Restructure THIS! Podcast Ep. 29
Healthcare Restructuring Under Pressure: Medicaid Cuts, Private Equity and the Fight to Keep Hospitals Open with Samuel Maizel
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Listen to the podcast released August 18, 2026 here: https://www.sheppard.com/insights/podcasts/restructure-this-episode-29-healthcare-restructuring-under-pressure-medicaid-cuts-private-equity-and-the-fight-to-keep-hospitals-open-with-samuel-maizel
Sheppard’s Restructure THIS! podcast explores the latest trends and controversies in Chapter 11 bankruptcy, commercial insolvency and distressed investing. In this episode, Samuel Maizel, partner and chair of Dentons USA’s Distressed Healthcare group, joins host Justin Bernbrock to discuss why healthcare bankruptcies are unlike any other Chapter 11 case, from Medicare/Medicaid provider agreement disputes to the wave of hospital and skilled nursing facility closures reshaping communities nationwide.
About Sam Maizel
Sam Maizel is a partner in Dentons USA’s Los Angeles office, where he leads the firm’s healthcare industry restructuring efforts nationwide. His practice spans in- and out-of-court restructurings across a broad spectrum of industries, and he is a nationally recognized expert in the unique issues that arise when healthcare entities face financial distress.
Sam’s Chapter 11 work has included serving as lead counsel to debtors, trustees, and creditors’ committees, and representing buyers and sellers of assets. He’s also represented local hospital districts and other governmental units as both debtor’s counsel and counsel to creditors’ committees in Chapter 9 bankruptcy proceedings.
Prior to entering private practice, Sam was a trial attorney in the U.S. Department of Justice’s Commercial Litigation Branch, representing the federal government in bankruptcy, district, and appellate courts nationwide. He also served in the U.S. Army Judge Advocate General’s Corps, including during Operation Desert Shield/Desert Storm, for which he was awarded the Bronze Star Medal. Before becoming an attorney, he was an infantry officer in the 101st Airborne Division and the 3rd U.S. Infantry Regiment (The Old Guard).
About Justin Bernbrock
Justin Bernbrock is a partner in the Finance and Bankruptcy practice group in Sheppard’s Chicago office, where he focuses on all aspects of corporate restructuring, bankruptcy and financial distress. He represents clients across a wide range of matters, including debtor and creditor representations. He has substantial experience in out-of-court and in-court restructurings, primarily in the Southern District of New York, Eastern District of Virginia, District of Delaware and Southern District of Texas.
Transcript
Justin Bernbrock:
Greetings! Welcome to Restructure THIS!, the Sheppard podcast devoted to corporate restructuring where we discuss complex Chapter 11 practice, out-of-court restructurings and workouts, as well as other topics related to financial distress. I’m your host, Justin Bernbrock. Let’s restructure this.
Sam Maizel:
Over the last three years, we saw major hospital chains—Steward with 31 hospitals, Prospect with 16 hospitals—file bankruptcy. We saw Genesis with 100-plus skilled nursing facilities and assisted living facilities around the country file bankruptcy. The issues there were at least tied in part to private equity participation in the system, which is a hot-button topic around the country. So you’ve seen big facilities file, big systems file. We have a continuing stream of small systems. We just filed Pacifica Hospital of the Valley on July 4th. There’s a steady stream of hospitals and skilled nursing facilities filing around the nation.
Justin Bernbrock:
Hospitals are shutting down, healthcare facilities nationwide are filing for Chapter 11, and when the government suspends Medicare/Medicaid payments, a healthcare provider can go from operating to bankrupt almost overnight. Let’s face it, healthcare restructuring is not your typical corporate Chapter 11. When a hospital fails, the stakes go far beyond the balance sheet.
On this installment of Restructure THIS!, we welcome Sam Maizel, partner in Dentons’ Los Angeles office. Sam has represented debtors, trustees, creditors’ committees, buyers and sellers across the full spectrum of healthcare restructuring. As debtors’ counsel in the Verity Health bankruptcy cases, he persuaded the court that Medicare/Medicaid provider agreements are not executory, charting a new course on the issue. Let’s restructure this!
Justin Bernbrock:
Our guest today is Sam Maizel from the Dentons law firm. Sam, great to see you. It’s been a while since we’ve seen each other in a case, and I’m very much looking forward to chatting with you today. So, first and foremost, thank you very much for doing this. How did you become Sam Maizel, the bankruptcy lawyer?
