Due Diligence in Distressed Community Hospitals

The Patient Population?

The Projected CAPEX

Cash Flow Hurdles

• How effective has the hospital been in the structuring of “bundled” payments when compared to the actual costs of episodes of care?
• What is the count for “licensed” beds vs. the number of beds which could actually be occupied at “peak” capacity?
• What is the payor mix? What is the percentage of Medicare, Medicaid, third party insurance, high deductible patients, private pay and/or uninsured?
• Is there a history of underpayments, slow or delayed payments by third party administrators (TPAs) (which processes insurance claims or aspects of employee benefit plans)? Is the reimbursement rate similar to that of competitors?
• Is revenue being lost to ambulatory centers, outpatient facilities, area hospital systems or specialty clinics? Are the number and type of competitors increasing, changing or static?
• What is the status under the Hospital Readmissions Reduction Program which reduces reimbursement rates for “excess” patient readmissions?

Regulatory and Compliance Reviews

Governmental Claims

Opportunities

Exit Issues

• Is there a pharmacy? If so, is it owned by the facility or operated by a third party?
• Is there a fragile patient population? If so, how long will it take to transfer all patients? How long will it take to stop admitting new patients?
• Is there an emergency room? If so, what is the process for diversion?
• Is there leased equipment? Can the equipment be moved?
• Who will take responsibility for the patient records? What is the cost for storage of records? Who will notify former patients regarding the location of their records?
• Are there land use restrictions? Can any restrictions be easily modified?
• Will the property need to be re-zoned?

Conclusion