Chapter 11 Filings Remain High in Health Care Sector

Health care companies are still experiencing a high level of financial distress, although the picture improved somewhat in the second quarter of 2018.

The Health Care Services Distress Research Index was 340.00 in Q2, down 115 points from a record high in the first quarter of the year. The index is prepared and published on a quarterly basis by Kansas City, Missouri-based law firm Polsinelli, using data provided by TrollerBK. It tracks Chapter 11 filings made by companies with assets of more than $1 million, excluding individual and involuntary cases.

The health care services segment of the index is composed of filings made by 83 companies, which include senior living as well as hospitals and other health services providers. Polsinelli does not disclose how many senior living companies are in the index.


While down on a quarterly basis, the health care distress index remained vastly higher than the overall distress index (49.26) and the real estate distress index (32.42).

“The index continues to show signs of decoupling from the broader U.S. economy as distress remains relatively low in other indices,” the Q2 report notes.

Health care distress has soared since the index’s benchmark period of Q4 2010. The current level of distress is 240% above the benchmark level, and it has exceeded the benchmark level by at least 100% for the last five quarters.


And, based on filings seen recently, the health care index is likely to worsen again in Q3, Polsinelli attorney Jeremy Johnson told Senior Housing News.

Most Q2 bankruptcies affected companies with between $1 million and $10 million in assets:

Courtesy Polsinelli

The Southeast is a hotbed of health care bankruptcies. This region accounted for 81.3% of health services Chapter 11 filings in Q2, and this has also been the region to see the greatest surge in bankruptcies since the benchmark period.

A wide range of factors can be seen driving the bankruptcy trends in health care, Polsinelli noted in a 2014 report. These factors include tort litigation and payment delays, often associated with government payers. And overall, the sector is undergoing large shifts as a result of ongoing health care reform efforts as well as demographic changes in the country.

Polsinelli is in the process of updating that 2014 report, and it is finding that many of those trends still hold true, Johnson said. Payment issues, in particular, appear to have worsened.

Written by Tim Mullaney

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