Sam Maizel:
Interesting way to put it. So I was in the Army for many years, first as an infantry officer and then as a lawyer, because the Army put me through law school. When I came back from Operation Desert Storm, I got out of the army and I ended up at the U.S. Department of Justice in the Commercial Litigation Branch, which is basically the bankruptcy lawyers at the Department of Justice in Washington, D.C., who represent federal agencies around the nation, often in conjunction with local U.S. attorneys’ offices. They represent those agencies in bankruptcy courts among other kinds of civil litigation. And randomly, maybe I’d been there less than a year, I randomly got assigned to represent the Medicare program in a bankruptcy case in Florida in front of a judge named Jay Cristol, whom bankruptcy lawyers will recognize as a famous cantankerous hometown guy. My opposing lawyer was a woman named Trish Redmond, who’s equally well-known nationally. And not surprisingly, I got crushed.
I thought it was amazing because I had done criminal law where the rules of evidence are very strict and all of a sudden I was in bankruptcy court for the first time and the judge was saying things like, “Look, it’s very late in the day.” This was a first day hearing, and I was representing the Medicare program. And the judge said, “Why don’t you just give me an offer of proof of what the witnesses would say?” And I’d never heard of such a thing because in criminal law, lawyers don’t stand at the podium and recite what they think their witnesses would say. And we lost.
And I went back to DOJ and the client, the Medicare program, was very unhappy. And they said, “Look, we don’t think we’re getting good representation because we get a different one of you DOJ lawyers every day for every hearing. And we don’t think you understand the Medicare program all that well. That’s why we think we’re losing, and we can’t fire you because you’re the U.S. Department of Justice.” And I went back to my boss and I said, “They have a fair point. They’re a big client with important litigation issues in bankruptcy around the country. Somebody should be assigned to do this regularly so that we can really develop the arguments.” And he said, “Great, you just volunteered.”
So for five years, I was Medicare’s bankruptcy lawyer at the Department of Justice, and I worked with the local U.S. attorneys’ offices around the country, the regional counsel offices for HHS around the country, developing standardized arguments and learning the issues. If I wasn’t personally involved in the case, I would assist the local lawyers who were doing it so they would have some expertise. That’s how I got into this, just randomly being assigned to a bankruptcy case in Florida.
Justin Bernbrock:
My Navy background and experience remind me that one acronym for N-A-V-Y is “never again volunteer yourself.” I remember going to folks with ideas and having them thank me for volunteering to take over that idea. So that resonates with me for sure. So when did you leave DOJ? Tell us about your transition to private practice.
Sam Maizel:
Sure. So I’d been at DOJ for five or six years. Now I’m in my mid-40s. And I thought that it was important that the government actually explain its positions outside of a specific case so that lawyers could plan accordingly. So I actually was one of the few DOJ lawyers, certainly in commercial litigation, who would go speak at conferences and write articles. I just thought the government should play like an open book with the public. I got to know bankruptcy lawyers around the country. Then, out of the blue, a bankruptcy boutique called Pachulski Stang offered me a job in Los Angeles.
And, Justin, honestly, I just thought, I’m in my mid-40s. If I’m going to ever consider moving into private practice, I have to do it now. So I took the job. That was about the extent of my thought process. I ended up staying there for 18 years. Then about 11 years ago, I just decided after 18 years I basically needed a change of scenery. Pachulski Stang’s a great firm. There wasn’t anything negative about Pachulski Stang. So I came to Dentons, which at that time was only a two-year-old firm, for the opportunity to work and build something here.
Justin Bernbrock:
And build something you have. Let’s get into some of the stuff you’ve done, the private side of your practice. Specifically, you’ve represented a number of hospitals and health facilities. For folks who have not had that singular pleasure and honor, what is it that makes healthcare facility restructurings different than ABC Co. that makes widgets?
Sam Maizel:
I mean, this is the reason I like working in this space. It is uniquely important to communities. If you close a department store or a restaurant, it’s not the same. But certainly smaller communities, rural communities, they need a hospital, for example. The community really suffers if the hospital closes because families don’t want to move there for jobs because they don’t have a hospital nearby. It’s frequently the largest employer in the community. It’s vitally important to the network. And not to mention, it’s actually really important to individuals who need medical care. So these issues around a hospital that’s in financial distress, they just reverberate throughout a community in a way that a regular store, even an important employer, does not.
