National economic indicators show record-high distress in health care; likely due to repeal and replace debate
Polsinelli, an Am Law 100 firm, released today the Polsinelli-TrBk Distress Indices
for the third quarter of 2017, revealing a startling connection between the level of uncertainty in the health care market and the ongoing rise of economic distress among health care service providers.
The Polsinelli-TrBk Distress Indices are the backbone of a research report that uses bankruptcy filing data as a proxy for measuring financial distress in the overall U.S. economy, as well as breakdowns of distress in the real estate and the health care services sectors.
“Health care distress is high and it seems to be getting worse. We’ve seen increased distress in health care services, with an increase of 15 points over last quarter and a staggering 123 percent increase since 2010,” said Jeremy Johnson
, a bankruptcy and restructuring attorney at Polsinelli and one of the authors of the report. By comparison, the general Chapter 11 Index and the Real Estate Distress Indices show slight upticks from last quarter.
The business of health care is unlike other industries, such as manufacturing, real estate, or retail. Health care faces all the traditional business challenges, such as competition, the impact of technology on services, and increasing wages. But more, the health care industry is needing to adapt to increasing regulations, changes in reimbursement rates from government or private payors, and a shift from traditional fee-for-service to value-based models that impact profitability.
“There is unprecedented pressure of major systemic changes to the existing health care system, particularly the implementation of the Affordable Care Act over the last several years and the current status of the program, which is alternately being repealed, repealed and replaced, phased out, or simply defunded,” Johnson said. “The administration’s recent decision to terminate cost sharing reduction payments will also directly impact the health care market. Insurance companies may continue to provide insurance at a higher premium or decide to exit the markets. Eliminating these payments and the resulting premium increases may increase the cost to the government through premium subsidies.”
The Chapter 11 Distress Research Index
was 42.74 for the third quarter of 2017. The Chapter 11 Index increased nearly 2 points since the last period and increased 6 of the last 9 quarters. Compared with the same period one year ago, the index has decreased nearly 5 points and compared with the benchmark period of the fourth quarter of 2010, it is down nearly 58 percent.
The Real Estate Distress Research Index
was 25.16 for the third quarter of 2017. This is approximately the same as the last quarter. The Real Estate Index is up approximately 1 point from the same period one year ago and compared with the benchmark period, it is down nearly 75 percent.
The Health Care Services Distress Research Index
was 223.33 for the third quarter of 2017. The Health Care Index increased 15 points from last quarter. The index has experienced record or near-record highs in 5 of the last 6 quarters. Compared with the same period one year ago, which was a record high at that time, the index has increased 60 points. Compared with the benchmark period of the fourth quarter of 2010, the index is up over 123 percent.
On a trailing four-quarter average, the percentage of real estate filings among all index-measured Chapter 11 filings has decreased from 19.98 percent in 2010 to 11.76 percent now, decreasing slightly since the last quarter. Health care services filings have increased from 1.13 percent in 2010 to 5.90 percent, an increase from last quarter.
The Polsinelli/TrBK Distress Indices track the increase or decrease in all Chapter 11 filings with over $1 million in assets since the fourth quarter of 2010. Unlike the public markets, the Polsinelli/TrBK Distress Indices include both public and private companies, creating a broader economic view and one which may show developing trends on Main Street before they appear on Wall Street.
To access the full report, included graphs and all past analysis, visit www.distressindex.com