United States: 10 Things You Need To Know About Health Care Bankruptcies In 2017

The coming year will likely continue to be a tumultuous year for health care providers, suppliers, and payers, as they adapt to meet new challenges and market forces, particularly in light of the open questions as to the viability and continued existence of the Affordable Care Act (ACA) and recent comments made by members of the incoming Trump administration. The following are 10 things to watch in 2017 that may impact the number and progression of health care bankruptcies in 2017.

Changing and Challenging Reimbursement Landscape

Health care systems are struggling to adapt to value-based purchasing, which requires a shift from volume-based payments as well as structural changes to reimbursements and even impacts how clinical care is provided. A large driver of declining reimbursements is Medicare, which has begun to tie traditional Medicare payments to quality, outcomes, and value through alternative payment models. Financial resources are further stretched as Medicare enrollments are projected to continue to increase as the population ages. Medicare has already achieved its initial milestone of tying 30 percent of all traditional Medicare payments to quality or value through alternative payment models by 2016. This trend is expected to continue as Medicare plans to increase this level to 50 percent by 2018. While these changed approaches are still relatively new and providers and suppliers continue to adapt, this trend has negatively impacted margins on some Medicare business. Health care businesses that rely heavily on Medicare will need to be nimble in adapting their business model in 2017. Some may find that bankruptcy offers appealing options, either in filings or in acquisitions of distressed entities.

Uncertain Future of the Affordable Care Act

With the forthcoming Trump administration, it is likely that there will be a broad effort to roll back the ACA, either in whole or in part. Exactly what impact this will have on profitability for health care providers and suppliers remains to be seen, but any large impact on the current model will certainly send reverberations throughout the market and may cause distress to health care providers (who may have to treat patients who have no coverage) as well as to patients who may have trouble obtaining other coverage. The ability for health care providers to be reimbursed through insurance providers also may decrease in 2017, as several large insurance companies weigh whether to continue to participate in the health care exchanges.

Acquisitions of Distressed Health Care Assets

Health care providers and suppliers in bankruptcy may offer an interesting opportunity for expansion to health systems that are seeking to enter a new geographic location, increase their market segment, or take advantage of economies of scale. Health care systems that have been unable to adapt quickly enough to the structural changes ushered in by the ACA and other changes, or with unhealthy cash flows, may find that bankruptcy is the most cost-effective way to market and sell their assets through a process provided by 11 U.S.C. § 363, whereby a debtor may sell some or all of its assets "free and clear" with approval of the bankruptcy court. The market for health care assets will likely continue to be filled with interested buyers looking to expand into both new and existing markets.

Jurisdiction and Administrative Finality in Bankruptcy Matters

Health care providers engaged in a dispute with Medicare or Medicaid regarding the status of their provider agreements will have additional reasons to negotiate and work closely with the programs' administrative process in 2017. Two cases in 2016 demonstrate that the United States is actively taking measures to channel all issues dealing with the Medicare or Medicaid program through the administrative process established for such disputes. Outside of bankruptcy proceedings, a Medicare or Medicaid provider must exhaust the program's administrative process before a federal court may determine a dispute involving the provider's agreements. However, two cases, In re Bayou Shores SNF, LLC and In re Nurses' Registry & Home Health Corp., respectively raised issues of whether the automatic stay affects the termination of a provider agreement or requires ongoing reimbursements where there is an issue of overpayment. Ultimately, in In re Bayou Shores, the Eleventh Circuit held that the bankruptcy court lacked jurisdiction to stay the termination of a provider agreement. Interestingly, in Nurses' Registry, the bankruptcy court for the Eastern District of Kentucky initially held that it had jurisdiction and ordered Medicare to make payments that were withheld, but later vacated this order following a settlement and upon joint motion of the debtor and United States. With these two cases providing persuasive authority for other courts, it is unlikely that the argument for bankruptcy jurisdiction will be at issue in 2017 the way it was in 2016.

Government Deals and Prepackaged Reorganization Plans

We will likely continue to see settlements with the United States government that include prepackaged bankruptcy plans. An example of this type of settlement was seen in the bankruptcy filing of Millennium Health, LLC, one of the nation's largest drug-testing laboratories. Millennium agreed to pay more than $200 million in settling allegations that it violated the False Claims Act for billing Medicare and Medicaid for medically unnecessary testing. The Department of Justice was Millennium's largest unsecured creditor, and the plan provided for its lenders to become the new owners.

Health Information and Technology Continues to Create Costs and Risks

The focus on care management and enhanced quality capabilities may require investment in additional personnel and technology that may be beyond what smaller health systems can afford. Delivering high-quality clinical care is impossible without the support of strategic and integrated IT systems. However, this same technology creates privacy and security risks and requires substantial investment. Despite past government subsidies, implementing electronic health records may increase costs and decrease income for health providers and suppliers in the short term. Additionally, maintaining compliance with regulations like the Health Insurance Portability and Accountability Act and Health Information Technology for Economic and Clinical Health Act is becoming increasingly complex as health care providers retain and provide more information electronically and are subject to audits, potential fines, and increased risks from hackers. We may see increasing appointments of ombudsman to oversee the privacy and security of patient information throughout the bankruptcy process in 2017.

Health Care-Related Debt Continues to Be a Major Factor in Consumer Bankruptcies

The ACA helped to reduce the number of people without insurance, however, many Americans still lack insurance and many of the plans available do not provide robust coverage. The resulting medical debt has been a major cause of consumer bankruptcies. This trend is slowing, but health care debt will likely continue to feature prominently in consumer bankruptcies in 2017. If an "Obamacare" coverage option is eliminated, consumer bankruptcies related to the costs of health care may increase.

Cost of Care

Hospitals have faced increased expenses as they hire more employees and invest in technology, which may lead to expenses outpacing revenue for some hospitals. The costs of employees and supplies will be an additional factor to watch in 2017, as other financial pressures mount on distressed health care providers. Ultimately, the cost of care in combination with decreasing reimbursements and difficulties in collecting accounts receivable may continue the increasing health care bankruptcy filings in 2017.

Increasing Cost of Drug Prescriptions

Over the past two years, insurance reimbursements from pharmacy benefit management corporations have not kept up with the increasing cost of prescription drugs. This has led to losses that are better offset by larger pharmacies and will lead to increasing consolidation in the market. Large purchasers have pushed back against increasing drug costs, but as yet an effective approach to control costs but continue to provide adequate drug coverage and availability has not been identified. For example, California recently proposed to cap pharmaceutical pricing for certain populations, but the proposition ultimately failed. The continued focus on rising prescription prices suggests that further methods to cut these costs will continue to be a contentious topic and could lead to further consolidation, acquisition, and structural changes in the pharmaceutical industry. Providers will be impacted as they continue to conduct their own negotiations with vendors and attempt to control their own costs associated with necessary drugs.

Nursing Home Distress on the Rise

The nursing home industry also faces pressure, which may increase financial distress for nursing homes in 2017, as the industry faces stagnant Medicaid rates and a shrinking number of nursing-home residents. While there is still investment in skilled nursing facilities, some market participants are trimming their exposure and selling assets. Additionally, a ban on mandatory arbitration clauses for nursing homes may result in a rise of litigation exposure and costs.

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.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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.

Disclaimer

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.

Registration

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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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.