How a Texas hospital plans to emerge from bankruptcy

Despite filing for Chapter 11 bankruptcy protection in September, the Hospital at Westlake Medical Center, a physician-owned hospital in Westlake Hills, Texas, is focused on "core service line growth."

Prior to filing for bankruptcy protection, the hospital already had a significant debt burden. However, hospital CEO Mark Shen, MD, said that Westlake was "managing our debt successfully up until a sudden change in payer reimbursement." 

As the hospital looks to emerge from Chapter 11, Dr. Shen is focused on managing vendor relationships and moving forward with "meeting obligations, transparency and maintaining trust."

To learn more about the hospital's Chapter 11 process, Becker's reached out to Dr. Shen:

Question: How does the hospital plan to get its labor costs under control? 

Mark Shen, MD: Like all hospitals facing the universal challenge of rising labor costs amid staffing shortages, we focus on optimized clinical staffing to manage our labor costs. However, although our labor costs align with today's industry standards, in contrast to large systems, we actually benefit from being a boutique hospital in that we have many highly skilled, dedicated nurses with more than 10 years of tenure with us. This tight-knit, clinician-centric culture is one of our strategic strengths in controlling labor costs without compromising patient quality care.

Q: What was the debt burden facing The Hospital at Westlake Medical Center prior to filing for Chapter 11? 

MS: We had been managing our debt successfully up until a sudden change in payer reimbursement, specifically an increase in delays and denials for some of our more common procedures. This disruption, alongside our existing repayment obligations, led to unrecoverable liquidity issues. While we are still working with the payer to understand the root cause of these ongoing changes, this is a great example of how factors outside of a hospital's control can severely impact outlook, particularly in a cash-constrained situation and when the cost of capital has increased significantly.

Q: How are you managing your vendor relationships right now? 

MS: Managing our vendor relationships is a key area of focus. While Chapter 11 is uniquely constructed to afford businesses an opportunity to rebuild with a reprieve from some of the more suffocating aspects of long term debt obligations, the associated court proceedings and procedures are also fairly complex. For our leadership team, this has required significant education on how each aspect of Chapter 11 impacts operational payment considerations and relationships with vendors. Specifically, we have found that a key determinant in those relationships is whether or not the vendor has prior experience with bankruptcy. For organizations that have conducted business previously with a hospital in Chapter 11, the relationship does not change, and we move forward quickly. For organizations that have minimal or no experience with a hospital in bankruptcy, there is typically a learning curve. This was a surprising lesson for our team – that we would often be placed in the position of educator to explain the nuances of pre-/post-petition payments and what is in the best interests of the vendors. Layering on top of that, the historical issues that we have faced with meeting obligations, transparency and maintaining trust have been our key mantras in moving the relationships forward.

Q: Will there be any services you have to cut back on? 

MS: Before filing for Chapter 11, we had strategically emphasized retrenchment in order to optimize our cash flows in preparation for our anticipated Debtor-in-Possession (DIP) financing agreement. Thus, we had cut back on a few growth initiatives that had not yet matured in the months leading up to our filing. Core service line growth is now our clear priority in Chapter 11. In a clear era of consolidation in healthcare, we believe there exists a prime opportunity for independent alternatives that are focused centers of excellence, and we are grateful to be afforded this opportunity to execute on this strategy. Through it all, keeping our patients healthy and providing top-tier care will continue to stay central to every decision we make. 

Q: Have you been working with local government and community leaders to ease the financial pressure on the hospital? 

MS: While working with local government and community leaders can often benefit hospitals facing financial pressures, this is less relevant to us as we are not a rural or critical access hospital. Though our situation differs, we maintain good communication with our local community and key stakeholders.

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