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Blog | Coronavirus

COVID-19 exacerbates bankruptcy for at-risk hospitals

Blog | Coronavirus

COVID-19 exacerbates bankruptcy for at-risk hospitals

  • Hospitals and other healthcare providers are bracing for a bankruptcy wave as the government stimulus aid that gave a lifeline to the industry dries up, according to a recent Bloomberg Law article.
  • At least 30 hospitals entered bankruptcy in 2019, and at least three dozen have done the same so far this year, according to data compiled by Bloomberg.
  • HFMA’s Chad Mulvany says these bankruptcies will likely result in additional consolidation of hospital capacity despite concerns in the policy community about the impact of hospital mergers on healthcare prices.

Bloomberg Law is reporting that, “Hospitals and other health-care providers are bracing for a bankruptcy wave as the government stimulus aid that gave a lifeline to the industry dries up.

“Even before the Covid-19 pandemic, providers were pushed to their breaking points, especially those in rural areas. At least 30 hospitals entered bankruptcy in 2019, and at least three dozen have done the same so far this year, according to data compiled by Bloomberg. Chapter 11 filings had been poised to go higher with the coronavirus inflating costs for protective equipment and impeding revenue-generating elective procedures. The CARES Act and accelerated Medicare advance payments helped to forestall the anticipated increase. The stopgap assistance allowed struggling hospitals to stay out of bankruptcy and remain open for patients, said health-care transactions lawyer Bobby Guy of Polsinelli PC.”

Takeaway

The situation for hospitals at financial risk looks increasingly precarious. Negotiations related to an additional round of COVID-19 relief that would potentially include additional Provider Relief Fund  (PRF) and Paycheck Protection Program (PPP) funding for qualifying providers are stalled and unlikely advance until after the election. While Senate Majority Leader Mitch McConnell has indicated he would like to pass a deal in the “lame duck session,” it’s unclear if he and Speaker Pelosi can agree on an overall price tag for the package given they were billions of dollars apart prior to the election. Additionally, given the current continuing resolution funding the government through Dec 11, other priorities (like passing a budget or another CR) may take priority.

At the same time, we are seeing COVID cases spike across the country and hospitals in some regions starting to become over-taxed. Some facilities are again canceling non-emergent procedures to conserve capacity, personal protective equipment (PPE)  and staff. While these are, thus far, isolated market- specific events, they are posing a financial challenge for the organizations that experience them.  

The longer Congress and the administration dither on additional relief to providers, and if more providers have to reduce the volume of non-emergent services due to spiking COVID-19 cases, the greater the number of bankruptcies are likely to occur.

These bankruptcies will likely result in additional consolidation of hospital capacity despite concerns in the policy community about the impact of hospital mergers on healthcare prices. It’s likely that state legislatures will use the Certificate of Public Advantage (COPA) mechanism to allow mergers the FTC or DOJ would otherwise challenge in order to ensure there is sufficient acute capacity in their communities. 

About the Author

Chad Mulvany, FHFMA,

is director, healthcare finance policy, strategy and development, HFMA’s Washington, D.C., office.

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