As smaller community hospitals struggle financially, they increasingly take advantage of Chapter 11 bankruptcy, once a rare last resort within the healthcare sector, according to an article at Executive Insight.
Numerous factors within the healthcare market have overwhelmed non-profit community providers in recent years, particularly the relocation of services outside the facility walls as convenience becomes consumers' primary consideration, writes Kenneth Rosen, chair of the Bankruptcy and Creditors' Rights Department at Lowenstein Sandler LLP. While some seek acquisition from for-profit organizations, many leaders believe taking a community institution out of community hands defeats the whole purpose, according to the article. To that end, some view Chapter 11 as a preferable stop-gap measure.
Under Chapter 11, hospitals can discharge burdensome contracts and sell assets without full debt payments. Bankruptcy judges typically err on the side of hospitals in Chapter 11 cases due to the harm to the community inherent in closing them, according to the article. That same risk of harm makes lenders likely to compromise rather than shut the hospital down. The hospital can continue to operate in the meantime, as in the case of Dallas' Forest Park Medical Center, which continued to operate after filing for Chapter 11 in January, FierceHealthFinance previously reported.
Chapter 11 is not without its drawbacks as a hospital option, however. For example, a Chapter 11 filing will be publicized, potentially shaking the public's faith in the hospital. This may result in patients avoiding the hospital due to care quality concerns or physicians leaving due to concerns about lack of support. The process is also expensive and time-consuming.
To learn more:
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