Bankruptcies climb in health care field during pandemic

Chicago took a hit last week with a large hospital system entering bankruptcy, underscoring the distress that's building in the health care sector.

Mercy Hospital and Medical Center filed for bankruptcy Feb. 10 after its owner tried to close the facility, but was rebuffed by Illinois' health review board. The hospital takes on sicker patients, many of whom lack private insurance that reimburses at higher rates, according to court papers. It has had financial problems since the 1990s.

Hardship is spreading through the U.S. health care system, with costs of treating covid-19 patients climbing while more profitable procedures are limited. A total of 22 large health care related companies filed for bankruptcy in 2020, according to data compiled by Bloomberg.

Hospital filings will increase over last year without looser Coronavirus Aid, Relief, and Economic Security (CARES) Act regulations and access to other grants, Perry Mandarino of B. Riley Financial Inc. said in an interview. Health care is "fundamentally challenged because costs rise every year, but insurance reimbursements and revenue aren't rising," he said.

Still, some states will step in to support hospitals with high volumes to avoid filings, Mandarino said. Some systems will have "so much influence over the community, it will mean the state departments will have no choice but to help see them succeed."

Mercy's bankruptcy brings the tally of large health care sector filings to five since the beginning of December, and two since the start of the year.

Four companies with at least $50 million in liabilities filed for bankruptcy in the U.S. last week -- the same number that filed in the week before, but more than the one-per-week rate seen at the start of the year. The pace of filings may pick up in the second and third quarters of the year, according to Michael Sirota of the law firm Cole Schotz.

"Now that lenders and courts are becoming less sympathetic, I think you're going to see across various industries -- health care included -- the need to seek protection," Sirota said. "Everybody had to do the right thing during this unprecedented time. But now, commercial parties -- landlords, lenders and counterparties -- they're feeling the pain, and they're going to start to press all the buttons."

Distress in the leisure and entertainment industries, hard hit by lost revenue from the pandemic, is still building. The U.S. leisure and entertainment institutional leveraged loan default rate could approach 30% in 2021, from just 9.9% last year, according to Fitch Ratings.

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