And some of the hospitals that we’ve dealt with have been in existence for 150 years, so they’re really integral to the community. Obviously healthcare is hugely important in the national economy. Healthcare expenditures represent almost 20% of the gross domestic product. As you know, Justin, it’s a political football. Every administration changes it so that there’s constant disruption if you’re trying to do a business plan. People also expect to have access to healthcare, although our system isn’t necessarily designed to provide that access. It’s just a really interesting space to work in.
Justin Bernbrock:
Obviously, you’ve got a lot of specific experience in the cases that you’ve done. Interesting question just right off the top is where do Medicare or Medicaid provider agreements fit under the Bankruptcy Code? Are they statutory entitlements? Are they executory contracts? Talk us through the Verity Health cases and your experience.
Sam Maizel:
Sure. So, just for people who don’t know the background, I’ll do the background first. If you are a hospital—we’ll talk about hospitals—and you want to treat Medicare or Medicaid patients, and Medicare and Medicaid are the 800-pound gorillas in paying for hospital stays. Virtually every hospital in America will have an arrangement with Medicare or Medicaid to treat their patients and get reimbursed by them. Those arrangements are called provider agreements. The Medicare provider agreement is basically a one-page document. The top half of the first page says, “Welcome to the Medicare program. You’re now entitled to bill. Follow the rules.” The second half of the first page says, “If you commit fraud, here’s all the things we can do to you. Sign below.” So it doesn’t look like any other kind of government agreement. If you’ve ever done government contracting, those agreements come in large bankers boxes.
The Medicaid provider agreements vary by state. Remember, Medicaid is a joint state-federal program. So the provider agreements for Medicaid services are with the states. Those agreements look more like a contract. The California one, for example, has about 40 numbered paragraphs that reiterate a bunch of stuff that you’re responsible to do. Historically, outside of bankruptcy, both federal and state governments have argued with uniform success that these agreements are not contracts. And they do that because on the federal level, they don’t want healthcare providers, your neighborhood hospital, to have government contract remedies under, for example, the Tucker Act. So that you can’t go to the Court of Federal Claims if you have a dispute with the Medicare program. And they win that all the time. And there’s at least a half a dozen circuit court decisions around the country holding that these provider agreements do not create a contractual relationship between the Medicare or Medicaid program and the provider.
What’s interesting is that at the same time for the last 30-plus years that I’ve been doing this, the government has argued in bankruptcy courts that it is a contract. So outside of bankruptcy, not a contract. They argue inside of bankruptcy, it is a contract. And they do that because under Section 365 of the Bankruptcy Code, if the hospital wants to continue to operate under the provider agreement, the technical term is to assume it, and then if it wants to sell it to a buyer of the hospital, think of it as assignment, they have to do that under Section 365, which requires two important things. One, it requires the hospital to cure any existing defaults, which means it has to pay any money it owes to the government, and the buyer takes it with successor liability.
Outside of bankruptcy, if you transfer these Medicare or Medicaid provider agreements, the law is clear that the buyer assumes successor liability. That’s really important because sometimes at the end of every year, the hospital will file a cost report. Think of it as a tax return related to the payments from the Medicare, Medicaid program. And so every year they file this cost report, and it might take four or five years for the government to audit it and decide whether it has overpaid you. So in the normal course of business, the hospital today might get a notice saying, “Five years ago, we overpaid you. You owe us $100, pay us back.”
So if you buy the provider agreement outside of bankruptcy, you would have that successor liability. So if the Medicare program audited a cost report submitted by the hospital five years before you bought it, they would now send you the notice saying, “Congratulations, we’ve audited your cost report from five years ago and you now owe us $100.” This is a real problem for buyers because they literally don’t know how much they might owe over the next four or five years while all the cost reports are audited.
In bankruptcy, as you know, Justin, we’d like to sell the hospital and cut off that successor liability. Under Section 363 of the Bankruptcy Code, when we sell assets, we normally can. If I have to transfer the provider agreement as a contract, I have to transfer it with successor liability in bankruptcy. If I can sell it as an asset, I can cut off that successor liability. So better for the buyer, more money for the estate, better for all of us, even if not better for the government. So again, outside of bankruptcy, the government argues for three decades with uniform success that it is not a contract. Inside of bankruptcy, it’s hardly ever challenged because bankruptcy lawyers, bless their hearts, don’t know enough about it. Even in circuits where there is controlling precedent outside of bankruptcy that says these government provider agreements are not contracts, inside of bankruptcy courts, courts have regularly treated them as executory contracts. It just is what it is.
