More Distress Ahead for Health Care, Senior Housing

The number of health care companies that filed for Chapter 11 bankruptcy jumped to a record high in the second quarter of 2016—and the financial downfall of some senior living organizations played a part.

“It’s one thing to say that the distress in the second quarter of 2016 is the highest it’s ever been, but these numbers also mean that the past year is the highest it’s ever been,” Jeremy Johnson, a restructuring attorney in the New York office of Kansas City, Missouri-based firm Polsinelli, told Senior Housing News. The firm recently published the Healthcare Services Distress Research Index for the second 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.

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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 163.33 in the second quarter of 2016—the highest level since the end of the Great Recession in the fourth quarter of 2010, and an increase of 12 points since the first quarter of 2016.

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The Index has risen by 50 points, or about 44%, compared with the second quarter of 2015. Additionally, the Index is 66% above its benchmark in the fourth quarter of 2010.

“I think what’s happening is that the distress is beginning to reveal itself,” Johnson said. “It’s a direct result of the changes in the Affordable Care Act, new technology, and all of the changes in the market that have been happening over the past few years.”

The increasing distress will likely to continue through the third quarter of this year—and potentially beyond.

“We obviously don’t have [third quarter 2016] data yet, but the Chapter 11 filings are still happening,” Johnson said. “We think the trend is going to continue going forward.”

Distressed senior housing organizations continue to have a noticeable presence, Johnson added.

“Anecdotally, we can speak to the fact that it’s an active part of what we’re doing right now, advising folks in senior living that are dealing with financial distress,” Johnson said.

Meanwhile, over half—54.08%—of the health care Chapter 11 filings in the second quarter of 2016 occurred in the Southeast; 11.23% were made in Delaware, 10.21% were made in the Southwest and 10.2% were made in the Northeast.

Still, Johnson stresses, it’s not all doom and gloom. 

“Overall, we’re still seeing a lot of healthy deal flow as well as distress deal flow,” Johnson said. 

Written by Mary Kate Nelson

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