Guest Commentary: The aftermath of hospital bankruptcy

Guest post by Jerry Seelig

It's an ugly thing when a hospital or medical group files for bankruptcy. Caregivers, support staff, and executives worry about their jobs. Creditors worry about getting paid. Patients worry whether their physician will be there when they need them. There are near-hysterical stories in the local media about grandma all but being shoved out the emergency room door.

With my firm's support, I serve as a patient care ombudsman (PCO) during healthcare bankruptcy cases. We're appointed by the court to ensure that patient care does not deteriorate in the same way as the facility's bottom line. As a result of our unique position in the bankruptcy process, we see a lot of front-line stuff that could be ripped from the headlines of FierceHealthcare. Think of it as a Cirque du Soleil act--being performed in total darkness.

These scenarios illustrate the provider's decline prior to insolvency:

  • Many years of mismanagement at a safety-net hospital brings large debts. Correcting problems to keep the facility's provider number drains every penny of working capital.
  • A specialty care provider group had almost 20 state-of-the-art local facilities, every specialist who is anybody as members, and ownership of the region's largest specialty hospital. Then the Centers for Medicare & Medicaid Services greatly lower reimbursement rates. More procedures go to non-specialists and the physician-owners turn against each other. Within three years the founder is left with just two facilities and a fire sale for the specialty hospital.

What happens next is a bankruptcy filing--an action FierceHealthcare recently reported "is gaining traction as a business option for hospitals." Importantly, this is the version of Cirque you will join if you are the executive contemplating or involved in a bankruptcy, a creditor, or a party seeking to acquire the assets of a bankruptcy debtor.

Soon after a healthcare case is filed, the Office of the United States Trustee (the branch of the U.S. Attorney responsible for overseeing the administration of bankruptcy cases) and the judge assigned to the case must make a decision as to whether a PCO is needed. It has become an increasingly commonplace appointment in the recent large hospital and group provider cases.

What we find when we start is stakeholders writing or yelling the following:

  • Care has severely declined.
  • Staffing has gone to hell.
  • The person who got us in this mess still has the checkbook and will soon kill someone because they do not have enough money and/or they are making bad choices with the few dollars.

As in all bankruptcies, people are now in the fight for who owns what, who gets to control those assets during bankruptcy, and who creates the plan to establish post-bankruptcy ownership. That includes how much money the creditors get when the organization emerges from bankruptcy.

However, those universal bankruptcy themes are transformed in a healthcare case because the assets are not an auto assembly line or a restaurant stove. General Motors did not have the heath and safety of patients to worry about. The now-shuttered coffee shop does not have to safeguard confidential patient information, valuable accreditations, licenses, and provider numbers.

In the restaurant case, the grill man was laid off, and presumably moved on. But in a healthcare bankruptcy, the caregivers are almost always creditors--ones who must balance altruism with write-offs. Not doing so means a greatly weakened provider serving the community after it emerges from bankruptcy.

The bankruptcy court judge, the trustees, the PCO team, and many decent attorneys are tasked with protecting patient care in this simultaneously contentious and fragile environment. Those entering this world should know there is a minefield of major problems to be negotiated in order to reach an opportunity to make a problematic situation far better.

As competent as PCOs are at monitoring care and analyzing and reporting on what changes are demanded, we are constantly reminded of the unique problems (and often solutions) found in a healthcare bankruptcy. To that end, we are well aware that even those who need and respect us seem to convey the same greeting: "Welcome to our world. Never forget you are the tourist."

Jerry Seelig is the chief executive officer of Seeilg + Cussigh, a PCO firm in Culver City, Calif.

Editor's Note: Last week's column may have inferred that pharmceutical companies were responsible for sudden increases in prices for injectable drugs for hospitals. Those price increases should have been attributed to so-called "gray market" vendors that market to hospitals.

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