United States: Healthcare Providers Face Increasing Financial Pressure And Bankruptcy Risk

The health of the healthcare industry can be summarized as follows: as go federal reimbursement rates, so goes the financial viability of healthcare providers, whether hospitals, nursing homes or medical practices. These declining reimbursement rates, combined with the uncertainty surrounding implementation of the Affordable Care Act (ACA), have put especially severe strains on middle-market healthcare providers that face the double shock of rising healthcare costs and declining revenues tied directly to reductions in the federal reimbursement rates for Medicare and Medicaid and price pressure from private insurers driven, in part, by implementation of the ACA.

For larger providers, like hospitals, declining revenues can lead to a vicious cycle of cost-cutting, layoffs and downgraded credit ratings, which drive up borrowing costs and further strain liquidity. The direct relationship between revenue and federal reimbursement rates is felt even more acutely by private practices, which have been shuttering at an increased pace as physicians increasingly are looking to the economies of scale provided by private hospitals.

Although financial pressures have caused medium- to smaller-sized providers to struggle, their distress also has provided larger and healthier players with greater opportunity to acquire assets, practice groups and patients. In this way, turmoil in the industry has accelerated the gap between the healthy and sick providers, presenting opportunities and risks for those providers that have maintained or increased their revenues in this challenging environment.

If middle-market healthcare providers continue to struggle with declining revenues and less access to credit, as is widely expected, the industry soon may start to see a new wave of bankruptcy filings, further separating healthy companies from their struggling competitors and leading to industry consolidation. Despite their advantageous position, financially healthy healthcare providers should be proactive in monitoring and dealing with more troubled providers to mitigate their risks should a bankruptcy occur, and/or position themselves to best take advantage of distressed asset values and physician and practice mobility.

In general, the more a healthy healthcare provider deals with a distressed counterpart, the greater the risk a bankruptcy by the latter poses to the former. These risks are particularly acute in the areas of contracts between the parties, collection of receivables, exposure to claw back actions by a debtor or bankruptcy trustee and greatly diminished recoveries. For example, the Bankruptcy Code overrides many aspects of state law regarding contracts, invalidating breach and termination provisions triggered by a counterparty seeking relief under the bankruptcy laws. Further, the bankruptcy laws generally permit a debtor to assign contracts to third parties absent a counterparty's consent or over its objection. On the flip side, a physicians' group in bankruptcy may decide to reject an affiliation agreement with an incumbent hospital, leaving it with a claim in the bankruptcy case worth pennies on the dollar.

In addition, the bankruptcy laws pose challenges for those healthcare companies who sell or purchase goods and services from troubled providers. As troubled suppliers find themselves in more and more distress, they may face liquidity pressures from their financing sources, as well as tightened trade terms from their suppliers. This poses a risk for healthcare companies dependent on that supplier, particularly where the supplier provides a scarce or specialized product and alternative sourcing is difficult. Conversely, a distressed buyer of goods and services will tend to stretch out or delay payments, putting its supplier at risk of preference or other avoidance liability. Finally, the not-for-profit status of some healthcare providers compounds the challenges faced by their creditors and contract parties. For example, the Bankruptcy Code forbids creditors from initiating an involuntary bankruptcy case against an insolvent company while state law prohibitions on the debtor company exchanging debt for equity reduce avenues for satisfying claims or developing a viable business plan.

Where there is risk, there also is the potential for reward. For financially healthy healthcare providers, opportunity abounds to take advantage of declining values to acquire new businesses, assets or even whole practice groups at distressed prices. Moreover, the bankruptcy laws generally permit an acquirer to take purchased assets free and clear of liens, encumbrances and other liabilities, and provide the purchaser with the certainty of a court order blessing the sale. Finally, with interest rates at historical lows, inexpensive financing costs coupled with distressed asset valuations puts financially healthy healthcare companies in a prime position to expand and capture market share from their bankrupt competitors.

To maximize the opportunities afforded by the industry's financial troubles while simultaneously seeking to minimize risk, the healthy provider should consider taking some or all of the following illustrative steps:

  • Carefully review contracts with distressed providers for termination events and whether the contract may be nonconsensually assumed and/or assigned in a bankruptcy case;
  • Carefully monitor troubled purchasers of goods and services to ensure compliance with ordinary course trade terms, and consider requiring advance payments or cash on demand;
  • Investigate the availability and ability to source alternative goods and services from financially troubled suppliers; and
  • Investigate asset or practice group acquisitions at reduced valuations and stripped of most liabilities.

Based on the continued turbulence in the market, and the increased number of healthcare providers facing insolvency, we would encourage you to discuss the risks and opportunities posed by these challenging times with our financial restructuring attorneys, who have deep experience navigating healthcare bankruptcies from a variety of perspectives and specialize in developing proactive solutions to minimize risk and maximize opportunities posed by a healthcare provider's financial distress.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.