I spoke at a conference once where I mentioned this oddity and a bankruptcy judge came up to me afterwards and said, “Sam, it’s not our job to create controversies where all the parties agree.” Unfortunately, bankruptcy lawyers have frequently, almost always, just not even raised this issue. In a case called In re Verity Health Systems of California, we had this fight with the Medi-Cal program, which is California’s version of Medicaid. The bankruptcy judge looked at controlling Ninth Circuit precedent. There is controlling Ninth Circuit precedent that has held both the Medicare and Medicaid provider agreements are not contracts, which of course is binding on the bankruptcy judge. The judge also went beyond that and looked at the terms of the Medicaid provider agreement and agreed with our argument, which is that every one of the paragraphs in the provider agreement simply restates an already existing legal obligation of the hospital either under applicable statute or regulations.
So under what lawyers call the pre-existing duty rule, which says that a contract that merely restates pre-existing legal obligations, like I would agree not to murder people or I would agree to file tax returns annually, that doesn’t provide consideration because I’m not providing consideration, which is a requirement for a contract if all I’m doing is agreeing to follow pre-existing laws or statutes or regulations. That’s called the pre-existing duty rule. So the judge in Verity looked at the obligations imposed by the 40 numbered paragraphs and agreed with us that they all simply restated existing obligations of the hospital under statute or regulation. It was a pretty important ruling and some other people have raised it. Lawyers continue to ignore it. But what we’ve seen since Verity is that the federal government is not raising this issue in an aggressive way anymore and is now cutting deals to avoid litigating it.
The state of California has also been a lot more collaborative. It’s interesting, Justin, having seen this issue yourself in your own practice in hospital cases. In a recent hospital case in California, the Department of Health Care Services, which in California administers the Medi-Cal program, filed a motion to compel the assumption or rejection of the Medi-Cal provider agreement and argued that it was a contract under Section 365. We filed our opposition to that motion pointing out all the same stuff I’ve just talked about, and they didn’t even file a reply, Justin. They just withdrew the motion. I think we’re very proud of the work we did. We think it’s an important issue. And we think in that regard, we’ve moved the law along in an important topic for healthcare providers.
Justin Bernbrock:
Do you think that some of what’s driving the government, whether that’s big “G” or little “g”… The ability to sell a hospital or healthcare facility, in many respects, could turn on what happens with these provider agreements, particularly, I think, in the safety net and rural contexts. Is the government effectively making a policy decision to stand down or otherwise not contest these issues if doing so could inhibit the transition of ownership of a hospital to a purchaser who intends to continue operating the facility for the community? I’m curious about your thoughts on whether there’s actually a deeper policy analysis here.
Sam Maizel:
I’d like to think there is, but I don’t believe it. In a perfect world, state and federal governments would have people who could look at a hospital and evaluate its importance to the community, but I’m not sure that’s true. Because of the hodgepodge way we deliver healthcare in America, the government doesn’t want to pick winners and losers in the space. It can’t prop up financially distressed hospitals. It has to look at the bigger picture. Government lawyers, I believe, sometimes think, “Well, if I make this concession for this hospital, even though this hospital’s really important, then I’ll be stuck with it in every future hospital regardless of the facts of that particular case.” So they’d rather not make the concession, save the illegal argument, almost regardless of the impact on any particular hospital, which means also regardless of any particular impact on a community.
In some respects, it’s a difficult situation for government lawyers. It’s a difficult situation for the regulators because they regulate bits of the system. Our American healthcare system looks like it was created by Rube Goldberg. I mean, we’ve got public hospitals, private hospitals, nonprofit hospitals, for-profit hospitals. There are no controls and no organization. It’s inefficient, Justin, to say the least, and the regulators can only affect part of it. I spoke at a conference with the state attorney generals recently, and they were talking about how they could affect the affordability of healthcare for consumers, like how much you pay when you go into a hospital, by imposing various regulations. I said, “Just remember, you’re imposing cost controls on a system that’s supposed to be free market.” Because what they were talking about, Justin, was imposing price regulations on what employers pay.
