When finances fall apart

Many hospitals are facing tough financial times, but for some, the finances just fall apart. What happens then?

For many, what happens is bankruptcy.

"Generally, filing for bankruptcy is one of the last options for a hospital experiencing financial problems," said Christopher Kerns, managing directory of research and insights at the Advisory Board Company.

And that's what happened to Kentuckiana Medical Center in Clarksville, Ind.

Last summer, the 40-bed hospital filed for Chapter 11 bankruptcy protection in July. But bankruptcy didn't lead to closure for Kentuckiana. It actually led to its salvation.

Shortly after a settlement agreement with the hospital's creditors was reached in November, Galichia Hospital Group, a national healthcare development firm based in Wichita, Kan., took over the hospital. 

Galichia brought on a new management team led by chief executive officer Michael Phillips, but retained Kentuckiana's 200 employees. Galichia also added a couple more service lines and more employees, Phillips said, and it plans on launching a new emergency department and increasing the number of patient rooms, turning a desperate situation for Kentuckiana into a win.

"It was a smooth transition," said Phillips. "Sometimes it can be a rough transition when you are trying to identify where costs are being lost, or how to downsize in many cases."

Kentuckiana and its surrounding community were very fortunate in the way the takeover by Galichia turned out, said industry observers.

Usually hospitals seek and find an opportunity to merge or be acquired before getting to bankruptcy, Kerns noted, but, as Kentuckiana's situation demonstrates, bankruptcy doesn't mean all opportunities are lost.

However, hospitals in serious financial distress shouldn't gamble their fate. 

The best option would be for a hospital to change its business model to avoid financial distress, said Akram Boutros, CEO and president of MetroHealth Medical Center in Cleveland, but the right leadership is needed to turn an organization around, and, unfortunately, he said, that usually doesn't happen in time.

Which leaves reducing costs and increasing revenue by improving service delivery. If that does not help a hospital out of financial trouble, said Boutros, "the hospital should look for a white knight to save the institution and the jobs."

That white knight may take the form of an acquisition or merger, but it could also mean partnering with other providers to widen service offerings and build capacity, he said.