There goes the hospital safety-net
Safety-Net Hospital Owner Pipeline Health Files for Bankruptcy
Pipeline Health System LLC, an operator of a network of community hospitals and health clinics serving patients on government insurance or who are uninsured, has filed for bankruptcy, citing rising labor costs and aging facilities, WSJ Pro Bankruptcy reported. The privately held hospital owner filed for chapter 11 on Sunday in the U.S. Bankruptcy Court in Houston to restructure roughly $603 million in senior debt and leases to address problems in the business that the company says have been exacerbated by the COVID-19 pandemic. The company said it plans to either sell its operations or hand the business to lenders. Pipeline blamed its bankruptcy in part on rising labor costs that cut into its margins and aging medical facilities that required significant expenditures to continue operating. The company, whose patients mostly rely on Medicare and Medicaid, said it has also had problems getting timely funding from federal and state authorities. Based in El Segundo, Calif., Pipeline operates seven so-called safety-net hospitals that provide care to vulnerable or socioeconomically disadvantaged patients. The company’s facilities include Weiss Memorial Hospital in Chicago, White Rock Medical Center in Dallas, Coast Plaza Hospital in Norwalk, Calif., East Los Angeles Doctors Hospital and Memorial Hospital of Gardena in Gardena, Calif.
Pipeline posted a net loss of about $271.5 million for the 12 months ended August, which the company said was driven by large financial losses at its aging Illinois facilities. Over the same period, the company’s operating expenses were about $761 million, with about $419.7 million attributed to labor costs, according to court documents.
Russell Perry, its chief transformation officer, said in a sworn declaration the cost of the company’s nurses, other labor and medical supplies skyrocketed during the Covid-19 pandemic. Salaries for healthcare workers rose as the demand for their services soared during the pandemic, adding to rising costs for hospital operators.
The cost of maintaining Pipeline’s aging facilities, which are 53 years old on average, has further strained the company’s finances, court papers say. Pipeline said the losses at its Illinois facilities are being subsidized by its California and Texas operations.
Pipeline said it had been negotiating for months a sale of its Illinois facilities to Ramco Healthcare Holdings LLC, which had planned to lease the premises to Resilience Health LLC, a New Jersey-based mental-health care provider. But Ramco terminated the purchase agreement at the end of August, Mr. Perry said. The parties have continued to negotiate on the terms of a potential acquisition, Mr. Perry added.
Pipeline has also held parallel discussions with its top lenders, which agreed to let the company draw down the remaining $30 million on a bridge loan, which gave Pipeline time to prepare for the chapter 11 filing and craft a restructuring proposal, Mr. Perry said. Pipeline’s lenders include Credit Suisse Group AG , which issued the company’s asset-based lending facility with $29 million outstanding.
Pipeline plans to sell its medical facilities in chapter 11 or hand the company to senior lenders in exchange for debt forgiveness, court papers say. Mr. Perry said Pipeline will continue trying to sell its assets either to Ramco or to other bidders and market test a debt restructuring.
Pipeline lenders have agreed to fund the chapter 11 case with a $110 million financing package that provides the hospital operator with $40 million in new cash and rolls up $70 million in existing loans that will be repaid first under a potential bankruptcy plan, court papers say. The chapter 11 financing must be approved by a bankruptcy judge.
The company is proposing a rapid chapter 11 sale process, targeting an Oct. 26 bankruptcy auction for the Illinois facilities and a Dec. 9 auction for its other premises in California and Texas. The sales timeline must be approved by a bankruptcy judge and could be challenged by Pipeline creditors.
Pipeline is represented in chapter 11 by law firms Kirkland & Ellis LLP and Jackson Walker LLP. The company has hired investment bank Jefferies LLC to provide advice on the chapter 11 financing and sale process and Ankura Consulting Group LLC as restructuring adviser.
Pipeline is scheduled to make its debut bankruptcy court appearance Monday afternoon. U.S. Bankruptcy Judge Marvin Isgur has been assigned to the case, numbered 22-bk-90291.
