Hospitals are struggling with high inflation and a surge in operating costs, including a drastic increase in energy prices and salary increases effective July 1, 2022.
Last year, the Ministry of Health identified around 200 loss-making hospitals whose financial situation could not be improved without additional support. To this end, the ministry announced the creation of the so-called restructuring instrument. In the meantime, however, the Ministry has ceased to publish data on the level of debt of hospitals, and the latest published data concern Q2 2022. The Association of Polish Poviats, however, provides its own data showing the financial condition of healthcare entities. ZPP received them from 194 facilities (out of all 585 hospitals in Poland operating within the so-called PSZ network – basic hospital security), of which as many as 174 recorded a loss on sales. The sum of losses on the sale of all outlets amounted to PLN 1.34 billion. The average loss per hospital is PLN 8.4 million1. Hospitals are indebted for utilities – electricity, gas or water, but also for social security contributions, and in some cases also for employees. However, the largest creditors of hospitals are still companies that provide medical entities with equipment, drugs or services.
It is worth remembering that the Act on Medical Activity clearly states that each entity that achieved a negative financial result for the previous year is obliged to prepare a restructuring program for the next year and the next two years. Nothing has changed in this regard.
During the business breakfast organized by FilipiakBabicz Legal and FORMEDIS, hospital managers paid attention to, among others, to rising inflation costs, as well as too low valuations of services, which makes it difficult to draw up a real recovery plan for a hospital entity. On the other hand, very often obtaining external, market financing is not an option and local governments run out of possibilities to cover hospital losses from their own budgets.
The solution to the difficult liquidity situation of hospitals was to be the act on modernization and improvement of the efficiency of hospitals, drafted by the Ministry of Health last year. The project was consulted and widely discussed, it was supposed to come into force by the end of last year, but in the end it drastically changed its form. At the end of January this year, the Minister of Health presented information on the ongoing work on new solutions under this Act. The idea of creating a restructuring fund was maintained (in the previous version of the draft it was the Hospital Restructuring Agency with extensive powers over hospitals, which the fund would no longer have at its disposal), which would help entities in the most difficult financial situation. The aid will also continue to be linked to the preparation of an appropriate restructuring plan and its subsequent implementation. Currently, however, the content of the draft has not been published, and the planned date of adoption of the draft by the Council of Ministers indicated on the government website is the first quarter of 2023. Therefore, it is difficult to predict when these tools and financial resources for hospital entities would become available.
So what solutions do we currently have on the table for hospitals with acute shortness of breath? We can only consider restructuring proceedings that are publicly available to all market participants. Although the Restructuring Law Act provides for four types of restructuring procedures, it seems that two of them may be attractive to hospitals – proceedings for approval of an arrangement (PZU) and sanation proceedings.
The main advantage of PZU is the fact that it is a quick out-of-court procedure. It enables the conclusion of an arrangement with creditors as a result of the independent collection of creditors’ votes by the arrangement supervisor without the intervention of the court. In addition, from the moment of announcing the date of the arrangement, the hospital would benefit from a four-month minimum protection against enforcement and protection against the so-called key contracts. Avoiding formalized and lengthy court actions seems very attractive, but the question of effectiveness and chances for a happy ending in this formula for healthcare entities requires careful consideration. The choice of proceedings for approval of the arrangement by any debtor is right when it is not yet necessary to undertake deep, time-consuming restructuring activities, the financial effects of which will not materialize immediately. This procedure is procedurally limited, as its purpose is to quickly adopt the arrangement. Also, the time for developing satisfactory arrangement proposals and their acceptance by creditors has been severely limited.
Here we also come to another challenge related to the restructuring of healthcare entities – the lack of bankruptcy capacity of SPZOZs. If creditors do not face the prospect of losing a significant part of their receivables, the motivation to conclude an arrangement providing for significant concessions is very limited. The original version of the bill provided for a certain “automaticity” of the arrangement by referring to the degree of satisfaction of creditors in the event of a hypothetical liquidation of the institution’s assets. Such a solution should be assessed positively, counting on its maintenance and entry into force in the shortest possible time horizon.
In the meantime, however, there is still one more restructuring tool in the form of remedial proceedings. This procedure is the most optimal option for organizations with a complicated structure. From the point of view of healthcare entities, a significant advantage is the rehabilitation focused on long-term action and a number of legal tools enabling a deep restructuring of operating activities. The restructuring advisor selected to act as the manager should, together with the managers of the healthcare entity, look for solutions that will restore the hospital’s financial liquidity in the long term. Finally, they will lead to the conclusion of an arrangement with creditors.
1 Data from the publication “Hospitals under the line. It will be worse?” Rzeczpospolita of March 28, 2023.
