Page 10 - SF HOSPITAL NEWS NOVEMBER 2020

Healthcare in Distress: Signs That You May Need to Restructure

While the initial tidal wave of COVID- shortages (in particular, PPE) ability Regulation (MFAR) would restrict
19 has begun to recede, the effects of the due to high influxes of COVID- Medicaid supplemental payments for
pandemic are still rippling through the 19 patients and disrupted sup- long-term care facilities, potentially lead-
U.S. healthcare landscape. Initial CARES ply chains. Now, however, these ing to a $50 billion cut in total annual
Act relief funds helped stave off financial challenges have abated and sup- funding. Facilities that are overly reliant
instability for many facilities, but uncer- ply shortages should be re - on Medicaid may find themselves on the
tainty over the potential of future relief, solved. If a hospital is still expe- losing end of MFAR should it pass and
consumer confidence, lack of regulation riencing supply shortages, it should closely watch this issue.
surrounding telehealth reimbursement may be because they don’t have
and market volatility continue to plague sufficient liquidity to purchase Key Takeaways
healthcare facilities financially. necessary supplies. 1. COVID-19 has had an outsized
As healthcare organizations focus on • Increase in uninsured impact on physician practices, hospitals
maintaining operations in the thick of BY PATRICK PILCH, CPA, MBA, patients – Many hospitals have and senior care facilities. Executives and
the recession, they—and their creditors AND JIM LOUGHLIN seen an increase in uninsured administrators at these organizations, as
and bankers—should remain vigilant for patients who need COVID-19 well as banks and other lenders that pro-
signs of financial distress. testing or treatment. While the vide capital for these facilities, need to be
Generally, there are several signs of • High physician turnover rate – CARES Act includes reimbursement for aware of the unique signs of distress that
distress that span all industries, includ- Physicians seek stability in pay and these treatments, the reimbursement isn’t each type of organization may exhibit
ing: work-life balance in the practice environ- always enough to cover the full costs. both during and after COVID-19. Early
• Rising level of overall corporate debt ment. It is anticipated this will lead to According to a Fair Health report, the detection of distress is key to avoiding
– Some companies will struggle to serv- even greater consolidation as smaller average charge per COVID-19 patient restructuring or bankruptcy.
ice or refinance this debt in the new eco- practices seek greater levels of security. If with no complications is $42,486, 2. Declines in occupancy and patient
nomic climate. these needs are not met at a physician whereas the average charge for a COVID- volume are a continuing source of finan-
• Tight liquidity – Includes insufficient practice, they will move elsewhere. High 19 patient with complications is cial strain across all three organization
cash on hand, inability to obtain new turnover among physicians in a practice $74,310. Potential Supreme Court rul- types. Hospitals and physician practices
financing and inability to pay debts when means the practice is failing to provide ings on the Affordable Care Act may also should focus on encouraging in-person
due. the resources needed to succeed, pushing increase the number of uninsured visits by making patients feel safe with
• Fully drawn credit facilities – away the very drivers of success—the patients in the years to come. stringent safety and hygiene practices
Includes covenant violations that lower physicians themselves. and protocols. Senior care facilities will
borrowing base availability, reliance on • Complicated and unwieldy adminis- Senior Care Facilities need to adopt the strictest rules regard-
amendments or forbearances and deteri- tration infrastructure – Administrative • High incidence of COVID-19 – ing safety, as COVID transmission among
orating relationships with lenders. functions, especially in the back office, According to a recent study, COVID-19 the elderly population is a particular
• Declining profitability – Includes sig- can overwhelm resources when ineffi- infections were more common in senior concern.
nificant decreases in revenue, cash flow cient. Poorly-designed interfaces for care facilities that a) had less liquidity; 3. Understand what problems your
and EBITDA. EHRs can slow systems down, confusing and b) had larger negative shocks to cash organization faces outside of the impact
• Debt in excess of the book value of diagnostic and treatment codes can flow. As a result, COVID-19 outbreaks of COVID-19. While the unique signs of
assets – Includes significant near-term impede the billing process and slow can indicate that a senior care facility is distress in each organization have been
debt maturities and solvency concerns. administrative processes can lead to in financial distress. exacerbated by COVID-19, not every
