Healthcare provider bankruptcies, while down from their peak a year ago, still far outpace overall bankruptcies, according to a new report from the law firm Polsinelli.
Overall Chapter 11 bankruptcy filings dropped 50% in the fourth quarter of 2019 compared with the same period in 2010. Healthcare bankruptcies, by contrast, increased 125% in that time, according to the report, which tracks all Chapter 11 filings with assets over $1 million.
But there may be some good news for healthcare providers. Polsinelli's healthcare distress research index declined more than 225 points in the fourth quarter of 2019 year-over-year. The distress index measures bankruptcy filings on a trailing, four-quarter basis to smooth out volatility and provide a better picture of long-term trends.
But don't expect that to continue, said Jeremy Johnson, the lead author of the report.
Healthcare, which includes hospitals and senior living facilities in this report, saw the highest distress index last year since Polsinelli started measuring, he said. Even though it's coming back down, healthcare still outpaces other sectors.
"I don't think the stress is going away in healthcare," Johnson said, adding that as a bankruptcy lawyer, healthcare comprises about 95% of his work.
The healthcare distress index also dropped 156 points from last quarter, although the sector has experienced eight straight quarters of high distress, which is determined to be at least 100 points, the report said.
Johnson said one big factor that tends to pull providers into bankruptcy is overexpansion: getting too big, too fast. That's what happened in the case of the fourth quarter's largest healthcare bankruptcy filing. Three-hospital system Astria Health filed bankruptcy after buying two hospitals from Community Health Systems in Washington state. In that case, Astria argued the regulatory delay involving the acquired hospitals and the cost of electronic billing and records ultimately led to the bankrupt.
"In healthcare it seems like there is a such a low margin of error that folks acquire one or two bad hospitals and it brings down your whole system," Johnson said.
In some cases, Johnson said there's not much the hospital operators can do to turn things around if they're located in a market with a high proportion of uninsured patients and patients relying on Medicaid and Medicare. One example of that, he said, is the recent bankruptcy of Thomas Health System in West Virginia.
"There's no potential solution for that situation," he said. "You can't change the demographics, you can't change payer system, the rate of uninsured. It's West Virginia. It's not as if you can attract more people."
Healthcare distress in the fourth quarter was driven primarily by bankruptcy filings in Washington, Texas and New York, the report said. Polsinelli's report found 35% of healthcare bankruptcy filings took place in the southeastern U.S. in the fourth quarter of 2019, compared with 19% in the Northwest. Since the fourth quarter of 2010, healthcare bankruptcies in the Midwest have declined nearly 11%, and increased by 12% in the Northwest.
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Healthcare bankruptcies down from last year's high, but don't expect full rebound - ModernHealthcare.com
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