10 Things You Need to Know About Health Care Bankruptcies in 2017

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The coming year will likely continue to be a tumultuous year for health care providers, suppliers, and payers, as they adapt to meet new challenges and market forces, particularly in light of the open questions as to the viability and continued existence of the Affordable Care Act (ACA) and recent comments made by members of the incoming Trump administration. The following are 10 things to watch in 2017 that may impact the number and progression of health care bankruptcies in 2017.

Changing and Challenging Reimbursement Landscape

Health care systems are struggling to adapt to value-based purchasing, which requires a shift from volume-based payments as well as structural changes to reimbursements and even impacts how clinical care is provided. A large driver of declining reimbursements is Medicare, which has begun to tie traditional Medicare payments to quality, outcomes, and value through alternative payment models. Financial resources are further stretched as Medicare enrollments are projected to continue to increase as the population ages. Medicare has already achieved its initial milestone of tying 30 percent of all traditional Medicare payments to quality or value through alternative payment models by 2016. This trend is expected to continue as Medicare plans to increase this level to 50 percent by 2018. While these changed approaches are still relatively new and providers and suppliers continue to adapt, this trend has negatively impacted margins on some Medicare business. Health care businesses that rely heavily on Medicare will need to be nimble in adapting their business model in 2017. Some may find that bankruptcy offers appealing options, either in filings or in acquisitions of distressed entities.

Uncertain Future of the Affordable Care Act

With the forthcoming Trump administration, it is likely that there will be a broad effort to roll back the ACA, either in whole or in part. Exactly what impact this will have on profitability for health care providers and suppliers remains to be seen, but any large impact on the current model will certainly send reverberations throughout the market and may cause distress to health care providers (who may have to treat patients who have no coverage) as well as to patients who may have trouble obtaining other coverage. The ability for health care providers to be reimbursed through insurance providers also may decrease in 2017, as several large insurance companies weigh whether to continue to participate in the health care exchanges.

Acquisitions of Distressed Health Care Assets

Health care providers and suppliers in bankruptcy may offer an interesting opportunity for expansion to health systems that are seeking to enter a new geographic location, increase their market segment, or take advantage of economies of scale. Health care systems that have been unable to adapt quickly enough to the structural changes ushered in by the ACA and other changes, or with unhealthy cash flows, may find that bankruptcy is the most cost-effective way to market and sell their assets through a process provided by 11 U.S.C. § 363, whereby a debtor may sell some or all of its assets “free and clear” with approval of the bankruptcy court. The market for health care assets will likely continue to be filled with interested buyers looking to expand into both new and existing markets.


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About the Author:

People's Choice Hospital is a boutique company that specializes in managing the unique environment of a hospital with its complicated communication and documentation systems. PCH is led by practicing physicians and hospital administrators with expertise in financially distressed facilities. People's Choice Hospital understands the daily challenges of operating a high volume, under-funded medical center in a large urban community. Our goal is to restore struggling hospitals to a position of strength in their communities by leveraging superior technology, communications, and business acumen.