Healthcare Bankruptcies and Bankrupting Healthcare

April 18 2016 | Committees

Healthcare-related bankruptcies, both individual consumer and commercial cases have been in the news with more frequency in recent years.  On the consumer side, there have been studies – both before and after the passage and initial implementation of the Affordable Care Act – that show that a substantial percentage of individual consumer bankruptcy cases are due to medical expenses. [1] Those medical expenses are also increasing but the results of treatment are not improving. Even worse, the stress concerning unpaid medical bills can actually make individuals sicker or less likely to recover.[2] 

Unfortunately, things do not appear much rosier on the commercial side of the equation. In just the last five months, there were more than 10 hospital bankruptcies or closures including: the Forest Park Medical Center hospitals in Austin, Fort Worth, and Southlake, Texas each filed chapter 11s; Lakewood Hospital in Lakewood, Ohio was closed; Summit Park Hospital in Pomona, New York closed, Dauterive Hospital in Iberia, Louisiana closed; the closure of St. Joseph’s Hospital in Philadelphia, Pennsylvania was announced; and St. Mary’s Hospital in Streator, Illinois was closed. The causes of these closures and bankruptcies are sometimes unique, but the impact of changing national regulations and government oversight issues should not to be under-estimated

For example, on March 30, 2016, Pioneer Health Services, Inc. and seven (7) of its subsidiaries operating multiple hospitals and therapy clinics in six different states filed chapter 11 cases in Jackson, Mississippi.[3] Pioneer Health cited various reasons for its filings, including Medicare and Medicaid recoupments and setoffs and delays in certifications, the millions of dollars in costs for implementation of the Electronic Health Records requirement in the American Recovery and Reinvestment Act of 2009, and the impact of the 2013 sequestration and the 2% across the board cut to the national healthcare budget.[4] And after threatening the action for the last several months, UnitedHealth Group, Inc., the largest U.S. health insurer pulled out of two state Affordable Care Act markets and won’t sell plans for next year in Georgia and Arkansas. Many insurers have found it difficult to turn a profit in the new markets created by the Affordable Care Act, where individuals turned out to be more costly to care for than expected.[5] Such actions may result in further governmental action, but they may also increase financial pressures on healthcare providers and consumers in affected areas leading to yet more bankruptcy filings.

The NOBA Bankruptcy & Debtor/Creditor Rights Committee will explore healthcare and bankruptcy issues further later this year and present a CLE entitled “The Interplay of Bankruptcy and Healthcare Law.”

Written by: Chris Caplinger, Bankruptcy Law Committee Chair

[1] “Medical expenses account for 62 percent of bankruptcies in the United States”  - 2007 Harvard study; “17 percent of bankruptcies in the U.S. are due to medical expenses” – 2006 Kellogg School of Management study;  “Medical Bills are the Biggest Cause of U.S. Bankruptcies” – 2013 NerdWallet Health study; “56M Americans under age 65 will have trouble paying medical bills [in 2013]” – 2013 NerdWallet Health study; and “The percentage of people under age 65 in families having problems paying medical bills decreased from 21.7 percent in the first six month of 2011 to 20.3 percent in the first six months of 2012” – 2013 Center for Disease Control study.

[2] “Why Do We Pay So Much for Health Care – But Get Such Poor Results”, N.F. Hanna, Observer, April 5, 2016 and “The burden of cancer isn’t just cancer”, Carolyn Y. Johnson, Wonkblog, The Washington Post, April 8, 2016.

[3] USBC, SDMS, Case No. 16-01119 (lead case).

[4] USBC, SDMS, Case No. 16-01119 at Docket No. 12, pages 3-4.

[5] “UnitedHeath quitting Obamacare in Georgia, Arkansas”, The Detroit News, Zachary Tracer, April 9, 2016.

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