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Abstract: This article overviews the benefits and pitfalls of the various remedies commonly used to assist a hospital in financial distress: bailout, bankruptcy, and other non-bankruptcy alternatives such as state receiverships. To help counteract the risk of hospital failure, it suggests looking at what some hospitals are doing well and attempting to be more proactive in the identification of at-risk hospitals and in the management of their financial distress. In doing so, the Article also looks to the practices used for systemically important financial institutions (SIFIs), those entities deemed “too big to fail.” Although SIFIs differ from hospitals in many ways, at bottom, the failure of either a SIFI or a too-important-to-fail hospital would be catastrophic. The systemic impact of a SIFI failure has the potential to trigger a global financial crisis: the concern is that a SIFI failure would cause a chain reaction of failures, and an eventual economic collapse. The effects of a hospital failure are not quite as far-reaching, but they are just as devastating for the community impacted. The community’s loss of access to care and jobs as a result of a hospital failure can leave an already struggling area impoverished.
There is no silver bullet to resolving hospital financial distress. But by recognizing the inequality among hospitals—inequality that has been exacerbated by COVID-19 —and by focusing on proactive ways to manage finances, regulators and policymakers can help mitigate the damage and resulting inequality that arises whenever a crisis strikes.
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