For the second time in five weeks, a national nursing home chain has sought protection from creditors in federal bankruptcy court, blaming Medicare rate cuts for its financial problems.
Sun Healthcare Group filed for Chapter 11 bankruptcy in Wilmington, Del., last week, with reported assets of $1.8 billion and debt totaling $2.1 billion.
The announcement came as two key congressional committees were set to start debating proposals that would ease Medicare payment cuts to skilled-nursing facilities.
Sun will continue to operate 369 skilled-nursing and 34 assisted-living facilities in the U.S., and has obtained $200 million in debtor-in-possession financing to fund those operations while it works out a financial restructuring with banks and bondholders. The Albuquerque-based company also operates nine rehabilitation hospitals in the U.S. and 180 long-term-care facilities in Europe.
No reorganization plan has been submitted, but Sun said negotiations with major creditors are near completion.
Sun's troubles have been public for months, and the company warned in August of the possibility of a bankruptcy filing. At that time the company reported a loss of $589 million, or $10.06 per share, on revenues of $601 million, for the second quarter ended June 30.
Like Louisville, Ky.-based Vencor, which filed its bankruptcy petition on Sept. 13, Sun had borrowed heavily to fund expansions, banking on the expectation that Medicare's prospective payment system would boost its bottom line and allow to it repay its loans with cash to spare.
One such expansion was the company's $320 million purchase last year of Atlanta-based Retirement Care Associates' 98 facilities and a 35% share in an RCA-affiliated medical supply company.
But the Medicare rate cuts that took effect in July 1998 cut Sun's revenues by 20%. Per-day Medicare rates fell by 45% at some facilities, and revenues from ancillary therapy and services to outside nursing homes fell off by 66%. In response, Sun laid off thousands of employees, tightened spending and put facilities up for sale. But it couldn't cut costs fast enough.
Medicare payments to Sun's facilities fell again in July, but the company has not disclosed the extent of those reductions.
Unlike Vencor, which is negotiating a federal fraud settlement in the midst of its bankruptcy proceedings, Sun's case is not complicated by allegations of Medicare fraud. But Sun did disclose in August that the U.S. Justice Department is conducting investigations of the company prompted by still-sealed whistleblower lawsuits.
A Sun spokeswoman said the bankruptcy filing was "positive in terms of the environment in which we operate. We have a strong company underneath."