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Volume XII, Number 274

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SCOTUS’s HOUSE CALL on Healthcare Industry: The Economic Impact of Mandatory Vaccination

The Supreme Court of the United States in a per curiam opinion on Jan. 13 ruled that the Secretary of HHS (United States Department of Health and Human Services) did not exceed his statutory authority in requiring that, in order to remain eligible for Medicare and Medicaid reimbursement, all healthcare providers except for physician offices not regulated by CMS (Centers for Medicare & Medicaid Services), organ procurement organizations, portable X-Ray suppliers and certain healthcare professionals solely engaged in fully remote telehealth, must insure that their employees be vaccinated against Covid-19. The Court in a 5-4 decision maintained that the Secretary had adequately examined alternatives to mandatory vaccination even though the Final Interim Rule went into effect immediately with no sunset provision nor any revisions or assessment of public comment which is usually required under 5 U.S.C. Sections 553(b), 553(c). Interestingly, the Court, both in its decision and its dissent, failed to consider the scientific data on natural immunity, the incident of Covid infection and recovery among healthcare workers, or the significant easing of both hospitalizations and mortality data from the most recent Covid mutation, which is now considered the dominant strain of infection, Omicron.[1] Of even greater concern coming from its decision is a possible grave consequence (unintended or not) of having nearly 3 million healthcare workers fired between the end of January and end of March 2022.

The decision will spur many healthcare providers to either consider downsizing its healthcare platform (eliminating elective surgeries, closing maternity wards, diverting critical patients to other facilities, moving patients into home care more rapidly, etc.) or seeking protection under the bankruptcy code to obtain some breathing room. According to the American Hospital Association (“AHA”), post-pandemic, and even before the Mandate decision, the collective turnover across ICU’s, nursing units and emergency departments has risen from 18% to 30%.[2] There is no doubt that when a nurse leaves a healthcare organization, the vacancy affects the cost of operation many more times the amount of salary paid to the nurse. According to Nursing Solutions, Inc., the average period of time it takes to fill a nursing position is 85 days — and more than three months for a specialized nursing position. While a replacement nurse is located, the healthcare organization must rely on “travelers” and direct care staffing agencies charging super competitive rates. Just in the last year the use of costly employment agencies to cover gaps in staffing is up by 250% over the last year, according to the Florida Health Care Association, Oct. 25, 2021. A turnover of a single nurse whose salary ranges from $28,800 to $51,700 can translate to an average of $3.6-$6.5 million cost to the healthcare organization, given such factors as the cost of reduced productivity of an employee in the weeks leading up to their departure, time between the departure and employee’s replacement, paid overtime to cover the replacement, hi-cost outside staffing agency fees, advertising for open positions, conducting background checks and credential verifications, training onboard new employees and climbing the learning curve on the new clinical culture.[3]

None of the above costs take into account additional expense burdens for healthcare organizations coming from the mounting labor shortage at the nursing assistant and home health aides level, which are considering leaving the healthcare setting in droves and making more money and less aggravation in the retail field. Bloomberg reports that there will be a shortfall of 3.2 million lower-wage workers among all the healthcare organizations by 2026.[4] What is the economic effect of the mandate on healthcare organizations? Well, it’s obvious that by early Spring of this year, there will be fewer healthcare workers and the costs of providing healthcare will go up in spite of an injection of an additional $10 billion of Phase 4 Provider Relief Funds under the CARES ACT. Will the economic stress create more interest in turning to bankruptcy alternatives to allow these organizations time to adjust to the new normal? Even before the mandate was issued, the AHA projected that hospitals would lose over $54 billion dollars in net income during 2021. That loss comes after accounting for the infusion of $176 billion in CARES ACT funding, which didn’t directly address the current dilemma of loss of manpower. It would be likely that the losses for 2022 will be even more dramatic. Additionally, what is not taken into account in these figures is the deepening insolvency affecting the Long Term Care Industry, where 86% of nursing homes and 77% of assisted living facilities have indicated that their workforce situation has gotten worse over the last three months.[5]

Certainly, the upcoming additional economic stress among heath care organizations from potential depletion of manpower will present several challenges within a bankruptcy setting. For one, practitioners will need to navigate how best to utilize post-petition cash between important manpower related objectives such as retention bonuses, paid time off, overtime payments, staffing agencies’ fees, recruiting, advertising, credentialling, and new employee policies, and equally demanding needs such as rent and other critical healthcare vendors. Particular attention will be given to carefully tailored DIP financing to insure the viability of the organization while in bankruptcy and through its exit. While private equity has taken larger and larger roles in healthcare, and its desire to utilize roll-ups and consolidations, specialists in healthcare financial advising will have to be employed to assist the economic constituencies in understanding the mechanism for exiting the bankruptcy, given the balancing act between workforce equilibrium and quality of continued care. Ultimately, more healthcare organizations will require strong healthcare insolvency professional guidance to find an appropriate refuge and fresh start in the trying months to come.

FOOTNOTES

[1]  Of note concerning the timing of its decision and its rationale based on the science, one of the Justices in oral argument believed that in January 2022, there were over 100,000 children in the US currently in the ICUs when the actual total was far less.  Additionally, though the Wall Street Journal reported on January 26, 2022 that the Centers for Disease Control and Prevention (“CDC”) stated that Covid-19 deaths in the U.S. topped 2,100 a day, the highest in nearly a year, the article quotes Robert Anderson, chief of mortality statistics, who says, “You can have a disease that is for any particular person less deadly than another, like Omicron, but if it is more infectious and reaches more people, then you’re more likely to have a lot of deaths.”  As this article is going to print, see, also, Dr. Martin Makary, “The High Cost of Disparaging Natural Immunity to Covid,” Wall Street Journal, Jan. 26, 2022, concluding that “the superiority of natural immunity over vaccinated immunity is clear”.

[2]  Dave Muoio, Pandemic-Era overtime, agency staffing costs U.S. hospitals an extra $24B per year, Fierce Healthcare, Oct. 8, 2021.

[3] See 2021 NSI National Health Care Retention & RN Staffing Report, published by NSI Nursing Solutions, Inc., March 2021.

[4]  Lauren Coleman Lochner, US Hospitals Pushed to Financial Ruin as Nurses Quit During Pandemic, Bloomberg, Dec. 21, 2021.

[5] See FTI Healthcare Industry Sector Outlook, FTI Consulting, December 2021.

Copyright ©2022 Nelson Mullins Riley & Scarborough LLPNational Law Review, Volume XII, Number 31
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About this Author

Frank P. Terzo Bankruptcy Attorney Nelson Mullins Fort Lauderdale
Partner

Frank's practice is devoted to a wide range of insolvency matters, including representation of corporate and consumer clients in complex workouts, bankruptcies, assignment for the benefit of creditors and receiverships.

He has also represented creditor’s committees and Chapter 11 and 7 trustees. In addition, his practice encompasses both the prosecution and defense of all forms of complex bankruptcy litigation, including preference, fraudulent transfers, and complex contested matters.

 

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954-745-5231
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