News of distressed hospital and health care facilities has increased dramatically. Around the country, bankruptcy cases involving financially vulnerable hospital organizations and health care facilities are occurring much more frequently. Bankruptcy tracking statistics reveal that nationwide, 21 hospitals filed for bankruptcy protection in 2016, 27 filed in 2017 and through the end of June 2018, there have been nine bankruptcy filings for hospitals or health care facilities.

Florida has a large network of hospitals and healthcare facilities. According to the Florida Hospital Association's 2018 “Directory of Hospitals”, throughout the state there are 249 hospitals (short and long-term care acute facilities, including 34 satellites), 39 psychiatric hospitals (including seven satellites and two intensive residential treatment facilities), 19 rehabilitation facilities (including three satellites) and 12 VA or military health care facilities. 49 percent of the beds in these facilities are operated by private, not-for profit entities, 36 percent of the beds are operated by private, for profit entities and 15 percent of the beds are operated by public facilities. Overall, this health care network employs over 267,700 full-time equivalent employees. From a pure economic impact, besides providing life-saving services and everyday health care needs, hospitals provide jobs, benefits, revenue for suppliers and trading partners and generally drive a significant component of the Florida economy. Any negative financial impact in the hospital and healthcare sector will likely have significant ripple effects throughout Florida.

For reasons ranging from its large, diverse population to the age and demographics of that population and its economics, South Florida's health care and hospital network is likewise very robust. Broward and Miami-Dade counties have a combined 45 hospitals. Any economic arena that has such a large impact on our local economy must be watched very closely. In fact recent analytical scholarship on the profitability of hospitals (both for-profit and not-for profit) shows that more than half of all hospitals in the United States are unprofitable (41 percent) or highly unprofitable (14 percent). Only 45 percent are profitable. Half of all U.S. hospitals lost $82 or more on patient care services for each patient discharged in 2013. See “A More Detailed Understanding of Factors Associated with Hospital Profitability” Bai Ge and Anderson Gerard, Health Affairs Vol. 35 No. 5 (May 1, 2016).

Much of the focus on distressed hospitals has been on rural facilities, since between January 2010 and July 2018, more than 85 rural hospitals across the country have closed. Florida has been impacted by this trend with the filing of the Campbellton-Graceville Hospital (CGH), a rural 25-bed critical access facility in the Florida panhandle. CGH filed Chapter 11 bankruptcy protection in 2017. It was then forced to close the hospital. Ultimately, the Bankruptcy Court approved the sale of the physical assets of the hospital to an entity that intends to provide healthcare to the community, albeit on a more limited basis. Clearly, the impact of distressed hospitals is being felt everywhere, including South Florida.

The most recent example impacting South Florida is the bankruptcy case of Miami Medical Center. In March 2018, The Miami Medical Center (MMC) filed for Chapter 11 bankruptcy protection. The pleadings filed in the MMC case reflect that it operated as a 67-bed regional acute care hospital. MMC was significantly renovated in 2014, but by late 2017, it had defaulted under its large financial obligations. The pleadings further set forth that MMC struggled to generate sufficient revenue to cover its expenses due to among other things, “obstacles in attracting sufficient patient volume.” In October 2017, MMC requested that its ACHA license be placed on inactive status while it pursued restructuring options. Its license was placed on inactive status on Oct. 23, 2017, and at that time, MMC ceased caring for patients. Additionally, it reduced its workforce down to a very small number of employees. Ultimately after evaluating its options, MMC filed for Chapter 11.

In its initial bankruptcy pleadings, MMC made it clear that its primary objective was to seek to facilitate a sale of its assets, including its license, in an effort to maximize value. These efforts led to the filing a sale motion and on July 26, 2018, Judge Laurel Isicoff, U.S. Bankruptcy Judge for the Southern District of Florida, entered an order approving a sale of substantially all of MMC's assets. It remains to be seen what the ultimate outcome of the sale will be on the community.

The MMC case should serve as a harsh reminder that the South Florida region is not immune to the trends that have been playing out across the country. The impact of these distressed situations must be closely monitored, not only by patients, but by health care professionals, governmental agencies, suppliers and investors. While warning signs may be there for a hospital facility, like many distressed situations, these warnings signs can turn into financial disaster very quickly.

Brian G. Rich, a partner at Berger Singerman in the Tallahassee office, concentrates his practice on the representation of debtors, creditors' committees, bankruptcy trustees and secured creditors.