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Restructuring or Turning Around a Hospital: It Doesn’t Mean Bankruptcy

In a session at the Becker’s Hospital Review Annual Meeting in Chicago on May 17, Paul Rundell, managing director of Alvarez & Marsal healthcare industry group and Bill Baker, national partner in charge of U.S. healthcare transactions for KPMG, discussed why a hospital restructuring or turnaround does not always mean a hospital is bankrupt in a panel moderated by Barton Walker, partner at McGuireWoods law firm.


Mr. Rundell began by discussing current hospital restructuring and turnarounds in the healthcare industry. Although many individuals may think of bankruptcy when they hear a hospital is undergoing a transformation or restructuring, he believes that restructuring does not mean a hospital is bankrupt. "Most of the [Alvarez & Marsal] clients are not in bankruptcy," said Mr. Rundell.


When Alvarez & Marsal consultants begin working with a hospital in a turnaround they ask a few initial questions regardless of the hospital's financial situation:


  • Does the hospital have core operating competencies?
  • What does the management do well?
  • Does the hospital have capital?
  • Who is involved in the transaction?


A turnaround does not have to include back office integration or a physician compensation model. It could be an initiative for more bundled payment models. "Strategic initiatives are considered potential turnarounds, just earlier in the process than a crisis where the hospital is completely out of cash. The earlier we are brought into the situation, the easier it is to implement the transformation and turnaround efforts," said Mr. Rundell.


Mr. Baker agreed with Mr. Rundell on the unique nature of transactions in the hospital market. While a transaction or a turnaround does not need to involve bankruptcy, when it does, debt holders drive it. "There is a unique nature in the hospital transaction market. Most bankruptcies -- unless prepackaged -- are driven by debt holders. They may be unhappy with management and trying to take control of the situation or they could be bondholders who want their voices heard. Very few transactions directly target Chapter 11. Financial institutions do no want any front page risk or the perception that they are operators running the hospital," said Mr. Baker.


More Articles on Hospital Transactions:

Strategic Thoughts for Independent Hospital Consolidations

Best Practices for Strategic Communications During a Transaction

6 Recent Hospital Mergers & Acquisitions

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