Verity Health’s Deep-Pocketed Savior Failed. Here’s Why.

https://www.healthleadersmedia.com/strategy/verity-healths-deep-pocketed-savior-failed-heres-why

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An ambitious plan to save troubled Verity Health System ended in bankruptcy. Hospital CEOs should see Verity as confirming a trend.

The recent bankruptcy announcement by Verity Health System should worry CEOs and boards at hospitals all over the country that share some of the same characteristics, because they could be the next to fall, one analyst says.

The financial troubles of Verity are part of a trend in healthcare, and the health system’s experience shows that the dramatic arrival of a savior with deep pockets doesn’t guarantee organizational health and stability.

Verity operates six nonprofit hospitals in California, and citing growing losses and debts for the facilities, it filed for bankruptcy. The hospitals will remain open during the bankruptcy, Verity said.

The bankruptcy filing is a public failure for biotech billionaire Patrick Soon-Shiong, MD, a physician and entrepreneur whose privately owned umbrella company NantWorks in 2017 acquired Integrity Healthcare, the company that manages the Verity health system. Soon-Shiong said at the time that his goal was to revitalize the hospitals and improve the care they provided to mostly lower-income neighborhoods.


Though a surgeon and entrepreneur, Soon-Shiong had never operated hospitals before, as reported by STAT. The Verity system’s woes apparently were more than he could fix, with more than $1 billion of debt from bonds and unfunded pension liabilities.

The Verity CEO said at the time Soon-Shiong entered the picture that the system also needed cash to make seismic repairs to aging facilities and also needed hundreds of millions of dollars’  worth of new equipment such as imaging machines and neonatal intensive care units.

A Definite Trend

Verity’s overall experience is part of a trend in U.S. hospitals, says Ilyse Homer, JD, a partner at the Berger Singerman law firm with experience in hospital bankruptcies.

“There are hospitals all over the country that are not dissimilar in what happened to Verity—large debt, an aging infrastructure, an inability to negotiate contracts,” Homer says. “They have trouble with maintaining pensions and that is very typical in filings in other districts. There are some commonalities throughout the industry, and I can’t say I’m surprised that Verity came to this.”

Nantworks provided more than $300 million in unsecured and secured loans and investments, the Los Angeles Times reported. The money went to operational costs, pension obligations, and capital improvements, and only a third of it was secured by property.

The management company deferred most of the $60 million in management fees Verity was expected to pay over the last year.

Industry Ripe for Restructuring

Some criticism has been directed at financial decisions by Soon-Shiong’s team, such as providing millions of dollars to health IT vendor Allscripts rather than spending that money on capital improvements. Soon-Shiong has a financial stake in Allscripts. Fully implementing a new Allscripts health IT system could cost from $20 million to more than $100 million, according to estimates from different sources, as reported by POLITICO.

Even without any questions over Soon-Shiong’s strategy, saving Verity would have been a tall order for any investor, Homer says. The challenges were so great that it might have been too late to simply infuse cash and hope for the best, she says.

Once a hospital or system becomes weak in so many areas, it is hard to recover and gain strength again, Homer says.

“What happened to Verity is happening, to some extent, to a significant number of hospitals in the country. They have costs that are rising faster than revenues, and they’re being downgraded by financial analysts,” Homer says. Moody’s recently downgraded the entire hospital sector to negative, which suggests that there could be more bankruptcy in the future, she says.

“I absolutely expect to see more of this down the road,” Homer says.

Big Promises Are Tempting

The healthcare industry, in general, is in flux and the insurance industry uncertainty plays a part in that, Homer says. Struggling hospitals and systems are looking for ways to survive and the siren song of a billionaire like Soon-Shiong can be irresistible.

“I think this case shows that while you will have individuals and groups that want to come in and save or fix these hospitals, particularly nonprofits, it’s not necessarily as easy as adding a flush of cash when you have all these other issues that aren’t going away,” Homer says.

Healthcare CEOs should look at Verity for lessons in how much financial pressures can mount up, Homer says.

“My hope would be that they are looking at these issues as early as possible – renegotiating contracts, upgrading systems, ensuring pensions are funded – before they get to a crisis point,” Homer says. “Clearly this case is a reminder that this can happen, this can be the end result for your hospital system. [CEOS] need to be cautious and act on these issues before they get so far that even a huge influx of cash won’t solve their problems.”

 

 

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

 

 

Can Patrick Soon-Shiong silence his many critics?

http://medcitynews.com/2017/06/can-patrick-soon-shiong-silence-critics/?utm_source=hs_email&utm_medium=email&utm_content=52710181&_hsenc=p2ANqtz–xSW_9lwPF0HGbAGNGgwOKT_0f7zGjMd_RfqVqfjHdiA1PTx6TAi7zgKG1KDNZVWxfaN0-WLDrrkcvVZznkpoOJueU1A&_hsmi=52710181

LOS ANGELES, CA - MARCH 22: CEO of Abraxis Health Institute Patrick Soon-Shiong during a Urban Economic Forum co-hosted by White House Business Council and U.S. Small Business Administration at Loyola Marymount University on March 22, 2012 in Los Angeles, California. Topics discussed at the forum included the Obama administration's support for policies that create private sector-jobs and future entrepreneurs. (Photo by Kevork Djansezian/Getty Images)

On the phone, Patrick Soon-Shiong speaks slowly and deliberately. He clearly trusts himself, but he doesn’t trust journalists anymore.

A series of scathing articles by STAT News and Politico sent stocks in his publicly-traded companies tumbling earlier this year. On Monday, he has an opportunity to change that narrative somewhat, with the unveiling of data from human trials of his cancer vaccine at a major oncology conference.

The stories allege that despite his bold claims, Soon-Shiong’s NantWorks subsidiaries are underperforming and reliant on contracts from other companies in the group. Reporters have also claimed that one of his companies, NantHealth, has received contracts from institutions that had received donations from his nonprofit foundation — a major conflict of interest. This was not adequately disclosed prior to the massive initial public offering of NantHealth, they argue, which may violate SEC laws.

For his part, Soon-Shiong, dismisses the allegations noting that part of the motivation behind those stories was political: “They had never written about me until they saw this picture of me with Trump.”

Speaking to MedCity on Wednesday after his recent appointment to a national health IT advisory committee, Soon-Shiong detailed how the various threads of his career are converging toward a pivotal moment. A solution for healthcare is almost within reach and he’s poised to unveil what he believes is a disruptive cancer therapy – the Nant vaccine – at the annual meeting of the American Society of Clinical Oncology (ASCO) in Chicago on Monday.

This story clearly clashes with many other viewpoints in the industry.