One in 10 skilled-nursing facilities nationwide is in bankruptcy, but by and large those homes continue to operate without disruption.
Even in states such as New Mexico and Colorado, where, respectively, 47% and 24% of the homes are in bankruptcy, hospitals report no more difficulty in placing post-acute patients than they had before.
Experts say, though, that it's only a matter of time before the healthcare industry starts to notice some changes.
William Winfield, a bankruptcy lawyer based in Oxnard, Calif., represents a not-for-profit pharmacy that operated a joint venture with Vencor before the Louisville, Ky.-based nursing home company filed for bankruptcy protection last September.
Vencor was the first of four publicly traded nursing home chains to file under Chapter 11 in U.S. Bankruptcy Court in Wilmington, Del., since the Medicare payment cuts implemented in 1998 helped send the skilled-nursing industry into a tailspin.
At least three privately held chains have also filed for bankruptcy.
"The healthcare business is so complicated that every filing has a ripple effect," Winfield says.
Labs, pharmacies, therapists and even acute-care hospitals are among creditors in the four largest cases.
Winfield says most big bankruptcies force some small businesses into liquidation.
The four largest nursing home bankruptcies had collective liabilities of $10.6 billion. Most of that debt is held by banks and bondholders, but vendors account for some of it.
Still, Robert Heatley, a principal with Ernst & Young, says he doesn't expect much in the way of collateral bankruptcies.
"These (nursing home) companies were pretty careful about their procurement process," he says. "They bought in bulk, and I'm not sure that many small vendors would be able to supply that."
Though most out-of-the-money vendors will feel the hit, most are big enough that they won't go out of business because of it, he says.
Some vendors even welcome the filings. For example, Genesis Health Ventures was owed about $13 million for pharmacy services provided to Mariner Post-Acute Network nursing homes in the months before Mariner's January bankruptcy filing. Though Genesis may not see that money again, debtor-in-possession financing should guarantee the bills are paid on time during Mariner's reorganization.
The threat of service disruption is greater at institutions that are solvent but struggling than at those that have filed for bankruptcy. Denver-based University of Colorado Hospital, for instance, recently closed its 16-bed transitional-care unit to help stop systemwide losses, which reached a reported $8 million midway through its fiscal 2000. It's a step several hospitals have taken in the past year.
"We had put (the skilled-nursing facility) together as a separate and distinct geographic unit. After a year of looking at the number of patients and the (Balanced Budget Act of 1997) issues, we could no longer justify it," says Chief Executive Officer Dennis Brimhall, referring to the law that cut Medicare payments to skilled-nursing facilities.
"You've got to put your resources where you get the best out of them," he says, adding that post-acute patients will still have access to care in other hospital units or at freestanding providers.
For the nursing home industry, though,"the biggest concern is not access to care; it's access to money, which in the long term means the ability to offer quality care," says Jill Mendlen, president and CEO of Geriatrix, a San Diego-based managed-care company for the frail elderly.
With so many companies reorganizing at once, she says, banks and private investors will be less willing to lend to the sector.
Real estate investment trusts, which have acted as a major financing vehicle for the nursing home industry, have also been hit hard by the fiscal chaos in long-term care.
"The primary risk to a REIT is that a bankrupt operator determines not to affirm their lease and turns the property back to the REIT, and the REIT has to find a replacement operator or sell it," says Lisa Sarajim, Standard and Poor's head analyst for its real estate finance group.
Though most operations will stay put, Sarajim says she expects lease rejections to cause some nursing homes to change hands during the reorganizations.
Heatley says that once the reorganizations are completed, he envisions a new geography of long-term care, with smaller regional operators taking over a good number of the homes operated by the national chains.