The number of health care companies, some senior housing organizations among them, that filed for Chapter 11 bankruptcy jumped dramatically in the first quarter of 2016, hitting record post-recession levels.
And it may get worse before it gets better, according to Jeremy Johnson, a restructuring attorney in the New York office of Kansas City, Missouri-based firm Polsinelli. The firm recently published the Healthcare Services Distress Research Index for the first quarter of 2016.
The Index reflects Chapter 11 filings amongst health care companies, including hospice agencies, senior care communities and hospitals, with assets of more than $1 million. The indices are based on independent data gathered and given to Polsinelli exclusively by the TrollerBK.com bankruptcy service. Polsinelli does not specifically break out the number of senior care and hospice organizations included in the Index.
The Healthcare Services Distress Research Index hit 151.67 for the first quarter of 2016—the highest level since the end of the Great Recession in the fourth quarter of 2010, and an increase of 30 points since the fourth quarter of 2015, Johnson told Senior Housing News.
The Index has risen about 36%, or 40 points, since the first quarter of 2015, and the Index is currently more than 50% above its benchmark in the last quarter of 2010, the data show.
Meanwhile, on a trailing four-quarter average, health care services Chapter 11 filings have risen from 1.11% in 2010 to 3.81% in the first quarter of 2016.
It doesn’t appear as though the distress is slowing down in the second quarter of 2016, Johnson said.
“At least, that’s what we’ve been seeing in terms of our anecdotal data this quarter,” he explained. Changes in reimbursement and payment delays may be to blame, he said.
“For the senior living industry, the change in the U.S. health care environment is a watershed moment,” Johnson said. Senior living companies that resist or are unable to change will continue to struggle, he said.
“But, senior living companies that can successfully adapt to the new regulatory and reimbursement environment have the ability to be very, very successful,” Johnson said.
Although not everyone’s cup of tea, distressed properties can present an opportunity for buyers, including senior living operators who, through due diligence, determine the potential rewards of buying outweigh the risks.
Additionally, just under half—48.35%—of the health care Chapter 11 filings in the first quarter of 2016 were made in the Southeast; 14.29% were made in the Northeast and 12.09% were made in the state of Delaware, the data show.