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The Bankrupt Homes. Four nursing home chains operating in California entered bankruptcy in 1999 and four entered bankruptcy 2000.  These bankruptcies impacted on a total of 155 California facilities (113 facilities in 1999 and 42 in 2000). Thus, we identified 16 percent of our sample of California nursing homes as operating in bankruptcy in 2000. Although there may be some other bankrupt facilities in California that remained unknown (e.g., independent homes, members of the chains that we could not identify), state officials considered that we had identified the vast majority.  

Significant Factors Associated with Bankrupt Facilities. Controlling for a number of factors, in both models, chain member bankruptcy was correlated positively with: location in the LA Region, higher maintenance costs per day, and higher nurse staff turnover rates. These factors increase the risk of bankruptcy. Controlling for a number of factors, in both models, chain member bankruptcy was correlated negatively with: location in the Bay Area, percentage of Medicare residents, and administration costs. These factors reduce the risk of bankruptcy. In the all homes model only, weaker liability to assets ratios (a measure of solvency) were correlated with bankruptcy. In both models, the facility-level financial measures of profitability and liquidity did not predict bankruptcy among California members of chains, controlling for other factors.

Outcomes of Bankruptcy.  Through 2001, none of the publicly traded bankrupt chains proceeded to corporate dissolution under Chapter 7 of the U.S Bankruptcy code.  This is consistent with findings from our other study, which identified only 32 free standing nursing homes closures in California between 1995 and 2001. Although the reason for closure is known by the state in only 18 of these closure cases, only two were preceded by bankruptcy. The single most reported reason for closure involved poor quality. One bankrupt national chain that is emerging from bankruptcy has reputedly sold (e.g., not closed) two of its California facilities as part of its restructuring plan.

Only two of the smaller bankrupt chains identified in this study (8 California facilities) progressed to corporate dissolution. It is not known whether these involved the sale or closure of the homes involved.  In the case of one other of the smaller bankrupt chains in this study, the owner abandoned three California homes (280 residents). In 2001, the state incurred costs of over $2 million finding new operators for two of these homes and closing the third.  

Policy Considerations

The combined resources of the state, CMS and industry associations were unable to supply this study with a definitive list of bankrupt nursing facilities operating in California. No source was able to identify bankrupt independent homes. This situation has three important implications. First, consumers, relatives and placement planners are not able to check whether an individual California nursing home is in bankruptcy. Second, the absence of this information limits effective regulation and policy analysis. For example, it exposes the state to the costs involved with unplanned closures/temporary management/receivership, as noted above. Third, the available information suggests that nursing home bankruptcy in California is concentrated within chain members but this requires further analysis because of the lack of available data.

While this study found that facility level financial measure of profitability and liquidity do not predict bankruptcy among individual chain members, we did identify facility-level factors that are predictors of bankruptcy among chain members (e.g., L.A. region, high nurse turnover and maintenance costs). This suggests the need for the state to monitor these factors carefully. It also signals the need to better understand and monitor the financial, ownership, and operational

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