Hawaii and all I got was a letter stating, “Congratulations for finishing in the top 4 percent of your high school class. For your reward, you start work on Monday as the statistician for the hospital CEO.” Forty-five years and 250 hospitals later, I am still in hospital executive management.

Q: What is one of the most interesting healthcare industry changes you’ve observed in recent years?

MA: To name a few: Moving to electronic billing in 1985, moving from spending 2.1 percent on IT in 2005 to over 6.5 percent today (was it worth it?), forcing physicians to become data entry clerks so we can maximize coding with very little improvement in “health,” and moving to value-based reimbursement from fee-for-service so we are finally paid on quality, outcomes and our ability to lower costs through care coordination and remote patient monitoring. The four walls of the hospital are not the only care delivery system. Ninety-five percent of healthcare is delivered in the home.

Q: What is one piece of professional advice you would give to your younger self?

MA: Don’t enter the healthcare market without a strong financial knowledge base. Healthcare is a business. As the nuns told me back in 1976, no profit — no mission to help the poor and disadvantaged.

 

 

 

Hospital Distress to Grow If Congress Closes Door to Muni Market

https://www.bloomberg.com/news/articles/2017-12-08/hospital-distress-to-grow-if-congress-closes-door-to-muni-market

  • Small, lower-rated facilites could see costs rise 1-2 percent
  • At least 26 non-profit hospitals already in default, distress

As Congress moves to assemble the final version of its tax plan, projects like Spooner, Wisconsin’s 20-bed hospital hang in the balance.

The rural community, about 110 miles (177 kilometers) northeast of Minneapolis, sold tax-exempt bonds to build the $26 million facility it opened last May. The hospital’s chief executive officer said that if its access to such low cost financing had been cut off it would have paid over $6 million more in interest.

That may soon be an expense that other hospitals across the country will have to shoulder. The House’s tax legislation revokes non-profit hospitals’ ability to raise money in the municipal market, where investors are willing to accept lower interest rates because the income is exempt from federal taxes. That’s threatening to saddle health-care providers with higher borrowing costs at a time when their finances are already under pressure.

“Should tax-exempt financing not be available in the future, it may really harm our ability to build affordable senior housing and assisting living facilities,” said Michael Schafer, Spooner Health’s CEO.

For small, rural hospitals across the country, labor, drug, and technology costs are increasing faster than the revenue and patients’ unpaid debts are on the rise. Higher financing costs would be one more challenge.

David Hammer, head of municipal bond portfolio management for Pacific Investment Management Co., said the loss of the tax-exemption could raise borrowing costs by 1 to 2 percentage points at small facilities with a BBB rating or below. That “could have a meaningful impact on their balance sheets,” he said.

At least 26 non-profit hospitals are already either in default or distress, meaning they’ve notified bondholders of financial troubles that make bankruptcy more likely, according to data compiled by Bloomberg. That includes falling short of financial terms set by their debt agreements and having too little cash on hand.

Many of them are based in rural communities where the populations tend to be “older, poorer and sicker,” according to Margaret Elehwany, the vice president of government affairs and policy at the National Rural Health Association. She estimates that about 44 percent of rural hospitals operate at a loss. There have been at least seven municipal bankruptcy filings by hospitals since last year, the most of any municipal sector excluding Puerto Rico.

The risk that Congress will prevent hospitals from accessing the municipal market worries Dennis Reilly, the executive director of the Wisconsin Health & Educational Facilities Authority, an agency that issues debt for non-profits such as Spooner Health.

“All of us in the industry were completely blindsided by the House proposal,” Reilly said in an interview from Washington, where he was meeting with members of Congress about the proposed bill.

“Without tax-exempt financing, not-for-profits across the country will have increased borrowing costs of 25 to 35 percent because they’ll have to access the taxable market,” he said. “For many of the rural providers like Spooner, much of their project they would not have been able to do with the higher cost of capital.”

A Rush to Beat the Clock

Hospitals are among those rushing to issue tax-exempt debt while they still can. Mercy Health, a Catholic health-care system that operates in Ohio and Kentucky, is scheduled to sell $585 million tax-exempt bonds next week. The deal, originally planned for early next year, was moved up after the release of the House proposal.

Spending more on debt would cut into the funds available for facilities, equipment and charitable outreach, like programs for opioid addiction, according to Jerome Judd, Mercy’s senior vice president and treasurer. “Things like that are impacted,” he said.

At least some members of Congress share the hospital executives’ concerns. Last month, some Republican lawmakers sent a letter to leadership pushing for the final plan to preserve the ability of hospitals and other entities, like affordable housing agencies and universities, to issue tax-exempt bonds.

“Private activity bonds finance exactly the sort of private public partnerships of which we need more of, not less,” they wrote. “These changes are incompatible with President Trump’s priority for infrastructure investment in the United States.”

It’s Tough to be Small

Some hospitals already opt to sell their bonds in the taxable municipal market to avoid disclosures and restrictions over how the proceeds are used, though they are typically larger entities that can secure advantageous rates because of the size of their deals. Patrick Luby, a municipal analyst at CreditSights, said smaller clinics with only a few million of bonds to sell would have a hard time accessing that market, which attracts corporate debt investors accustomed to big issues.

“Even what we would consider a large deal in the muni market is almost an odd lot in corporate bonds,” he said. “Very large hospital chains, large household name universities — global investors will buy those names, but they’re not going to buy a $15, $25, $50 million local hospital.”

If the House plan is enacted, hospitals “will have a really difficult time accessing the market,” he said.