Industry experts have predicted a rise in home health bankruptcies amid the COVID-19 virus. But home health providers likely won’t be the only ones affected by tighter cash flows and unexpected expenses.
Ultimately, there’s likely to be increased bankruptcy filings across health care, particularly in industries such as skilled nursing and senior living. That, in turn, could also present new opportunities for the home health providers that survive the ongoing crisis.
Across the health care landscape, in general, Chapter 11 bankruptcy filings have become more common in recent quarters — a trend that’s only expected to accelerate post-coronavirus, according to Jeremy Johnson, a shareholder at the law firm Polsinelli, where he focuses on health care restructurings.
“The health care filings are coming,” Johnson told Home Health Care News. “Q3, Q4 and then the beginning of next year is really when you’re going to start seeing health care filings. Right now, there’s an awful lot of money being made available to certain kinds of operators. … But it doesn’t solve a lot of the financial problems; it just makes sure they continue to operate in the interim.”
Polsinelli tracks Chapter 11 health care filings — which are also known as reorganization bankruptcies, allowing companies to restructure debt and assets. The firm reports its findings in a quarterly distress index, which includes organizations with assets of more than $1 million.
The higher an index value, the more financial stress an industry is facing. For health care, the index continues to track “significantly higher” than indices monitoring other industries and exceeds expected benchmarks.
In Q1 2020, Polsinelli’s health care services distress research index was 233.33, already up 8 points compared to Q4 2019. Keep in mind, that period largely includes information from before the impact of COVID-19 had fully set in.
While the virus began to take the nation by storm in mid-March, uncertainty initially prompted a pause in Chapter 11 filings, according to Johnson.
“You only file for [Chapter 11] bankruptcy if you’re being forced to avoid some particular outcome or you’re trying to implement a solution of some kind,” he said. “The virus basically up-ended the solutions that people had — it’s tough to file for bankruptcy when you don’t know what the economic landscape is going to look like in three weeks, much less six months.”
Historically, home health providers haven’t been the best candidates for Chapter 11 bankruptcy, as filings typically cost at least a couple hundred thousand dollars and require an organization to have a certain amount of material assets and liabilities.
Chapter 7 — also known as liquidation bankruptcy — is the more common bankruptcy filing route for home health providers. Still, any type of bankruptcy filing has historically been rare for the industry.
However, the coronavirus is expected to push a larger-than-usual amount of home health providers toward some sort of filing, as financial strain continues to plague the industry, which is already marked by razor-thin margins.
For example, a recent HHCN survey of home health providers showed that nearly 92% of respondents — or 136 people — said their overall revenue had decreased as a result of the COVID-19 virus. Of those, 116 respondents said revenue dropped by 10% or more.
Despite the financial strain, home health providers seem to be faring better than some other types of post-acute care providers. Take skilled nursing facilities (SNF) and continuing care retirement communities (CCRCs), for example. Even before the coronavirus, many providers in the senior care space were struggling financially.
“Over the course of the past year, well over 50% of the filings in the health care space were hospitals and senior living — either CCRCs or SNFs,” Johnson said.
He predicts that trend to be exacerbated by COVID-19, which could potentially create more opportunities and recognition for home health and home care providers to care for seniors in their homes, rather than for them to be cared for in institutional settings.
“The senior care, senior living [and] skilled nursing industries are in for an extremely difficult road the next 24 months to a couple years,” Johnson said. “Nobody is going to voluntarily put their parents in a skilled nursing facility or senior living [community], or even an assisted or independent living-type operation. I think they’re all going to experience substantial hits until there’s a solution to the coronavirus problem. … And the long-term effect of this on hospitals is what everybody’s trying to work to figure out right now.”