Hospital Bankruptcy Cases and COVID-19
by Ryland Close
In 2018, multiple sources started raising the alarm on the number of rural hospitals that were closing or filing Chapter 11. At least 30 US hospitals entered bankruptcy in 2019, according to Bloomberg's tracking, and over 25 hospitals have sought bankruptcy protection in the first three quarters of 2020. Even before the pandemic hospitals were coming in increasingly higher numbers to bankruptcy courts across the country to seek relief.
Most experts believe that the initial rise in hospital bankruptcy filings was due to changes or challenges in reimbursement, increased competition, and most likely over-expansion. All of these causes created cash-flow issues and pushed many hospitals to file bankruptcy, sell out or shut down. COVID-19 is going to make things much worse.
Fewer Patients and Declining Revenues
A closer look at some of the factors contributing to the financial distress of hospitals reveals that hospitals have fewer patients (and thus less revenue) and fewer patients are admitted. More procedures historically performed inside a hospital (minor surgeries or MRI’s for example) are now done in surgery centers, on an outpatient basis. In addition, Medicare and Medicaid reimbursement rates have undergone significant changes, and most hospitals estimate that they have been underpaid on reimbursements. Finally, over-expansion has been a major source of strangling cash flow.
Pandemic's Trickle-Down Impact on Health
COVID-19 has made a challenging situation much worse, and the trickle-down effect is obvious. Some experts estimate the COVID-19 related shutdowns of elective surgeries, and other money makers for medical professionals to be upwards of $200 billion from March to June. Preventive care is being delayed, and patients are reluctant to go to a hospital for ailments for fear of catching COVID-19. It is mind-boggling to consider all of the untreated, undiagnosed, and uncared for conditions that have resulted from the shutdown of care. That is the human toll.
Pandemic's Economic Toll
The economic toll is at least estimable. Most hospitals have furloughed or laid-off doctors, nurses and support staff. Some of those jobs will never return. Rural hospitals have felt the furloughs most acutely. Without the medical staff, all of the vendors and suppliers to the medical profession become idle as well. Fewer EMTs and paramedics are required. Fewer scrubs and medical supplies are needed. Delivery drivers and florists feel the slow-down.
The shutdown of the medical world (except to fight and care for COVID-19 patients) is financially costing hospitals somewhere between $1.5 and $2.5 billion per month and it continues to trickle down to all the businesses that rely on the hospital for revenue. It is an alarming trend. Life returning to “normal” may never occur, and the number of hospitals decreasing at a time when hospital space may be at a premium is especially concerning.
Recent Tennessee Healthcare Bankruptcy Cases
Locally, some healthcare bankruptcies of interest in Tennessee include:
On April 7, 2020, Quorum Health Corporation and one hundred thirty-four (134) affiliated companies filed petitions in the United States Bankruptcy Court for the District of Delaware seeking relief under Chapter 11 of the United States Bankruptcy Code. Quorum Health and its 23 hospitals is based in Brentwood, TN and is a spinoff of Franklin, Tenn.-based Community Health Systems.
Decatur County General Hospital (Parsons, Tenn.)
Decatur County General Hospital closed April 15, a few weeks after the local hospital board voted to shut it down. The closure was attributable to rising costs, Tennessee's lack of Medicaid expansion and broader financial challenges facing the rural healthcare system in the U.S.
Williamson (W.Va.) Hospital
Williamson Hospital filed for Chapter 11 bankruptcy protection in the Middle District of Tennessee in October of last year and was operating on thin margins for months before shutting down on April 21. The 76-bed hospital said a drop in patient volume due to the COVID-19 pandemic forced it to close.
Ryland Close earned his law degree and a Health Law Certificate from Belmont University College of Law in 2020. In law school, he served as Symposium Director for the Belmont Health Law Journal. His admission to the Tennessee Bar is pending.