2013 brought 10 public hospital bankruptcies. A warning for ACO partners and plans?

“Everybody has a plan until they get punched in the face.”-Mike Tyson.

Since 2003, 17 different healthcare districts and public hospitals have declared Chapter 9 bankruptcy — debt reorganization specifically for government and municipal organizations, or Chapter 11.

Below is a list of the 10 hospitals that filed for bankruptcy protection in 2013:

  • Saint Francis Hospital and Health Centers in Poughkeepsie, NY
  • TLC Health Network, (Lake Shore Health Care Center) Irving, NY
  • Nye Regional Medical Center, Tonopah, NV
  • Fairmont (W.Va.) General Hospital Fairmont, WV
  • Westlake Regional Hospital, Columbia, KY
  • Sound Shore Health System, New Rochelle, NY
  • Hardeman County Memorial Hospital, Quanah, TX
  • Hospital at Anthem, Florence, AZ
  • Pauls Valley General Hospital, Pauls Valley, OK
  • Southeast Arizona Medical Center, Douglas, AZ

In 2012, Mendocino Coast District Hospital in Fort Bragg, CA and Charlton Memorial Hospital, (CAH) Folkston, GA was forced to shut its doors to the community.

The surge in bankruptcies from public hospitals has come about for several reasons:

  • Reductions in federal and commercial payer reimbursements, coupled with poor payer contract negotiations, missing strategies, and bad contract management
  • A rise in uninsured and charity care patients
  • High costs associated with new regulatory requirements
  • Lagging patient volumes
  • Poor management, and
  • Execution on overly aggressive expansion plans.

While bankruptcy of a public hospital is never desirable, reorganization of debt comes with some advantages – to the hospital. There are a few rules, and one of them is that the hospital must show that one of its creditors tried to obtain a “preferential payment” and therefore could not negotiate with all creditors. One of those preferential payment creditors could be the local IPA or ACO physicians, if the organizer of the integrated health system and the receiver of the funds from contracted health plans is the hospital corporation, and not an arm’s length management services organization.

Maria Todd has been contracting with managed care plans on behalf of ACOs, IPAs, PHOs, and MSOs all over the country. From experience, she’ll tell you that there are other managed care contract implications (pull out the contracts and go back and peruse carefully, the term and termination sections…) you must take into account before you partner up with payers, hospitals and even other network physicians.

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Something to keep in mind as the race to build ACOs and integrated health delivery systems heat up in a frenzy to capture market share and role out their “brand” of ACO: Vet all partners in the relationship thoroughly

Clearly Mike Tyson nailed it when he said those eleven words. The best ACO and integrated health system strategists have to be prepared for the unexpected.

What do you think 2014 will bring as we fuse more public and community hospitals to ACOs, IPAs, PHOs and MSOs?

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