Financial distress – sometimes it is isolated to specific borrowers and other times, it is endemic within an industry. In recent years, energy (e.g., oil, gas, and coal), retail and other industries have suffered widespread losses leading to restructuring and, often, bankruptcies. While healthcare businesses have not been immune, losses and financial distress have spread more widely within the healthcare industry in recent years, a problem exacerbated by the uncertainties over proposed amendments to the Affordable Care Act (the ‘‘ACA’’), particularly the American Health Care Act (‘‘AHCA’’) which won narrow passage by the House. In the last 10 years, over 120 hospitals and healthcare centers filed for bankruptcy protection. (Capital IQ, Statistics on Healthcare Entity Filings, http://capitaliq.com (last visited Mar. 8, 2017)). There are numerous pressures on today’s hospitals, skilled nursing homes, hospices and other healthcare providers. These pressures include liquidity constraints (particularly around insurance reimbursements and the impact upon many hospitals should the AHCA be enacted and replace some of the liquidity to providers provided by the ACA), changes in the delivery of healthcare services (as care shifts from acute/inpatient to more ambulatory/outpatient treatment), and the need for material capital investment to upgrade technology or to reconfigure inefficiently used real estate. These changes directly impact the balance sheet. For example, it is estimated that potentially up to 24 million fewer people will have health care insurance based upon amendments to the ACA. While the ACA cut substantial reimbursements for hospital care previously available through Medicaid (with the expectation that newly available private insurance under the ACA would compensate for the loss in Medicaid funds), the proposed AHCA (at least as passed by the House) does not restore the prior reductions in Medicaid. This liquidity shortfall will directly and detrimentally impact safety net and other hospitals who traditionally have a large Medicaid payor mix, creating a larger pool of unreimbursed, uncompensated care. Coupled with funded bank and bond debt and other types of operational liabilities (medical malpractice liability, for one), healthcare providers oftentimes operate ‘‘in the red,’’ and when the hemorrhaging cannot be stemmed, financial and/or operational restructuring results.

Originally published in Bloomberg BNA's Bankruptcy Law ReporterTM - May 25, 2017.