As tens of millions of baby boomers become elders, California is on the brink of having the largest population of seniors in its history. With this aging population comes an increased demand for residential nursing homes and skilled nursing facilities. However, the supply of privately-owned health care facilities is shrinking, as owners find it increasingly challenging to comply with regulations while remaining profitable. In his Daily Journal article “Small Health Care Facilities Struggle to Stay Open amid Uncertainty,” Managing Member Howard Ehrenberg discusses the roadblocks to facilities’ profitability, as well as potential solutions for struggling health care companies.
Both small and large health care facilities rely on reimbursements from Medicare and Medi-Cal to pay for services, and delays are so common, they’ve become the norm. However, for the smaller facilities, delays in reimbursements have a much greater likelihood of resulting in cash-flow struggles, simply because they operate on a smaller budget. As such, small facilities are at inherently greater risk of falling behind in payments to vendors and creditors.
In the article, Mr. Ehrenberg states that “the stark reality facing owners of smaller, privately owned health care facilities who are struggling to stay afloat is that there just aren’t many options available on the horizon.” For those companies who are beginning to show wear and tear from financial strain, facilitating the sale of their business can throw owners a proverbial lifeline. Consolidation into a larger company before the business goes into significant debt can help a business owner avoid or prevent lasting financial damage. As for small health care companies already drowning in debt, the most viable solution is through the restructuring of debt via Chapter 11.
Mr. Ehrenberg concludes the article by noting that the future does not look bright for small health care facilities, and as such, it’s the responsibility of advisors to present a clear picture of what such businesses can expect in the future, if they don’t take action to move towards a solution now.