Calling it a “roadmap for healthy companies to avoid financial distress,” Polsinelli announced today the launch of the first ever Polsinelli/TrBK Health Care Distress Report: Causes of Health Care Distress in 2014. The report is based on the data used to calculate the Polsinelli/TrBK Health care Services Research Index and examines the top causes of health care business bankruptcies in 2014.
“We are confident that this report will provide valuable insights about success and failure in the health care industry,” said Bobby Guy, a Polsinelli Shareholder who joined the firm in April along with attorney and colleague Robert Dempsey, a co-author on the report. “We believe this is the only study of its kind looking at distress in the health care industry; other information often pre-dates the implementation of the Affordable Care Act, and with the health care industry changing rapidly, it is critical to look at the industry as it exists now.”
The top six causes of health care distress identified in the report are:
- Tort litigation
- Payment delay
- Bad Merger/over-expansion
- Labor/Employee litigation
- Management issues
- Reimbursement changes
While Tort Litigation and Payment Delay were cited most often by struggling companies, Bad Merger/Over-expansion, Labor/Employee Litigation, Management Issues, and Reimbursement Changes all tied for third place. The full report discusses a total of 17 causes cited by health care companies filing Chapter 11 in 2014.
To be included in the report, a health care company must have assets greater than $1 million dollars, be an entity rather than an individual, and select the “Health Care Business” designation on its initial Chapter 11 petition (a designation that generally fits companies providing patient services). U.S. filings by municipal hospitals or by affiliates of international companies that fit these criteria are also counted in the Health Care Index, but involuntary bankruptcy filings (where creditors, rather than the company itself, initiate the Chapter 11 filing) are excluded.
The Polsinelli/TrBK Health care Services Distress Index, on which the report is based, is a quarterly research index that uses Chapter 11 bankruptcy filing data as a proxy for measuring financial distress in the health care services sector. The index is likely to be a contrarian indicator of economic performance, so that a high index value reflects increasing financial distress in the sector. The index tracks the increase or decrease in comparative Chapter 11 filings for prior quarters and years, based on a rolling four-quarter average.
“We are very excited about what the data reveals,” said Bobby Guy. “The biggest surprise for researchers was how many different causes were identified by the health care companies in the report. With this much change going on in health care, there’s a lot of opportunity, but there’s also a lot of risk. It’s a thrilling - and dangerous - world in the health care industry right now.”
The research results were compiled by a team of 10 attorneys from three different specialties – health care, corporate mergers & acquisitions, and bankruptcy. The report was then reviewed by the Index Committee, including a statistics professional and a financial professional.
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