So, if you’re Sheppard and you have your health insurance through Blue Cross Blue Shield, then the state, and this is already law in two states now, would impose restrictions on what the hospital could charge Blue Cross Blue Shield. It’s kind of extending the cost controls that already exist with Medicare and Medicaid. Remember, they pay for the majority of hospital stays in America and they set the price they’ll pay, which generally studies show they only pay about 80% of the cost of care, which is why Blue Cross Blue Shield and other private payers pay much more than they do because basically we’re subsidizing Medicare, Medicaid, not paying enough to cover the cost of care. It is just a bizarre system. Unfortunately, I think it’s getting more bizarre, not less bizarre, which as you know, Justin, because you’re in the space pretty often as well, financial difficulties facing hospitals are just increasing. They’re not going away.
Justin Bernbrock:
I think the system you described, and if no one’s ever said this before, I will claim origination credit for, but it’s not laissez-faire, it’s quasi-faire capitalism.
Sam Maizel:
I told the attorney generals, I said, “We couldn’t have designed a worse system.” Partially because there is no design. It isn’t designed at all. We’ve managed to incorporate every kind of health system from the entire world in the most inefficient way possible. And then we’re shocked to discover that this inefficient system is expensive to operate.
Justin Bernbrock:
You’ll appreciate this, given our shared military background. Bill Donovan, the head of the OSS, was a lawyer and a close personal friend of FDR. I recently saw this in a presentation. It came from one of the OSS field manuals, which I think you can still find in the CIA archives or online somewhere. The manual discusses strategies for the nonviolent disruption of systems. One recommendation was that if you're part of a decision-making body or similar group, you should create as many committees as possible, put as many people as possible on those committees, and constantly refer matters to committees for deliberation.
The clear implication is that the more you can stall decision-making through bureaucracy, the more you hinder that organization, governmental unit, or decision-making body’s ability to accomplish anything by adding process. That sounds a bit like some of what you’ve been facing. But shifting gears a little bit here to talk about long-term care facilities, there’s been, from my perspective, an uptick in distress in long-term care facilities. What’s been your experience with those?
Sam Maizel:
A couple things. One, again, heavily dependent on Medicare and Medicaid. COVID really was difficult for long-term care and skilled nursing facilities because of all the things that everyone read about, which is, people were dying and people didn’t want to send their loved ones to a facility where they couldn’t visit them because of the COVID rules. So people stayed home. And that occupancy in those facilities is important. To the extent occupancy dropped, that’s been difficult, but it has recovered. The population is aging, so it is expected to continue to recover, but it’s been slow. They’re not the size of a hospital, so they don’t have the financial wherewithal to deal with competition for labor costs. There is a shortage of nurses and doctors, but the shortage of nurses in America is really difficult for skilled nursing long-term care and for just the staff, not trained nurses, but LPNs, LVNs, and other staff.
So there’s competition for that in the marketplace, which means prices have gone up. A lot of nurses retired during the COVID pandemic. There is a nurse shortage in America. Historically, we made up that shortage by bringing nurses from the Philippines in the past, and more recently from West Africa. Our current immigration laws and approaches make that way more difficult. So those facilities, which are generally smaller, are dealing with a lot of increased costs. To the extent they needed supplies, the tariffs affected that and raised their costs. They can’t pass those costs on, generally, because Medicare, Medicaid set their rates. In some states, it is shocking how low Medicaid pays a daily rate for skilled nursing facilities. In Blue Cross Blue Shield, they’re frequently also long-term contracts, so they can’t pass increases on rapidly, even though they have to pay the increased costs. So increased supply costs, increased labor costs.
Medicaid is revamping its coverage rules so that maybe 15 million people in America will lose coverage. Those are people who might’ve gone to skilled nursing facilities and now will not. All those things are affecting those facilities, which are generally smaller and have fewer financial resources to deal with these issues than a major hospital would. I think of them as kind of the canary in the coal mine. The smaller facilities, medical groups and clinics, then larger skilled nursing facilities and chains, and then hospitals, will all feel these financial headwinds. Depending on their size and resources, some will suffer and some will not survive.
Justin Bernbrock:
Can you talk a little bit about some of your recent experience in, I think, is it Curatek and Gordian Medical?
Sam Maizel:
The healthcare systems are incredibly sensitive to changes in Medicare and Medicaid reimbursement for obvious reasons. They’re the big payers. Years ago, there was a dramatic shift in a short period of time in how Medicare paid for skilled nursing facilities. This would’ve been late the ‘90s. Back then we saw bankruptcies for the major skilled nursing chains around the country. Because of that shift, they couldn’t adapt the business model as fast as Medicare could shift the payment philosophy.
