NEW YORK – DECEMBER 15, 2021 - The healthcare industry has been under financial stress for years, with a record-setting number of bankruptcy filings in 2018. High filing numbers continued into 2019 and 2020, as effects from the pandemic exacerbated the situation. According to Epiq AACER reports, in 2021, there was a 48.7% decrease in Chapter 11 filings as compared to the previous year. This absence of bankruptcies, however, does not indicate that financial conditions have improved overall but rather can be directly attributed to substantial government stimulus during—and continuing through—the pandemic. While the general economy appears healthy, the healthcare economy is farther along in its financial deterioration and could very well be one of the industry sectors to seek bankruptcy protection in the coming years. Many healthcare systems are highly dependent upon government assistance and their operators are very interested in how to prepare for an unknown future.
What to Expect
To predict what the next few years may hold, it is crucial to understand the assistance that has helped many healthcare organizations remain viable. The Provider Relief Fund has been the most comprehensive funding mechanism and does not invoke repayment unless the organization fails to fulfill the proscribed conditions. As of May 2021, the fund distributed $119 billion to distressed organizations and this was not even the entire pool of money available. In September 2021, the administration announced $25.5 billion additional pandemic-related funding, $17 billion of which goes directly into the Provider Relief Fund. Some healthcare organizations have also taken advantage of Paycheck Protection Program loans, which are forgiven when certain criteria are met– such as not laying off staff and maintaining initial payroll costs. These are just two examples of pandemic assistance that has contributed to lower bankruptcy filings. Other loans, payment forgiveness, extensions, funds, and reimbursements have also helped.
Since many healthcare organizations were already operating on business models taxed beyond their limits, it is a safe bet that temporary government aid during a time of crisis will unfortunately not cure larger issues. Some factors contributing to distress in the healthcare industry over the last decade include increased costs associated with new medical technologies, staffing needs, and heavy pharmaceutical fees. With more competition and innovative business offerings, many healthcare organizations will need to make decisions regarding bankruptcy in the coming years.
One prediction for 2022 is that healthcare filings will start to increase again unless there is more regular aid distribution to help fend off the filings. Even if continued assistance trickles into next year, 2023 or 2024 will probably see an uptick in filings. While repayment forgiveness for pandemic aid has helped some organizations curb their debt, organizations that were in distress before unfortunately have a higher risk of that resurfacing, especially with medical supply and service costs rising. Another prediction – building off the first one – is that financially vulnerable organizations like nursing facilities or small practices may not be able to survive and will make up the bulk of future bankruptcy filings.
However, the rise in digital healthcare could come to the industry’s rescue so it is a critical time to pay attention to those trends.
Digital Transformation Trends
As part of the continuing transformation of healthcare, the use of digital medical appointments through telemedicine or alternate communication forms has been growing. This was another area of the economy where the pandemic accelerated an already emerging trend.
Like the pivot to ecommerce by retailers, digital healthcare may be the healthcare standard of the future. It includes telemedicine, at-home monitoring devices, mobile health apps, and electronic patient portals. Now, healthcare organizations of all sizes and functions are starting to use more digital tools and tracking their success. From a small private practice to large hospital systems, technology can offer a range of benefits to improve patient care while better managing internal resources and expenditures. One example is how telemedicine appointments can decrease costs associated with physical appointments – such as supplies or the need for larger office spaces – while also improving engagement between doctors and their patients. Another is the use of wearable devices to provide continuous insights so practitioners can make more informed and focused decisions about patient health and better manage diagnosed conditions.
Delivering quality medical care in this fashion is becoming increasingly popular and receiving more corporate acceptance due to key benefits such as ease of access and cost savings. Adoption and investment will likely continue rising, especially in areas proven successful such as mental health and palliative care services. Incorporating or increasing digital offerings into business models could help curb revenue declines or avoid a future bankruptcy. It is important to determine the most cost-efficient manner to incorporate digital health offerings into a specific practice, as needs will vary greatly and too much investment without strong returns could keep bankruptcy on the table. Widespread adoption and research on innovative digital health offerings can help guide these decisions.
As virtual medicine becomes more prominent, federal, and state authorities will also issue regulations to safeguard and protect privacy requirements to ensure compliance. It is crucial to continue monitoring legal developments in this space.
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