Astria Health, which operates three hospitals and multiple health clinics in Eastern Washington State, filed for Chapter 11 bankruptcy protection on Monday.
The problem: Ongoing collection issues with an unnamed third-party revenue cycle management company contracted by Astria created a cash flow crunch so severe that the company must seek protection from its creditors, according to a statement from the company.
Astria converted to a new EHR system after purchasing two new hospitals in 2017, and it was then that it contracted with an outside company to manage the revenue cycle business. But a large amount of unprocessed accounts receivable resulted in the significant shortfall in cash flow.
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Astria, which generates $240 million in annual revenue, currently owes more than $160 million in debt, according to The Wall Street Journal.
Meanwhile, Astria says there is no plan to close facilities and that employee jobs and wages will not be impacted.
WHY THIS MATTERS
Numerous hospitals outsource their revenue cycle operations.
Astria and its revenue cycle contractor agreed upon specific performance guarantees for accounts receivable and cash collections that were not met, the company said.
The bankruptcy will allow the company to access additional capital and switch to a new billing vendor. Astria -- which has secured a $36 million loan to fund operations during the bankruptcy process, according to U.S. News & World Report--expects to emerge from Chapter 11 the end of the year.
On Wednesday, the United States Bankruptcy Court for the Eastern District of Washington approved four motions filed by Astria, with the key ruling being approval of $28 million in financing to allow the provider to rectify supply and staff shortfalls and to pay off to existing secured lenders. This gives them a "pause" with creditors," the provider said.
The court also granted motions to ensure that wages and benefits of employees are unaffected by the bankruptcy.
Bankruptcies among healthcare services companies are on the rise. The Polsinelli | TrBK Health Care Services Distress Research Index--which uses filtered Chapter 11 filings as a proxy for distress in the healthcare sector--rose 145 points in the fourth quarter of 2018, and has experienced record or near-record highs in each of the last eight quarters. The index has soared approximately 450 percent since the fourth quarter of 2010.
Some researchers point to the use of comprehensive composite scoring as a way for hospitals to gather key information needed to fully assess their financial health.
ON THE RECORD
"The large amount of unprocessed accounts receivable value trapped in the contracted business office operation has taken much longer to process than agreed upon. This has resulted in a significant shortfall in cash flow which we are addressing through this process," Astria said by statement. "This delay in cash collections has now become severe enough to potentially disrupt the organization's ability to pay for crucial items in a timely manner."
Mark Klimek is an independent writer and editor with 20 years' experience covering financial issues, healthcare and more.