The healthcare industry's level of “distress” is far higher than in the broader economy, according to a new report.
The latest Polsinelli-TrBK Distress Indices for healthcare, which uses Chapter 11 bankruptcy filings for entities with $1 million or more in assets to determine “distress” levels, found that 20 hospitals have filed since 2016.
About 3 out of 4 of hospitals that filed bankruptcy were in rural areas.
Chapter 11 filings have decreased by 53% nationwide since 2010, according to the report. But in healthcare, its distress scores increased by 305% in that same window.
“I think it’s going to be full speed ahead for a while,” Jeremy Johnson, the report’s editor and a bankruptcy and restructuring attorney at Polsinelli, told FierceHealthcare. “The biggest issue is that no problem has been solved—the issues in healthcare we don’t think are cyclical.”
The index gave healthcare a 405 score for this quarter, which marks an increase of 65 points from the second quarter of 2018. By comparison, the real estate industry earned a 31.67 index from Polsinelli.
Healthcare’s score has jumped in eight of the past 11 quarters, according to the analysis. Each quarterly index includes a year’s worth of data.
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Healthcare trends are “decoupled” from broader economic trends, as its structure and complexities are unique from most other industries, Johnson said. And there’s no end in sight for the problems plaguing the industry, he said.
The top issues contributing to the trend are tort liability, government reimbursement and a variety of management problems, Johnson said. These concerns are especially impacting providers in the southwest, according to the report.
For example, Neighbors Legacy Holdings, a Houston-based provider with more than 30 freestanding emergency departments across the state, filed for bankruptcy this year after increased competition, payer pressures and overextending its growth shrunk margins, according to the report.
Falling reimbursement rates are also coupled with increased uninsured rates, a pairing that spells bad news for rural providers, according to the report.
“That’s not a good formula for staying alive,” Johnson said.
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Despite the risk of overexpansion, healthcare doesn’t seem poised to slow down on consolidation any time soon.
Fitch Ratings said in its latest credit report that healthcare’s ratings are stable—for now. The industry’s continued obsession with mergers and acquisitions is causing its long-term credit projections to slip, Fitch said.
“Prospects of enhanced cash flow generation and greater efficiencies of scale are not fulling offsetting increased leverage, and this is altering the long-term credit risk profile of the sector,” according to the analysis.