Can This Hospital Be Saved? Signs of Restructuring Potential

Throughout the COVID-19 pandemic, health care organizations received substantial temporary funding relief. [1],[2] As this funding ends, financial difficulties existing prior to this public health emergency are resurfacing and may be more severe. [3], [4] Staffing and supply shortages continue, patient use of services has not normalized, and inflation in all operational areas — wages, supplies, medications and equipment — is trending upward at an alarming rate. [5]

Despite the increasing challenges, financially troubled health care organizations can be repositioned toward long-term sustainability. In many communities, health care organizations are major contributors to the local economy and often the largest employers. Everyone has personal connections to them through the people who work there and the people who receive care, and communities can be highly incentivized to do the work necessary to save their local hospital or nursing home.

Here are how the best candidates for repositioning will look:

1. High-performing clinical staff. A recent history of providing high-quality care is essential. Usually, this history is accompanied by strong physician and nurse leadership with a focus on patient care. There will also be good clinical performance in radiology, pathology, and pharmacy. It takes years to develop a collaborative team of clinical professionals with high performance standards. These clinicians do not all have to work on site. Doctors could be shared with other organizations. Also, technology allows connection with specialists in other settings. Without an existing core of good clinicians, attempts to reposition the organization are unlikely to succeed. In today’s difficult financial environment, improving clinical performance is extremely costly. It would involve recruitment, training, protocol implementation, quality-monitoring, and likely new equipment, supplies and facilities. Even with capital infusion, this evolution would take years.
2. Strong income sources. The reimbursement environment for health care organizations varies from state to state. States that have declined to expand Medicaid have limited provider reimbursement by leaving a significant portion of lower-income citizens, those least able and least likely to pay, to cover their own medical expenses. A strong Blue Cross-Blue Shield enterprise and a weak health maintenance organization (HMO) presence in a state signals the potential for a relatively positive provider reimbursement environment. Finally, a large Medicare Advantage (Medicare furnished by private companies) market may signal poor reimbursement. Other sources of financial support can also support sustainability. The most common source is taxation sometimes available to governmental organizations. Less common are private fundraising, grants or loans.
3. Ownership/corporate model. The ownership and corporate model of a health care organization impacts flexibility for restructuring. A private stand-alone nonprofit hospital or nursing home usually allows for free consideration of options, the government (city, county, state) hospital less so. A hospital that is managed or owned by a large health system will also likely present restructuring complications. Finally, significant lenders will also be involved in restructuring considerations.
4. C-suite leadership in transition. While transitions in leadership may appear problematic, the opportunity to work minus the failed management team is helpful for a restructuring. New leadership can work more quickly and effectively on its own.
5. Community support. Most communities support the retention of their health care organizations. Certainly, if this support is lacking or if the community places restrictive demands on how the organization moves forward, restructuring success is less likely.
6. Days of cash on hand, accounts receivable, vendor management and internal controls. Cash management in a troubled health care organization is often lacking. Low days of cash on hand and high accounts receivable usually indicate an opportunity to improve billing. Billing in health care has become so complicated and changes so frequently that even larger organizations struggle to maintain high-performing revenue-generation operations. Vendor-management is also complicated. Changing supply and equipment needs, along with vendor sophistication in contracting unmatched in most health care organizations, can lead to major cash leakage. Finally, the weakened organization may have dropped internal financial controls over the years, offering more opportunities for cash mismanagement. Improvements in these areas will often impact the organization’s immediate financial performance and allow time for consideration of restructuring options.
7. Technology. It will be difficult to generate adequate capital for the financially troubled health care organization consisting entirely of outdated facilities, IT and technological equipment in areas such as radiology and the operating suites.

While not all financially troubled health care organizations can be saved, restructuring professionals can help these organizations and their communities assess their positions and identify realistic options for the future.