With weakening cash flow, Pipeline Health files for bankruptcy protection

Pipeline Health, a for-profit system that operates seven safety net hospitals in three states, is seeking bankruptcy protection.

The system filed for Chapter 11 bankruptcy protection in the Southern District of Texas on Oct. 3. Pipeline, based in El Segundo, California, says the move will allow the system’s hospitals to continue providing care for patients as it seeks a sustainable path forward.

Pipeline has been trying to sell two hospitals in Chicago: Weiss Memorial Hospital and West Suburban Medical Center in Chicago. Pipeline had been negotiating a sale of the two Chicago hospitals to Resilience Health for $92 million, but that sale has not closed.

If Resilience Health opts against buying the two hospitals, Pipeline says it will look to find other potential buyers.

In paperwork filed in the bankruptcy court, Pipeline said the poor financial performance of the Illinois hospitals is taking a toll. The Chicago facilities lost $69.7 million over the 12-month period that ended in August 2022, according to the court filing.

“Due to the financial state of the Illinois Facilities, Pipeline’s California- and Texas- based healthcare operations have effectively subsidized the Illinois Facilities to avoid operational disruptions,” Russell Perry, Pipeline’s chief transformation officer, wrote in the court filing.

With the sale still in question, Pipeline's financial situation grows more dire. The system's "cash position has continued to deteriorate following the failure to consummate the Illinois Sale," Perry stated in the filing.

In addition to the two Chicago hospitals, Pipeline operates White Rock Medical Center in Dallas; and four hospitals in the Los Angeles area: Memorial Hospital of Gardena, Coast Plaza Hospital, Community Hospital of Huntington Park, and East Los Angeles Doctors Hospital.

In a statement about the filing, Pipeline cited the financial difficulties seen throughout the hospital industry in the COVID-19 pandemic, including higher labor and supply costs. Pipeline also pointed to delays in payments from insurers for treatments.

In the court filing, Perry said, “Most acutely, in the wake of the COVID-19 pandemic, Pipeline’s costs for nurses and other contract labor and medical supplies skyrocketed.”

Andrei Soran, Pipeline’s CEO, said the bankruptcy filing was a necessary step.

“We intend for the restructuring process to allow our hospitals to remain open and operating in their communities, while putting the hospital system in a more secure and sustainable financial position going forward,” Soran said in the statement. “Our employees and physicians across the organization have a long tradition of caring for patients in their communities, and our goal is for that care to continue.”

Soran also pledged that the system would provide “ongoing and transparent updates on our progress.”

Patients do not need to reschedule appointments, Soran said.

Under a Chapter 11 bankruptcy, the debtor develops a reorganization plan. Creditors that are affected by the plan could choose to accept or reject it, and the court must give its approval.

Hospitals around the country are reporting substantial losses in 2022. More than half of all hospitals could finish the year with negative operating margins, according to an American Hospital Association report released last month. Hospitals have higher expenses and lower volumes compared to pre-pandemic levels, according to Kaufman Hall, a consulting firm for health systems. Hospital leaders have scaled back services due to their financial challenges and staffing shortages.

Fitch Ratings recently revised its outlook for nonprofit hospitals and the health sector as “deteriorating.” Some analysts have expected to see some providers shut their doors due to the losses they’ve sustained, with many rural hospitals projected to be in a particularly precarious situation.

The economic downturn and inflation add to the headaches of hospitals. Many healthcare leaders have said they expect the U.S. to enter a recession, and some expect it to be a lengthy one.