Hospitals on the Brink of Bankruptcy

Posted On April 19, 2010
Categories CLHS, Events

In April the Center welcomed speaker Samuel Maizel, a partner with the Los Angeles office of Pachulski Stang Ziehl & Jones, for an eye-opening assessment of the financial burden hefted on hospitals by the recent economic crisis. Bankruptcy law professor Jessica Gabel moderated the program. A bankruptcy practitioner and expert in the restructuring of health care business debts, Maizel presented a crash course on the current and coming hospital financial distress. He said hospitals no longer operate at a profit and instead function as patient warehouses. This business model can lead to staffing shortages and flatlines hospitals’ ability to do what they do best – provide emergency care.

The hospital industry’s prognosis is uncertain, and Maizel explained that when debt-ridden hospitals continue to operate at a loss, their options are limited. They can sell the assets, either in or out of bankruptcy, or reorganize through bankruptcy to shed debt and restructure the business. He explained that reasons for hospitals’ fractured state include managed care mandates, increasing numbers of uninsured, and hospitals serving as primary caregivers rather than centers for trauma and surgery.

Maizel underscored many hospitals’ deteriorating facilities. “A lot of hospitals were built in the 1950’s and 60’s. Rebuilding hospitals today is tremendously expensive, and there is just no money to do it.”

Maizel said that bankruptcy and out-of-court workouts can save these flailing institutions. Hospitals are a business first and must be managed well in order to survive, especially in the current economy. A restructuring often involves bringing new operators into the hospital and negotiating new contracts with the staff, insurance companies, and local and federal health care agencies. Hope for hospitals depends on their willingness to shift from the status quo and streamline their operations.

“It currently costs one million dollars a bed to build a hospital in California. If you want a 100-bed hospital, which is small, you need one hundred million dollars.” – Samuel Maziel