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Posted on 11.30.2020

With Health Care Bankruptcies on the Rise, Communication is Key

To no one’s surprise, 2020 has wreaked havoc on hospital finances. So far this year, 32 hospitals have filed for bankruptcy while others face a severe cash crunch brought on by declining volumes and rising expenses. With so many hospitals already teetering on the edge of survival, experts fear the latest surge in COVID-19 cases may trigger a wave of bankruptcies across the industry.

The warnings are eerily reminiscent of what we heard in the spring following the cancellation of elective surgeries. Yet, CARES Act funding helped many providers stave off what may now be inevitable given the latest round of cancellations and the lack of additional relief in sight.

If the predictions hold true, many hospitals – especially those in rural areas – and other health care providers may soon turn to the courts for bankruptcy protection as they seek to restructure their balance sheets or find a buyer to avoid shutting their doors for good.

The ‘B Word’

Though the word “bankruptcy” usually strikes fear in the hearts of patients, employees and vendors alike, it doesn’t always spell doom. Some bankruptcy structures provide businesses and organizations with an opportunity for a fresh start by allowing them to restructure debt and assets.

In fact, there are even sub-categories of bankruptcies such as “pre-packaged” or pre-negotiated cases designed to minimize time spent in reorganization; the 363 sale in which a buyer acquires the debtor’s assets; or traditional “free-fall” cases where an organization seeks court protection while it works through its options.

While each scenario follows a complex legal process, the importance of an effective communications strategy should not be underestimated. Maintaining the trust and confidence of all stakeholders is key to continued operation and, ultimately, a successful emergence. Here are our tips for health care organizations considering a reorganization.

Plan for milestones. Ironically, bankruptcy isn’t cheap given all of the advisors necessary to navigate the process. Communications should have a seat at the table and work in lockstep with legal and financial experts to understand and anticipate key milestones such as filings, required notices or court approval that may require communication. This planning is crucial for maintaining consistent operations, inventory supplies and workforce levels.

Prepare for leaks. Rumors and speculation often start well before any court proceedings so organizations must be proactive in anticipating leaks and developing a strategy to respond or mitigate appropriately.

Context is key. Every health care organization has a story … and your stakeholders need to hear yours. Only when they understand the pressures you are facing, the steps you are taking and – most importantly – why, can they put your situation in proper context and lend their support.

Words matter. Reorganization is full of complex – and often strange – terms and acronyms. But this isn’t the time to use them. When communicating with patients, employees, physicians and vendors plain language is your friend. Stay away from the ‘B word’ and don’t be afraid to explain the process in consumer-friendly terms. (Pro-tip: No one without a law degree understands what a Notice of Commencement means or why they are receiving it.)

Read the Room. While consistency in message is key, each stakeholder group will have their own needs and concerns. Resist the urge to create a one-size-fits-all communication strategy. Anticipate questions for each audience when crafting messaging and sequence communications so they hear news and updates from you first.

Be Transparent. There are a lot of moving parts with any reorganization. However, keeping stakeholders informed as you navigate the process can pay dividends in the long term. Employees and physicians who understand what’s happening and the potential outcomes are more likely to stay with the organization – providing much-needed stability during a tumultuous time. (KERPS and other stay bonuses help also.)

Navigating a reorganization is never easy but effective communications can make all the difference in retaining the trust of the audiences who matter most and positioning your organization for its next chapter.

Lovell Communications has decades of experience guiding health care providers through reorganization and other strategic transactions. Contact us today if we can help you.

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