Alexandria, Va. — Independent community hospitals with lower credit ratings are going to have to re-evaluate strategic options, including restructuring, in the face of health care system consolidation and tight credit markets, according to an article in the September edition of the ABI Journal. "In many cases, standalone community hospitals lack the financial resources or intellectual capital to remain competitive in this new era of health care, leading to potentially difficult questions and strategic decisions," writes Anu R. Singh of Kaufman Hall & Associates (Skokie, Ill.) in "Distressed Community Hospitals: Observations and Expectations." "For some, reconfiguring their organizations may require restructuring or even bankruptcy."
Singh presents three principal strategic options for struggling community health care systems: (1) transacting out of trouble; (2) finding alternative sources of financing; and (3) restructuring for a new business model. As for the first option, Singh points out that although both large nonprofit health systems and for-profit hospital-management companies are increasingly focused on strategic acquisition targets, interest in integrating distressed organizations seems to be waning.
For the second option of finding alternative sources of financing, Singh writes that the 2008-09 credit crisis created dramatic changes to financing, primarily that credit enhancement has become virtually nonexistent. “The market has experienced a flight to quality, with interest focused on the lower repayment risk of larger, better-capitalized health systems.”
Finally, Singh explores whether turnaround plans incorporating new business models for community health care systems might enable them to survive. “At the core of most turnaround plans is re-evaluation of a distressed organization’s competitive position, which, for distressed hospitals, includes an evaluation of service area; interactions with physicians, patients, payers and possibly employers; and of course, the most valued and valuable service lines and business units.” He writes that in the face of larger health networks, independent hospitals will have to demonstrate a clear point of differentiation and capture the appropriate market.
“As in any industry transformation, hospitals need to reconfigure their business models,” Singh writes. “For some, turnaround efforts may be catalyzed and more easily resolved through an insolvency filing.”
To obtain a copy of “Distressed Community Hospitals: Observations and Expectations,” published in the September issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at jhartgen@abiworld.org.
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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 12,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abi.org/education-events.