• Operational disruption – Includes delayed reimbursement claims. The more • Sharp drops in occupancy – High sign of distress is rooted in the pandemic.
loss of key customers/vendors, increased needlessly complicated the administra- entrance fees can deter new residents, Issues like unwieldy administrative
Medicare pending and/or Medicaid pend- tive process, the greater the threat. and the pandemic may have pushed back structures, lack of affiliation with health-
ing balances, staff turnover and/or lay- move-in dates. Some people are also care systems and high reliance on
offs, service lapses. Hospitals bringing their elderly relatives home for Medicaid funding will continue to
As a result of the pandemic, some sub- • Lack of affiliation with a healthcare care due to fears that facilities are not impact hospitals even in a post-COVID
sectors of the healthcare system have system – Smaller independent hospitals safe from COVID-19 outbreaks. world. Executives and administrators
seen greater financial impacts than oth- tend to have access to fewer resources, Occupancy in senior care centers has should begin considering what steps they
ers. In particular, physician practices, serve more uninsured patients and may reached a 15-year low due to COVID-19, can take to address these underlying
hospitals and specialty surgery centers, have difficulty attracting top talent. Lack according to Bloomberg Law. If facilities issues today.
diagnostic services and senior care facili- of affiliation or network can mean less are not able to assuage consumer fears Maintaining operations throughout
ties have faced significant headwinds. It flexibility to manage these risks. related to COVID-19 outbreaks, occu- the disruption created by the pandemic
is important for executives in these sub- • Decline in emergency room, diag- pancy is unlikely to pick back up. requires an honest assessment of your
sectors to understand potential signs of nostic and elective procedure patient • High staff turnover and a need for organization’s financial health. Signs of
distress in their own organizations in volumes – While fewer elective proce- increased contract labor to meet staffing distress, when spotted early, can be the
order to adjust their operations or capital dures were expected and occurred dur- needs – As nursing facilities have seen key to avoiding more serious financial
structures to maintain financial stability. ing COVID-19, the significant number of increased levels of infection and woes down the line, including debt
patients who decided to forego necessary increased physician and mental strain restructuring or even bankruptcy.
Physician Practices medical ER intervention was not. experienced by nursing staff at SNFs, Spot any of these signs in your organ-
• Continuing low patient volume – As Hospitals that continue to see lower resulting turnover may require facilities ization? Get in touch.
COVID-19 continues, some patients are patient volumes in the emergency room, to supplement staff levels in order to
avoiding in-person visits due to safety and therefore subsequent lower new maintain standards of care. This addi- Patrick Pilch is National Leader and
concerns. While much better than in inpatient volume, will be subject to tional cost of care may further strain Senior Managing Director, Healthcare
April 2020, patient volumes remain greater financial distress. already narrowing margins. Advisory. Jim Loughlin is National Leader,
below historic levels which in turn is • Extended staff cuts and furloughs – • Reliance on outdated technology – Business Restructuring and
leading to significantly reduced physi- Hospitals seeking to maintain liquidity Technology adoption is crucial in senior Turnaround Services.
cian compensation. This problem is during COVID-19 have furloughed some care facilities, as evidenced by the wide-
heightened in practices that employ fee- staff and instituted pay cuts for others. spread adoption of telehealth during the
for-service models. However, as they recover financially, pandemic. Facilities that can’t afford to Contact:
• Lack of capital access – It remains these policies should reverse. If the poli- invest in new technologies are likely in Alfredo Cepero, Managing Partner
unclear how access to the credit markets cies continue for an extended duration, distress. 305-420-8006/ acepero@bdo.com
will be impacted which may place addi- it’s likely a sign that they have insuffi- • High reliance on Medicaid funding
tional burden on physicians/practices that cient cash flow. – Facilities that rely on Medicaid could Angelo Pirozzi, Partner
require access to capital to invest in key • Supply shortages – At the beginning be in trouble due to a new rule proposed 646-520-2870 / apirozzi@bdo.com
infrastructure, technology and talent. of COVID-19, hospitals saw supply by CMS. The Medicaid Fiscal Account -

E-mail Your Editorial Submissions to editorial@southfloridahospitalnews.com

10 November 2020 southfloridahospitalnews.com South Florida Hospital News