Chapter 11 Reorganization in Healthcare

Introduction

In the pursuit of offering quality health care services, hospitals often find themselves in serious financial crisis that leads to filing of Chapter 11. Chapter 11 filing, refers to a deliberate action that seeks to declare a health institution bankrupt and set out strategies to restore the financial position of the institution (Torkin, 2011). After a particular period health institutions that are emerging from bankruptcy often undergo re-organization as a measure to align its services to suit its economic situation. Reorganization is a move that has seen Johnson Memorial Hospital (JMH) and Hawaii Medical Center emerge from the brink of collapse to their current state of financial independence.

In 2008, Johnson Memorial Hospital filed Chapter 11 after a period of financial constraints and future uncertainties. It was unfortunate that the company emerged bottom in the preceding year as the worst performing intensive care hospital according to the 2009 Fiscal Report. Sadly, the hospital expenses were ever on the increase, whereas the output was overtime getting dismal and, as a result, the hospital Fiscal Year Report indicated -8.48 rate of profit margin. As a result of this worst performance, the management filed for bankruptcy in November 2008.

Following Chapter 11 filing, deliberate actions were deemed urgent in order to salvage the hospital from downfall. First, the institution embarked on cutting down expenses through a 10% cut of the workforce. Certainly, this step was in line with the revised objectives that emphasized the productivity of labor force and payments done on the basis of efficacy of service delivery. The cost analysis report had prior pointed out a large expense on the labor force that was less efficient which had plunged the company into financial jeopardy (Santerre & Neun, 2012). Other measures taken were intensive revenue collections, application for Federal Government grants, sales of bonds and intensive marketing of the hospital services. Most significantly was the wage and salary reduction that augured well after the hospital signed two-year contracts with non-unionized nurses, medical laboratories and physician bodies. It was a success, and a silent period of restoration started officially from 2009.

The situation in Hawaii Medical Center (HMC) was not better during the same year (2008). It signed Chapter 11 after it was declared bankrupt by the Federal Court. According to Hawaii News Report, HMC undertook focused steps to regain financial solvency. As a strategy to cut down expenses on exercise duty and property taxes, the hospital shifted its operation license from profit-making to non-profit institution. Secondly, the management decided on concentrating only on specialized services as a way to rebrand their services in order to regain its lost employees who had left the facility due to bankruptcy.

Under the re-organization plan, HMC was to its creditors Saint Francis Health system up to the tune of $ 46 million over a period of seven years. It was remarkable that the institution was able to make its first payment of up to $ 6 million in August 2010. All these re-stabilization programs were part of an intricate strategy to see the hospital through a hard financial time (Ekvall & Smiley, 2007). Insolvency had impaired service delivery; more specialized staff was leaving the hospital for more paying institution and the hospital was left at financial edge.

Today Hawaii Medical Center and Johnson Memorial Hospital have gained their initial financial independence. Although HMC is still paying for the creditors and financial partners, it is worth noting the quick pace of recovery and strategic approach to restoration. On the other hand, Johnson Memorial Hospital continues to flourish after regaining the solvency. Today it boasts of its two medical groups and vast out-patient clinics.

Conclusion

According to Laitinen (2011), it is important for a health institution to undertake period industry or firm analysis to avoid incidences of abrupt bankruptcy and verge of collapse. However, if the undesirable eventuality occurs the management is tasked with the responsibility of regaining the lost financial grounds. Just like in the cases of HMC and JMH, the re-organization strategies and reduction on expenses are key to recovery.