Mid last week, Petersen Health Care, a Peoria, IL based nursing home operator filed for bankruptcy in Delaware.
SC Healthcare Holdings LLC, which operates as Petersen Health Care, in federal court filings last Wednesday said it is seeking Chapter 11 bankruptcy protection because of ongoing financial problems partly due to an October ransomware attack and disruptions in payments from payers caused by the recent cyberattack on Change Healthcare, plus other issues including staffing costs, low reimbursement from Medicaid (the largest payer source for Petersen), and increasing other costs due to inflation.
Earlier this year (February), Change Healthcare (a subsidiary of United Healthcare) experienced a cyber-attack and a ransom ware event. Change Healthcare manages health care technology pipelines connected to tasks such as processing insurance claims and billing, reportedly handling 15 billion transactions annually. Approximately 50% of U.S. healthcare claims run through Change’s clearinghouse.
Petersen fell victim to a ransomware attack in October 2023. A ransomware group claimed responsibility for the attack and started leaking some of the data stolen in the attack after the ransom was not paid. Petersen Health Care said a substantial number of business records were lost, which made it incredibly difficult to bill customers and insurers, resulting in substantial delays in reimbursement for the services provided. Change Healthcare’s attack and interruption caused additional problems for Petersen. Change was a major payor/processor for Petersen Health Care.
Over the past three or so years since the start of the COVID pandemic, dozens of nursing home operators have filed for bankruptcy. Senior living as an industry has struggled. Rising interest rates have hurt providers with floating rate debt. Rising operating costs, particularly labor costs, have challenged operations in all healthcare sectors as cost increases have occurred at a rate faster than reimbursement increases. For providers like Petersen, heavily dependent on government reimbursement, there was no other payor source to mine for additional revenue (senior living has experienced higher than typical rate increases). In January, I covered the state of healthcare bankruptcies in a post, available here: https://rhislop3.com/2024/01/29/record-bankruptcies-in-health-care-in-2023/
Of Petersen’s $295 million in debt, $45 million are insured loans by HUD (Housing and Urban Development). Petersen’s failure to make payments on the HUD-insured loans forced lenders to place some of Petersen’s facilities into receivership, further challenging day-to-day operations. HUD insured loans are originated typically, through banks. Of the unsecured debt owed by Petersen, the largest creditor is RehabCare, the contract therapy provider.
The Health Care Cybersecurity Improvement Act of 2024 modifies the current Medicare Hospital Accelerated Payment Program and the Medicare Part B Advance Payment Program by requiring DHHS to determine if there is a need for advance or accelerated payments to healthcare providers due to a cyber incident.
Within the past year, Evangelical Retirement Homes of Chicago filed Chapter 11 and will sell its assets via auction. Windsor Terrace Health, operating 35 nursing homes in California and Arizona filed for bankruptcy. On March 19, Magnolia Senior Living in Georgia filed Chapter 11 protection for its four facilities. Petersen was the largest recent filing yet, I suspect more to come as 2024 progresses, though maybe not as large. The dynamics and conditions that caused these bankruptcies remain. Inflation now appears rather sticky and interest rate policy seems to have set at higher for longer. And of course, the biggest factor, labor, continues to suffer from a supply shortage amidst rising or certainly, constant demand.