Segundo, Calif.-based Pipeline Health emerged from bankruptcy Feb. 9, just four months after filing its Chapter 11 petition.
Robert Allen, who recently moved from CFO to CEO of Pipeline, spoke to Becker's Hospital Review about the keys to successfully navigating the health system out of bankruptcy, how it aims to remain financially solvent and potential areas for future growth.
Question: What were the keys to successfully emerging from bankruptcy in Pipeline's restructuring plan?
Robert Allen: Before we filed bankruptcy, we knew we needed to leave the Chicago market, which really didn't make sense for us to be in. We wanted to focus on the markets that did make sense for us to be in — Los Angeles and Dallas. Completing the sale of the two Chicago hospitals in December was critical. The second thing is that we benefited from financial forecasts that weren't overly optimistic. We were brutally honest and accurate in our forecasts. Without those forecasts, it wouldn't have been possible to completely understand the levers we needed to pull for success.
Q: What about the Chicago market didn't make sense for Pipeline?
RA: We really didn't have a presence in Chicago outside of those two hospitals, and it's a very different market for Medicaid. It's highly competitive as it relates to academic medical centers, so if you look at how you're going to get a toehold in the market, we just didn't see how we could do that, given everything else Chicago already has.
Q: What was the most challenging part of the restructuring plan to work through?
RA: It took a lot longer to find the correct buyer for the two Chicago hospitals than we thought. We had the buyer before bankruptcy, but we had some difficulties with their financing so we weren't able to culminate the deal until post-bankruptcy filing. While navigating through our restructuring plan, we really had to focus on what our key levers to emerge from bankruptcy and stay out. How do we restructure the remaining company to ensure success in the future? Our forecasts focused on how we do that through very specific tactics we knew we could accomplish. You can't sit there and be optimistic; you have to be brutally honest and frank with your forecasts.
Q: What advice do you have for health systems that are battling negative margins and may be on the brink of bankruptcy?
RA: It's critical to have accurate financial forecasts. You really have to judge well in advance if you're going to need to consider bankruptcy and what that pivot point is. It's also important to have your legal and restructuring advisors engaged before you file. You want that working relationship. We tried to avoid filing for bankruptcy, but once we made the decision — since the team was already engaged with us and we were already working through things — we had a running start to get us in and out of bankruptcy in the four months that we accomplished it in. We also made it very clear to the communities we were going to keep these hospitals open and we weren't going to liquidate.
Q: What are your immediate plans for the four Pipeline hospitals in the Los Angeles area and the one in Dallas?
RA: For now, we want to make sure we solidify our position with the hospitals we have and execute flawlessly on our business plan. The Medicaid market is unique in every market, but especially in California, with significant issues around social determinants of care and how we best serve that patient population and partner with other payers and hospitals. Of course we are interested in growth, but for now we're focused on improving the hospitals we have. Once we do that, we'll start to look at growth. We think we can grow in the markets we're in now without necessarily expanding into others.
Q: What are the keys to ensuring Pipeline remains financially solvent?
RA: One of our hospitals is among the top 15 in Los Angeles in terms of the highest percentage of Medicaid, and our other hospitals in that market aren't far behind. To serve that population, emergency rooms are very important, so we will continue to focus on our ED efficiencies to make sure the care provided to patients is timely. The goal is to make sure every patient receives care as efficiently as possible. We're also focused on meeting our staffing needs, not just for current volume but for future volume. In Dallas, we also plan to grow and expand our surgical capabilities.
Q: What surgical specialties are you looking to grow in Dallas?
RA: We'll be looking at growing spine, orthopedics, cardiology, oncology and bariatric surgery. We'll also be focusing on primary care, making sure that patients have a medical home either pre- or post surgery, which we think there is a need for in the community we serve in Dallas.
Q: What particularly excites you about the future of Pipeline?
RA: We're in a unique position to serve the underserved in Los Angeles. I think we have a genuine mission that few organizations ever enter into in these markets. Our staff and physicians are very dedicated to serving these diverse communities. We will continue to partner with other hospitals, federally qualified health centers and payers to ensure these patients receive the highest possible care. It's a very tough payer mix, and the patients we have don't always have easy lives.
Next month, we will also be opening up a 36-bed behavioral health unit, which will largely be filled with Medicaid patients. We're starting to serve a niche in that arena as well — once again, more centered toward the disadvantaged due to the markets we're in, and we're already looking at ways to expand that unit. I've operated hospitals in Los Angeles for a long time, and psychiatric issues in the emergency room are a big issue. It's very difficult when trying to get a Medicaid patient transferred. It can often take days, so we think we can help solve that need. We're going to feel our way through and make sure we understand everything we need to do before we enter into complete growth mode.
Q: In recent months, several CFOs have moved to CEO roles at hospitals and health systems. What do you see as the biggest strength or attribute a CFO can bring to the CEO role?
RA: Clearly they understand the numbers, and the reimbursement system in healthcare is becoming increasingly complex. Understanding how all the numbers come together, whether its revenues or expenses, is a clear advantage. At the end of the day, though, the CFO needs to grow into staff relations and all the key components that are more relational and outside of the CFO role. Having that advantage of understanding the numbers is great, but you have to then focus on medical staff, provider and board issues and other things that you may not have necessarily focused on in the CFO role. It's a slightly different perspective as CEO, with quality being focus number one.