Safety net system files for Chapter 11 due to rising expenses, stalled facility sell-off

El Segundo, California-based Pipeline Health System filed for Chapter 11 bankruptcy protection in Texas’ Southern District on Tuesday.

The safety net hospital system attributed its financial strain to “skyrocketing labor and supply costs, decreased ability to generate revenue and delayed payments from various insurance plans for critical patient care services already delivered,” according to a statement announcing the bankruptcy filing.

“We intend for the restructuring process to allow our hospitals to remain open and operating in their communities, while putting the hospital system in a more secure and sustainable financial position going forward,” Pipeline CEO Andrei Soran said in the announcement. “Our employees and physicians across the organization have a long tradition of caring for patients in their communities, and our goal is for that care to continue.”

Pipeline is a for-profit system that runs seven safety net hospitals across California, Texas and Illinois. These locations provide care to roughly 135,000 people annually, according to court documents, and total more than 1,150 beds, roughly 310 physicians and a companywide workforce of more than 4,200 people.

Approximately two-thirds of Pipeline’s patients relied on government programs for healthcare coverage in 2020, according to an executive’s declaration filed with the court (PDF). However, reimbursement delays and withheld funding at the federal and state level have kept roughly $24 million in much-needed funds from the system’s balance sheets, the executive said.

Rising expenses took an even heavier toll on Pipeline’s operations, with systemwide labor spend increasing by $52 million during the first eight months of 2022 compared to pre-COVID levels, the executive said.

Alongside systemwide expense and revenue pressure, the declaration highlighted two facilities in Illinois that posted a net loss of nearly $70 million during the 12-month period ended August 2022.

These locations are “effectively subsidized” by Pipeline’s other hospitals, according to the court document, and were lined up for sale to a holding company that would lease the locations to Resilience Health.

However, the $92 million deal was unable to close by its Aug. 30 deadline. Pipeline continues to discuss a potential sale with the original buyers but said its “cash position has continued to deteriorate” in the meantime.

“If the buyer is unable to close the sale, Pipeline plans to undertake a marketing process to identify other potential buyers,” Pipeline wrote in its bankruptcy announcement.

The organization said it has secured financial commitments that will allow operations to continue through the Chapter 11 process. It will continue to pay salaries and fees to employees and continue paying its vendors in full for purchased goods and services.

“As we move ahead, our patients, team members, vendors and communities can expect ongoing and transparent updates on our progress,” Soran said. “It’s important to know that our patients do not need to reschedule appointments as a result of today’s announcement.”

The hospital industry has warned that widespread expense increases and revenue disruptions are putting care delivery organizations in a tight spot. Alongside bankruptcy declarations, these financial pressures could spur service limitations or full-blown hospital shutdowns, they said.