How will nursing home bankruptcies affect you?

FROM: DRUG TOPICS; Long-Term Care; February 21, 2000

by DANA CASSELL

Forgive nursing home chains if they refer to the 1997 Balanced Budget Act as the Bankruptcy Act. In the year and a half since that legislation's prospective payment system (PPS) took effect on July 1, 1998, at least seven of the larger public and private nursing home corporations have filed for Chapter 11 bankruptcy protection. Most filings have occurred during the past seven months. More are rumored.

While the bankrupted organizations have been quick to blame Medicare reimbursement cuts under the new payment system for their plight, experts point to rapid expansion, soaring liability insurance costs, and risky corporate borrowing levels as contributing causes.

Whatever led to the current situation will likely be remedied through reorganization and refinement legislation. But what about all the interested parties hanging on when corporate ships flounder? Shareholders are in the tank. Employees will be tossed overboard as unprofitable units are divested or downsized. Everyone else gets to stand in line, hoping for maximum pennies on the dollar. So how will consultant pharmacists fare?

American Society of Consultant Pharmacists members fall into two categories: long-term care pharmacies that contract with facilities to provide specialized drug-dispensing services and consultant pharmacists—individuals who are part of the care system within the facility.

On the pharmacy side, ASCP executive director R. Tim Webster said these bankruptcies will impact several large, medium, and small phar-macy providers to various degrees. "If they're on the line for a big number, it may not be a very pleasant experience." But after reviewing the debtors' list for two of the chains (Sun Healthcare Group and Vencor Inc.), he hasn't seen any ruinous situations. "Among the top 100 claimants, the only pharmacies were large corporations, and the largest circumstance was less than $100,000 for a total of three different claims."

On the pharmacist side, most are employees of the long-term care pharmacy that has contracted with the facility to provide the drugs. Webster doesn't think these folks are in danger. "Facilities need—absolutely have to have—the services of a consultant pharmacist. As a consequence, within the constraints of the bankruptcy provision, it's likely they will be paid so they can continue providing services to the facility."

Webster added that there are circumstances in which consultant pharmacists are independent contractors to the facility. "It's not likely that in those circumstances, it's going to represent a very large sum of money," he said. But he does admit that if you're an independent contractor, "it doesn't take a very large sum of money to hurt pretty badly."

So what can one do to avoid being on the wrong end of a bankruptcy payout list? Pay attention and be prudent, the experts agree. Speculation is usually rampant for a year before a company actually declares bankruptcy, said Webster. "I've heard of consultants making arrangements for a prepayment deal where they're working against a prepayment amount, with the remainder reconciled subsequent to the amount of work they do." Another preventive measure he's seen consultants take in risky situations is to arrange payment on the spot for services rendered.

That goes along with advice given by market research consultant Irving Stackpole, Stackpole & Associates, Boston: "Don't let creditors get too far in arrears." But what if they do? "Look at your agreement and be certain it provides you with an opportunity to curtail services in the event of failure to pay after a certain period of time, whether that's 30 days or 60 or, I would hope, certainly no longer than 90 days," he said.

Then, Stackpole said, enforce those provisions. "Don't think, 'Well, they are good for it.' That's a very dangerous place to be." But he cautions that providers should take an adversarial position only as a last resort. "It's important to identify with the facility's difficulties in the beginning and work toward a mutually agreeable solution." If you immediately become adversarial, he explained, the facility's administrators or board of directors may be less inclined to send discretionary monies toward consultant pharmacists and more inclined to take care of other vendors.

Webster brings up another aspect of the situation. "Although XYZ nursing home is part of ZYX Corp., they do often operate in a fairly independent fashion." As a consequence, he explained, just because the corporate entity is in Chapter 11 or in dire straits, that relatively independently operated facility will do business in a fashion that best suits its personal circumstances. "Obviously, [those facilities] are in a position where they're writing their own checks and paying their own suppliers, and simply doing summary financial reporting to their corporate headquarters."

In some cases, he said, the accounts receivable and accounts payable are more centralized corporately. "But that's the minority practice rather than the majority."

By Internet Pharmacy

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