From Crisis to Recovery: Overcoming Hospital Bankruptcy in the Post-Pandemic Era

The COVID-19 pandemic has affected a lot of individuals and businesses alike. Even the healthcare industry was not spared, resulting in a growing number of bankruptcy filings this year. According to reports, the number of healthcare bankruptcies that were filed in the first half of this year is almost equivalent to the number of filings last year.

The Warning Signs: Identifying Financial Distress in Hospitals

A study says that there are six factors that contribute to financial distress in hospitals:

1. Capital Market Constraints: Interest rates are at their highest level, affecting the borrower’s cash flow, refinancing ability, asset valuation, and transactions.

2. Labor and Supply Cost: Increases in pay and benefits for clinical staff resulted in a higher baseline for expenses. Also, inflation on non-labor costs often exceeds expectations, which puts pressure on hospital budgets.

3. Market Returns: Although the rebound in the stock market helped providers, they still needed to sell assets to provide the necessary cash flow.

4. Medicaid Enrollment Expiration: Medicaid enrollment in pandemic-related protections expired this year, resulting in millions of people losing coverage. 

5. Payer Rate Increase: The margin squeeze is expected to continue, particularly for providers that rely on government payers, but hospital groups claim that it is not sufficient. 

6. Care Shifting: COVID-19 accelerated the shift from inpatient to outpatient and community-based settings.

Strategies for Hospital Recovery

Here are some key strategies healthcare providers might utilize to manage this situation and start a financial recovery plan:

1. Forecast Financial Projections

Healthcare providers need to develop a financial model that can track costs, revenue loss, and volume changes to manage costs and revenue. They can look into expense projections, revenue projections, volume projections, relief revenue projections, and cash flow projections.

2. Reinstating Services for Non-COVID Patients

Out of fear of COVID-19 exposure, patients are hesitant to visit hospitals. To ensure that patients would not be afraid to visit hospitals, designate one hospital or isolate floors that are solely for COVID patients and other hospital facilities for non-COVID patients.

3. Recover Lost Revenue

Healthcare providers need to understand financial deficits and strategize ways to recover lost revenues. Strategies can include applying for governmental subsidies, reducing costs by working with payers, or creating new business opportunities for growth.

4. Partnership Opportunities

Engaging with commercial payers can help providers achieve new revenue streams and a shift towards value-based care, reducing their reliance on fee-for-service income.

5. Embrace the New Normal

Technological innovations, such as telehealth, have evolved during the pandemic. This, along with the other services, like the work-from-home setup, proved to be cost-efficient and can help healthcare providers increase their revenue.

It is undeniable that the healthcare sector has struggled with the effects of the COVID-19 pandemic, resulting in bankruptcy filings. While bankruptcy offers a way to eliminate debt and restructure finances, it can also affect their reputation and lead to potential job losses. Understanding its benefits and drawbacks is beneficial to healthcare providers as they recover from the aftermath of the pandemic.

Join our upcoming webinar to learn more: Restructuring Hospitals Post-Pandemic: What You Should Know About the Value of Bankruptcy