Counting Healthcare Chapter 11 Filings: Are There More Than Expected...

This post is co-authored with my student, Kelsey Brandes, rising 3L, IU Maurer School of Law

Reports of hospitals, physician practices, healthcare systems, and clinics filing for bankruptcy have become seemingly increasingly well publicized in recent years. At the beginning of this year, Pew released a study detailing why rural hospitals are in greater financial jeopardy in non-medicaid expansion states in the wake of the ACA. This may foreshadow more hospital closures and possibly more bankruptcy filings. With this in mind, one of my students at Indiana University Maurer School of Law, Kelsey Brandes (with whom I'm co-posting), decided to survey healthcare businesses that had filed chapter 11 between the beginning of 2008 and the end of 2017 with the goal of assessing how many healthcare businesses filed chapter 11 and why they filed, as based on their disclosure statements and other filings.

This survey found that, after combining jointly-administered cases, on average, 38 healthcare organizations filed per year during the study's ten year period, as shown by year on this graph.

The chapter 11 filings clumped in certain states. Thirty-six (9.5%) these filing were in the Central District of California. There were 47 filings (12.5%) in bankruptcy courts in the state of California. Texas was not far behind with 44 (11.7%) total filings for the Northern, Eastern, Western, and Southern Districts. Texas is not a Medicaid-expansion state. Three other high-filing states were Florida, Georgia, and Alabama, which saw a combined 13.8% of the total chapter 11 cases in the study. All three of these states have not expanded Medicaid, which connects with the recent Pew piece about greater financial problems faced by hospitals in non-expansion states.

These data do not show a large increase in healthcare chapter 11 cases in recent years, as one might predict based on recent reporting. But they do show that hospitals, physician practices, healthcare systems, and clinics have steadily filed chapter 11 over the last decade, perhaps in greater numbers than one may have anticipated. The data also show some interesting clumping of cases in certain states (as I similarly found with my research regarding religious organizations filing chapter 11).

Because of the large number of chapter 11 cases during the study's time-frame, Kelsey decided to concentrate her analysis of the debtors' stated reasons for filing on those debtors that filed in 2017. Her findings about debtors' stated reasons for filing comport with why most businesses file chapter 11. The debtors cited decreased revenue, financial structure, and poor management.

More specific to healthcare entities, some debtors cited reimbursement difficulties, with one debtor specifically mentioning the ACA and the fact that its state (Georgia) was a non-expansion state as a reason for its filing. Also, as seen more often with smaller businesses, some smaller clinics and individual physicians that filed cited personal reasons. These personal reasons included doctors violating laws, such as the Anti-Kickback Act. Overall, though perhaps fewer debtors than expected stated reasons for filing related to the ACA, healthcare businesses that seek to reorganize are struggling with financial problems, as increasingly is being reported in the news.

Finally, a note on methodology. To identify cases, Kelsey searched dockets on Bloomberg Law by debtor name for the "med," "care," "surgical," “surgery,” “wellness,” “urgent care,” “surg-,” “medi-,” “health,” “hospital,” “medical,” “healthcare,” “surgi-,” “associates,” “centers,” and “pediatrician.” Although this list almost certainly does not encompasses every healthcare business, system, or hospital that filed chapter 11 during the relevant period, it likely captures most of the filings. Also necessarily omitted (and also omitted if they appeared in the results) are dental practices, substance abuse treatment facilities, home healthcare agencies, psychiatric and mental health offices, and nursing homes. This search produced 655 unique results over the study's ten year period. Combining jointly-administered cases into one yielded 377 unique healthcare chapter 11 debtors during this period (as shown in the chart above). Over the ten-year period, there were several filings of large healthcare systems comprised of fifty or more jointly-administered cases.