What’s happened more recently, and kind of in the same vein, is the government decided that wound care companies, a segment of the industry that’s rife with fraud concerns, should face greater scrutiny, and they've cracked down on them significantly. So what happens is, and it’s not unique to these kinds of wound care companies because we’ve seen it in cases like In re Borrego Community Health Foundation, a chain of 18 federally qualified healthcare clinics in Southern California, is that when there’s an allegation of fraud, the statutes and regulations allow Medicare or Medicaid to suspend the funding while it investigates the fraud allegations.
Well, some of these places are 80% or 90% dependent on Medicare or Medicaid. If you turn off the money while you take your time investigating the fraud, the facility or facilities can’t survive. It’s a huge problem. Outside of bankruptcy, there is virtually no due process. I mean, you can write a letter of rebuttal, which goes to the same entity that decided to shut off the funds, and you can imagine how successful those letters usually are. But in bankruptcy, what we’ve been able to do is, for those of you who are listening who are not bankruptcy lawyers, when I file a bankruptcy case for a hospital, skilled nursing facility, or a wound care company, by operation of Section 362 of the Bankruptcy Code, I get what’s called an automatic stay. Think of it as an injunction against creditors doing anything to collect on a pre-bankruptcy debt or exercise control over property of the company that’s in bankruptcy.
And so my payment rights under Medicare and Medicaid are a property right of the company in bankruptcy. What we’ve been able to do successfully is argue that, assuming we can show that we’re not committing ongoing fraud, the suspension of payments shouldn't continue. Of course, it’s hard to argue, “Yes, we’re committing ongoing fraud, but you should ignore it, bankruptcy judge.” But in the cases we’ve handled, we’ve been able to show that there’s no ongoing fraud, or at least that the government has no evidence of ongoing fraud. They just have these unsubstantiated suspicions.
We’ve been able, in some cases, to get either the government to agree to lift the suspension of payments while we sort through the allegations of fraud. Or, in the case of Borrego against the state of California, where they wouldn’t agree, we were able to obtain a court order stopping the suspension of payments because there was no evidence of ongoing fraud. In fact, they conceded they had no evidence of ongoing fraud. It was just fraud in the past. And in Borrego, the state government argued that as long as they had an open investigation of fraud on their books, regardless of whether there was any ongoing fraud, that meant they were exempt from the automatic stay under a provision of the automatic stay, which is Section 362(b)(4) of the Bankruptcy Code, which exempts police or regulatory acts.
And that sounds really broad when I say the title, but the truth is all the circuits that have addressed it have put a much narrower interpretation of what that exemption applies to than just police or regulatory act. So, in a case like Borrego, we actually got a court order. In cases like Curatek and Global Wound Care, with the federal government, we just got them to agree to return the money back on while we negotiated a resolution of the allegation. I mean, bankruptcy’s a really powerful tool because outside of bankruptcy, the providers have virtually no remedies to deal with these payment suspensions.
Justin Bernbrock:
That’s interesting. I’m curious if you’ve seen any governmental units actually imposing a suspension after the filing without seeking a comfort order or a stay relief?
Sam Maizel:
No, and I’d be surprised if they would try. I mean, even if they believed that it was exempt from the automatic stay, most bankruptcy lawyers, whether government or private, would file a motion saying, basically, you know the rules, if you want a declaratory judgment, you should file an adversary, but everybody looks the other way for this. They would file a motion asking the court to find that the suspension is a police or regulatory act exempt under Section 362(b)(4) or in the alternative asking for relief from the automatic stay, making whatever arguments they would make about why they’re entitled to relief from the automatic stay. It would be surprising to see even an aggressive government lawyer not proceed that way.
Justin Bernbrock:
That’s interesting. So, Sam, where do you see healthcare restructuring activity going over the next five to 10 years?
Sam Maizel:
Well, we’ve seen... You know, Justin, over the last three years, we saw major hospital chains—Steward with 31 hospitals, Prospect with 16 hospitals—file bankruptcy. We saw Genesis with 100-plus skilled nursing facilities and assisted living facilities around the country file bankruptcy. The issues there were at least tied in part to private equity participation in the system, which is a hot-button topic around the country. So you’ve seen big facilities file, big systems file. We have a continuing stream of small systems. We just filed Pacifica Hospital of the Valley on July 4th. There’s Oroville Hospital in Northern California. Beverly Hospital is wrapping up where you were involved. I mean, there’s a steady stream of hospitals and skilled nursing facilities filing around the nation.
