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much and offering specialties for which
there may not be enough support.
You can look at the recent bankruptcy
in Louisiana of the Louisiana Heart
Hospital as an example of that.
I think that hospitals are also failing to
understand their competition as well,
in terms of geography and services.
They’re adding and discontinuing
services without really appreciating and
pursuing affiliations and partnerships
that could preserve offerings, but
without all of the related capital costs
and operating costs that go with them.
I’m talking about not just specialties,
but also fundamental things, such as
inpatient versus outpatient beds, etc.
There was a University of South
Carolina report on healthcare trends
between 2003 and 2012 that found that
healthcare coverage has increased,
obviously because of the ACA
(Affordable Care Act) and the expansion
of Medicaid, subsidized premiums,
etc. But there are fewer practitioners
available overall, and many of those that
do practice aren’t accepting Medicaid.
So while you have more coverage,
there is less access to care. That is
especially true for children living in
poverty and for people in rural areas.
That is the lead-in to the group that
I think is the most affected and the
most distressed: rural hospitals. They
are facing significant distress from
falling censuses. Rural populations
are decreasing and income levels
are falling, but they still have a very
diverse population that is generally
sicker, poorer, and older, and they have
limited access to healthcare. Here are
these hospitals with higher operating
costs, but with reimbursement rates
falling. They have more competition
from larger hospital groups, especially
huge mega hospitals, that are pulling
patients away. They also have trouble
attracting and retaining physicians
and practitioners at all levels.
Southern rural hospitals make up the
biggest portion of troubled hospitals,
and it makes sense because more than
two-thirds of them are in states without
Medicaid expansion. There are fewer
dollars available. That is the lay of the
land as we see it now, with some of the
issues and problems in defining and
reacting to the markets that they serve.
It’s interesting, too, that
obviously, because they’re rural, they’re
harder to get to, and you can’t achieve
the critical mass of patients, which
makes it significantly more expensive to
operate. And while there is more access
to coverage, that doesn’t mean that
people can afford the coverage/access.
It appears to me that there
is almost a two-way split between
hospital marketing issues. In the rural
areas, it seems that it is very hard for a
hospital to get to the critical size to
operate efficiently. In larger cities, it
seems to be different. There, it appears
that it is a failure of hospitals to read
their markets and their competition and
evaluate which specialties to go into and
which specialties are already saturated
or overserved in a given community.
Does that sound about right, Ed?
Yes. Even if you are successful
at creating affiliations and partnerships
and a network where you can cobble
together all the services you need, to
both of your points, it doesn’t
necessarily mean it’s easy to get to.
Access can still be tough, even if you
can afford it.
Let’s move on to the next
topic. Rob, you wanted to talk a little
about the financial challenges facing
The interesting thing is there is
a plethora of money out there, though
not necessarily if you’re totally distressed.
Among private equity, asset-based
lenders, and equipment financing, there
are plenty of institutions where lenders
are willing to finance these situations.
Their creativity, ability, and appetite for
risk will likely be proportional to their
One of the examples where we
have seen issues was a hospital in
Pennsylvania, where the state stopped
funding reimbursements for indigent
care for emergency room visits. So the
company lost $5 million overnight,
which forced it into bankruptcy.
What we ended up having to do is
restructure the bonds. When you
restructure bonds, you have to find
the individual bondholders and go
through the trustees, so there is a
mechanical process that makes
it a struggle. Having said that, we
were able to finance the accounts
receivable and the other equipment
by developing a plan to restructure
and rework the hospital’s collections,
its operations, and its efficiencies.
At all different levels of the capital
structure, but a lot of times if you’re in
distress, the crucial differentiator is:
what is the plan for exiting? In today’s
environment, patience is a key and an
opportunity. That is still something
that is desperately needed. People
and institutions are beginning to take
a different view. They are willing to
work things out as long as they are
going to be compensated for doing
that. What we also found is that there
are some financing organizations
that are nonprofits and have the
same mission as the hospitals.
We have worked with and are working
with one organization that wasn’t a
hospital but provided assistance to the
incarcerated population in one of the
Mid-Atlantic states. The organization’s
CEO found a lender whose mission
included funding entities helping
that community. What better way is
there to obtain financing than having
a financing partner that has a similar
mission and goal that the hospital does?
To me, a lot of it is about creativity,
finding the right partner, and
understanding the pressure points
that that partner has. Those are
critical. Whether it’s an asset-based
lender with a revolving line of credit
or someone who is financing the
equipment, other than getting paid
back, which is everybody’s goal,
what are the pressure points, and
how willing are they to work with the
organization? Most lenders, don’t want
to be on the front page of the local
paper for putting a local hospital out
of business, so there is plausibility for
wanting to work though this situation.
We just worked in a situation where a
company that specializes in purchasing