🏥New Chapter 11 Bankruptcy Filing - Thomas Health System Inc.🏥1/10/20
Thomas Health System Inc.
January 10, 2020
Yeah, we poo poo’d the whole healthcare distress theme because, well, there was a lot of bluster and not many large restructurings. Which is not to say that there weren’t restructurings. There were. A ton in fact. And patients apparently got left in complete and utter disarray as a result.
Now there’s another one to watch.
Thomas Health System Inc., a West Virginia nonprofit public benefit corporation, filed for bankruptcy along with two debtor hospitals (Charleston Hospital Inc. d/b/a Saint Francis Hospital and Thomas Memorial) and another debtor ancillary services provider (THS Physicians Partners Inc.). It claims to be the 17th largest private employer in West Virginia. Collectively, the debtors form a 391-bed hospital system and employ approximately 1700 people. Meaningful.
Also meaningful is the debtors’ $137.9mm of secured bonds and $45mm of underfunded pension obligations. The debtors annual debt service in 2019 was ~$10.8mm; their revenues were ~$267mm; their operating expenses were ~$253.3mm; and their net loss was ~$6.6mm. Clearly the debt service is making a mark.
In addition to their debt, the debtors cite a laundry list of reasons that led to their bankruptcy. In a nutshell, they boil down to “Thanks Obama.” Kidding, kidding. Well, sort of. These are all of the issues the company listed:
Implementation of the Affordable Care Act (thanks Obama);
The decline of the coal industry (“the war on coal”) and the thousands of resultant job losses (thanks Obama, and thanks Hillary for good measure);
Medicaid expansion (thanks Obama);
Reduced reimbursement rates (thanks Obama); and
Patient outmigration to competing health systems (ah, f*ck it, yeah thanks Obama).
On brand, we’re being a bit flip here but the numbers cited here are staggering:
Between fiscal year 2015 and FY 2018, the Hospitals have seen a decline of adjusted admissions, observations, and emergency room visits by approximately 12%, 26% and 45%, respectively. In addition, over the last five years, the commercial insurers’ share of payor mix has declined from approximately 28% to approximately 18%.
So, visits are ⬇️. And reimbursements are ⬇️. Compounding matters is the complexity of treatment needed:
…recent reports rated West Virginia’s overall health as a state at 46th out of the 50 states, based largely on the facts that West Virginia has the highest number of opioid-related overdose deaths in the United States in 2017 and has the highest obesity rate in the country, leading to an increasing rate of diabetes. All of these factors contribute to increased healthcare costs to be borne by the Debtors suffering from substantial reductions in Medicare reimbursement.
The debtors have been trying to pursue strategic alternatives since February 2019. To no avail. The bankruptcy, presumably, is meant to re-energize those efforts. They defaulted on their bonds and so the filing will also give the debtors a “breathing spell” to try and de-lever their balance sheet.
Jurisdiction: S.D. of West Virginia (Judge )
Capital Structure:
Professionals:
Legal: Whiteford Taylor & Preston LLP (Brandy Rapp, Michael Roeschenthaler) & Frost Brown Todd LLC (Jared Tully, Ronald Gold, Douglas Lutz)
Financial Advisor: Force Ten Partners LLC
Investment Banker: SOLIC Capital Advisors LLC
Claims Agent: Omni Management Group (*click on the link above for free docket access)
Other Parties in Interest:
Indenture Trustee: UMB Bank NA
Legal: Mintz Levin Cohn Ferris Glovsky & Popeo PC (Colleen Murphy, Ian Hammel, Timothy McKeon) & Dinsmore & Shohl LLP (Janet Smith Holbrook)