And honestly, I just think as the Medicaid cuts take hold over the next two years, and we see another 15 or 20 million people either lose coverage but are still entitled under the Emergency Medical Treatment Act, EMTALA, if somebody loses coverage, they don’t have the ability to go get something treated by a primary care physician early. So they don’t get it treated. It gets much worse. They end up in the emergency room where, by law, they’re entitled to treatment regardless of their ability to pay. So these losses just get passed on to the hospital. These Medicaid cuts are hugely impactful for hospital and skilled nursing facilities.
There are hospitals around the nation, and virtually all the states now have what are called provider-directed payments. You know this, Justin. It is commonly referred to as a bed tax. Providers, both skilled nursing facilities and hospitals, pay it to the Medicaid program, where it gets entitled to matching federal funds. They’re happy to pay it because they’ll pay a dollar to the state, it gets federal matching funds, and it comes back to them as two or three dollars. But the current administration has referred to these provider-directed payments as a Ponzi scheme and has limited them, while continuing to put them under the microscope, so that states like California are already being forced to limit what they have previously paid.
And a lot of rural hospitals and safety net hospitals around the country, they live on these provider-directed payments or another form of payment, which are called disproportionate share payments. They’re just more money going out of Medicare and Medicaid programs to hospitals that see a disproportionate share of Medicare or Medicaid patients because politicians want to be able to say that they’ve kept Medicare and Medicaid costs down, but they don’t cover the cost of care. So then we have to have all these other methods of getting money in a hospital’s hands to keep them open. If Medicare and Medicaid would just pay the cost of care, we wouldn’t need all these other fixes, but that’s not how we work here in America. So I think those are under a microscope. They’re already being cut back. The more they get cut back, the more that hospitals and skilled nursing facilities will face insurmountable financial difficulties.
The government’s position on immigration really makes it difficult to recruit doctors and nurses. The government originally said that they were going to impose significant fees on H-1B visas to bring over doctors. They’ve already had to reconsider that position because it’s clear we need doctors from overseas to supplement our own shortages. But then they’ve done things like decided that nurses were not a profession. So the Department of Education historically offered loans for colleges. They offered more money if it was deemed a professional degree. This administration reclassified nurses as not a professional degree. So that money wasn’t available even though we have a huge shortage of nurses in America. All those costs, I just think we’re going to see a tremendous amount of financial distress in the space in the next two or three years.
Justin Bernbrock:
Well, I’m glad that there are folks like you and folks like us who at least have the tools to help those hospitals, skilled nursing facilities, and other healthcare entities through those stressful situations. Sam, I really appreciate this time. I’ve certainly learned a lot. I know that our listeners will as well. One thing that I like to ask our guests, and I think it’s just interesting to know, is if you were not Sam Maizel, the partner at Dentons and restructuring extraordinaire, and you assume no worldly limitations, what would you be doing?
Sam Maizel:
Two answers to that. One, when I was younger and when I went to West Point, what I always wanted to be was an infantry commander. I was an infantry officer for five years and then the army sent me to law school. So that was the end of my infantry career. I always saw myself as a commander in the field of an army, or I would be the center fielder for the Yankees, for which I have no skill set at all. But you said I could imagine anything, but it would be one of those two things.
Justin Bernbrock:
Yeah, no limitations. My stock answer for this is that I would curate and run luxury hotels.
Sam Maizel:
Oh, I like that.
Justin Bernbrock:
However, I’ve recently came upon a new obsession, which is Formula One Racing.
Sam Maizel:
Oh, God.
Justin Bernbrock:
And so now I think I have to say that I would either be a Formula One driver because those lives, I mean, they live their best lives for sure.
Sam Maizel:
Yes.
Justin Bernbrock:
Or I would run a luxury hotel.
Sam Maizel:
I have two grandsons. They’re both huge Formula One fans. I confess, it looks dangerous and boring at the same time because you’re just driving in circles, but...
Justin Bernbrock:
Well, Formula One uses circuits. It’s sort of hairpin turns. It’s like Monaco. It’s streets. Okay, Sam, well, thank you so very much. This has been really great and I look forward to seeing you soon.
Sam Maizel:
Take care. Thanks for the opportunity.
Justin Bernbrock:
All right. Take care.
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