The healthcare industry — and senior housing in particular — will see continued distress as a result of the COVID-19 pandemic, according to a report released Wednesday by Polsinelli, a law firm. Although some hospitals and preventive care clinics recently reported a short-term surge in revenue as a result of the virus, the report suggests that businesses serving the at-risk senior population — including senior living communities — are likely to face additional operational and legal costs.
According to yesterday’s Polsinelli-TrBK Distress Indices Report, both the overall economic distress and distress in the healthcare industry grew in the second quarter, leading many experts at the firm to believe a volatile economy could linger much longer than originally expected. The Polsinelli-TrBK indices use filtered Chapter 11 filings as a proxy for distress in the overall economy and within certain subsectors, including healthcare. In the second quarter, the report showed that bankruptcy filings increased by nearly 3% within the healthcare sector and continues to track significantly higher than other segments.
“From what we’ve seen in the second quarter, I expect healthcare filings to continue to accelerate in a post-coronavirus world, especially in the senior care, senior living and skilled nursing fields,” said Jeremy Johnson, a bankruptcy and restructuring attorney and co-author of the report. “It will be more difficult for skilled nursing facilities or independent senior living communities to market to new residents and patients. The impact of the virus will last much longer in those industries.”
Johnson recommends that operators use a 13-week cash budget and track budget to actual spending on a weekly basis. He added that it’s important to have a firm grasp on cash receipts and upcoming expenses, and to review all vendor relationships and credit terms to make sure they are managing cash and taking full advantage of available lines of credit or trade credit. Further, he recommended testing the cash budget to determine potential weaknesses if credit terms are tightened, to help determine vulnerabilities.
“All of this should be done in addition to taking full advantage of existing relief programs,” he said.
“The large bankruptcy filings this last quarter were primarily operators already experiencing distress, and the pandemic put additional pressure on an already distressed business,” he said. “The government has thrown a significant amount of money at certain types of healthcare operators in an attempt to help them through the worst of the pandemic, but those bills are coming due and many won’t have money set aside. We anticipate the impact of COVID-19 will really be felt over the next six to eight quarters.”