Perhaps one thing we can agree on in discussing the healthcare industry: it is in a state of distress stemming from the challenges created by an ever-increasing regulatory burden, changes in reimbursement rates, uncertainty with the Affordable Care Act, mounting tort and employment litigation. The recent rampant growth of urgent care centers and retail clinics as well as technological advances and telemedicine have created a change in the manner in which healthcare services are delivered and consequently put pressure on providers to compete.
If bankruptcies are any indication, here is a simple comparison: 1.13% of all bankruptcy cases in 2010 were healthcare-related versus 9.7% for just three quarters of 2018. It seems that no facet has been spared — hospitals (large, small, rural), physicians and dentists, skilled nursing, senior living, pharmaceutical distributors, home health, diagnostic labs, behavioral health, durable medical equipment suppliers—all have or will undoubtedly be affected.
Enough doom and gloom. How can healthcare entities achieve sustainability and maximize opportunities in this challenging and changing environment? The answer is in exploring options and taking advantage of business strategies. One of the most important business tools in today’s world is bankruptcy.
In years past, the bankruptcy option was tagged as the remedy of last resort. But, now, bankruptcy means opportunity. Today’s health care playing field consists of a myriad of scenarios and combinations: for example: i) small hospitals are capital constrained; ii) big hospitals want to become small; iii) physicians want to be employees; iv) physician groups want to grow in specialty spaces. A bankruptcy can provide the necessary forum and mechanisms to resolve structure and legacy issues, solve capital requirements, enhance financial stability and maximize value.
From any perspective, bankruptcy is not a badge of financial distress, but rather a business tool to use in revitalizing, restructuring, and accomplishing the goals management foresees or needs to anticipate. This may include effectuating a merger, a sale/purchase of assets or equity, a way to deal with regulatory issues and cumbersome leases or contracts, or what might be a straight-up restructure of debt and equity with new capital. In any case, the bankruptcy process can provide a safe haven from which a company can emerge with a clean balance sheet – the proverbial clean bill of health.
Whether your organization is doing well, or underperforming, there are significant opportunities in this uncertain time. Assembling a team of skilled legal, accounting and operational advisors will be necessary to surviving and thriving in the changing healthcare industry. Whether you are concerned about your organization’s financial sustainability, or are seeking opportunities to expand operations through acquisition of distressed entities, now is the time to develop strategies to maximize your organization’s goals.
For the unprepared, the mantra from the television series Game of Thrones, “winter is coming” may apply. But, planning for the change is planning for success.
About the Authors:
Carolyn J. (“CJ”) Johnsen is a Member in Dickinson Wright’s Bankruptcy and Healthcare Practice Groups. Ms. Johnsen has over 30 years’ experience representing principally debtors and creditor committees in complex, multi-million dollar reorganizations. Her practice spans the healthcare industry including private and non-profit hospitals, senior living and healthcare services. CJ can be reached at 602-285-5040 or cjjohnsen@dickinsonwright.com and you can visit her bio here.
Peter Domas is a Member in Dickinson Wright’s Healthcare Practice group. Peter’s practice is devoted to representing clients in the healthcare industry, and assisting them in navigating the complex statutory and regulatory environment unique to healthcare corporate, transactional, and litigation matters. Peter can be reached at 248-433-7595 or pdomas@dickinsonwright.com and you can visit his bio here.
