El Segundo, Calif.-based Verity Health filed for bankruptcy in August, just 13 months after billionaire entrepreneur Patrick Soon-Shiong, MD, bought a majority stake in its management company with a promise to revitalize the health system.
Here are seven things to know about Verity Health’s financial situation.
1. The health system filed for bankruptcy Aug. 31. It secured a $185 million loan to remain operational during the bankruptcy, which CEO Richard Adcock told Reuters could last at least a few years.
2. Verity is still seeking a buyer for all or some of the hospitals. Mr. Adcock told Reuters the system has been contacted by more than 100 potential buyers since July 9, when it announced it was exploring strategic options due to nearly $500 million in long-term debt. “We are exploring a number of options to deleverage our balance sheet and address challenges our hospitals face after a decade of deferred maintenance, poor payer contracts and increasing costs,” said Mr. Adcock.
3. The system’s financial issues pre-date Dr. Soon-Shiong’s investment but have not improved since. Mr. Adcock told Reuters that Verity has been hemorrhaging $175 million per year on cash flow basis. Verity has operated at a loss for at the least the past three years. Executives had planned to break even in the 12 months ended June 2018, however, the system reported its operating performance compared to the budget was unfavorable by $116 million, according to a report from Politico. In the 12 months ended June 2017, the system saw losses of $37 million, and the year prior marked nearly $200 million in operating losses.
4. Prior to filing for bankruptcy, Verity stopped all capital improvement projects, Politico reported in the same article. However, the system needs millions of dollars in updates to meet California’s seismic standards by 2019. Approximately 94 percent of California’s hospitals already comply with this major legal requirement, according to the report. Verity Health needed an estimated $66 million in improvements. Since November, the system has put $5.1 million toward compliance. If Verity does not meet deadlines for compliance in 2019, its hospitals can no longer be used for patient care.
5. The health system’s spending on charity care declined 28 percent at five of its six hospitals in the first quarter of 2018, compared to the same period the year prior. The sixth hospital reported an error in its financials. Dr. Soon-Shiong updated the health system’s financial assistance policy in December to exclude services from more than 50 hospital departments, according to Politico. Preliminary data from the second quarter of 2018 suggests this trend has continued.
6. The health system is spending millions on an Allscripts EHR implementation. Dr. Soon-Shiong served as interim CEO of Verity in 2017, during which the system signed a contract to implement a new Allscripts Sunrise EHR by 2019. Verity spent $12.8 million on the EHR through June, according to Politico. Sources told Politico the final cost could range from $20 million to $100 million.
7. The EHR investment faces scrutiny due to Dr. Soon-Shiong’s close ties to Allscripts. Dr. Soon-Shiong bought a $100 million stake in Allscripts in 2015, and Allscripts had a $200 million stake in NantHealth, his precision medicine company, Politico reported. Allscripts and NantHealth also had an agreement to work together to promote precision medicine technology. This agreement was restructured in 2017, when the value of NantHealth’s stock was down, according to the report. Allscripts returned NantHealth’s stock, and in return, NantHealth transferred ownership of some of its software to Allscripts and agreed to deliver $95 million worth of business to the EHR vendor. Allscripts President Rick Poulton told Politico the Verity Health EHR deal does not count against the $95 million in promised business, and the health system had already been considering Allscripts before Dr. Soon-Shiong assumed leadership.