Friday, December 2 2022

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Diving summary:

  • Pipeline Health System, operator of seven safety net hospitals in California, Texas and Illinois, filed for Chapter 11 bankruptcy protection in the Southern District of Texas on Monday, citing high labor and supply costs, facilities obsolete, government funding cuts and failure to close a deal to sell its two Chicago-area hospitals that would have raised $92 million.
  • Pipeline, based in El Segundo, California, said in court documents that large financial losses at the two facilities, Weiss Memorial Hospital in Chicago and West Suburban Medical Center in Oak Park, meant that the system’s operations in California and Texas were subsidizing its operations in Illinois.
  • The two Chicago-area hospitals lost $69.7 million in the 12 months ending in August, according to a statement from Pipeline Director of Transformation Russell Perry filed in court. Perry was appointed to the position at Pipeline on August 24 and is also a senior managing director of Ankura Consulting Group.

Diving information:

The deteriorating financial health of many health systems in 2022 has caused a number of warnings from experts and industry leaders on the ability of illiquid facilities to remain solvent. More than half of US hospitals could end the year with negative margins, according to a projection prepared last month by Kaufman Hall for the American Hospital Association.

Dramatic increases in the costs of labor, drugs, supplies, and equipment are putting enormous pressure on providers, the AHA has warned. A study published in the journal Health Affairs this summer also warned that hospitals with a higher proportion of Medicare patients were more likely to close or be acquired.

In Pipeline’s case, costs for nurses, contract labor and medical supplies have skyrocketed, according to the document, adding that its aging facility requires large capital expenditures to maintain.

Additionally, two-thirds of Pipeline patients rely on Medicare, Medicaid or other government programs for health coverage. Pipeline has recently experienced a series of “significant funding delays” related to government health programs that have put the system under significant financial pressure, according to the document.

Since the deal to sell its Illinois hospitals fell through by August 30, Pipeline’s cash position has continued to decline, according to the court document. The Chapter 11 process will give Pipeline the resources to keep its hospitals open and serve patients, the system said in a news release.

Pipeline said it has secured financial commitments to ensure its hospitals continue to operate through the Chapter 11 process. The system has held further discussions about a potential sale of the Illinois properties to Resilience Health. If a deal cannot be reached, Pipeline said it plans to undertake a process to identify other potential buyers.

In addition to the Illinois facility, Pipeline owns White Rock Medical Center in Dallas and Memorial Hospital of Gardena, Coast Plaza Hospital, Community Hospital of Huntington Park, and East Los Angeles Doctors Hospital in the Los Angeles area.

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