By Ted Gavin, CTP, NCPM, Managing Director & Founding Partner

Back in 2015, I interviewed Janice Grubin, Esq. about hospital restructuring; you can read that post here. Much has changed since 2015, and facing a range of policy changes in the Trump Administration, hospitals across the country are facing an urgent need to reevaluate their business models and operational strategies. Rising costs, declining reimbursement rates, and workforce challenges have made financial restructuring an essential component of long-term sustainability. The COVID-19 pandemic exacerbated existing issues, leading to financial strains and operational hurdles, and now the Trump Administration is considering various changes that would put further pressure on hospitals.

Understanding the Financial Pressures on Hospitals

Hospitals operate in a complex financial ecosystem, balancing revenue from insurance reimbursements, government programs like Medicare and Medicaid, private payers, and patient out-of-pocket payments. However, several factors have contributed to financial distress in recent years:

• Declining Reimbursement Rates: Hospitals are struggling with stagnant or declining payments from both government and private insurers. Value-based care models, which tie payments to patient outcomes rather than service volume, have not always been financially viable due to uneven implementation and insufficient risk-sharing opportunities. Last week, the Centers for Medicare and Medicaid Services granted the Trump Administration’s Department of Government Efficiency access to its systems and technology, raising the prospect of DOGE changing or potentially cutting Medicare and Medicaid funding.
• Rising Operating Costs: Labor shortages, increased supply chain expenses, and inflation have driven up the cost of providing care. Hospitals must offer competitive salaries and benefits to retain skilled workers while also managing growing costs for pharmaceuticals, medical equipment, and technology. In many cases, it has become an employee’s job market in the skilled professions – particularly nursing. Trump Administration tariffs are likely to increase supply chain expenses and may impact inflation adversely as well.
• Debt Burdens: Many hospitals, particularly nonprofit and rural facilities, have significant debt loads from prior expansions, infrastructure investments, or borrowing during the COVID-19 pandemic. High interest rates make refinancing difficult, further straining budgets.
• Shifting Patient Volumes: The transition from inpatient to outpatient care has altered revenue streams, as outpatient services often yield lower reimbursement rates than inpatient stays. Additionally, elective procedures—which are a major source of hospital revenue—declined during the pandemic and have not fully rebounded in all markets.

Key Strategies for Financial Restructuring

Given these challenges, hospitals are implementing a variety of financial restructuring strategies to regain stability and position themselves for long-term success.

1. Cost Reduction and Efficiency Improvements

The first step in financial restructuring is often getting control of costs and identifying cost-saving measures without compromising patient care. Hospitals are leveraging technology, process optimization, and workforce realignment to achieve greater efficiency.

• Labor Optimization: Hospitals are reassessing staffing models, investing in automation, and utilizing telehealth to manage patient volumes more efficiently. Some are considering shared services models, where administrative functions like billing and IT support are consolidated across multiple facilities. When I had COVID in January, my single telehealth visit, necessary to get a prescription for antiviral medication, took less than ten minutes, and the bill to my insurance company was more than $400. That single nurse practitioner is generating more than $2,400 in patient billing per hour, from home – and as was evident when her toddler wandered into the Zoom frame while we were talking – she was doing so while maintaining the flexibility to deal with family matters while generating that billing.
• Supply Chain Management: By renegotiating vendor contracts, consolidating purchasing agreements, and streamlining inventory management, hospitals can achieve substantial cost savings. Group purchasing organizations (GPOs) allow hospitals to leverage collective purchasing and bargaining power to secure better pricing.
• Energy and Facilities Optimization: Implementing energy-efficient infrastructure upgrades and reducing facility overhead can generate long-term savings. Some hospitals are also repurposing underutilized real estate or leasing excess space to generate additional revenue.

2. Revenue Cycle Management and Reimbursement Optimization

Improving the hospital revenue cycle is critical to maintaining cash flow and reducing losses from denied claims or delayed payments. Key initiatives include:

• Billing and Collections Enhancement: Hospitals are investing in better revenue cycle management systems to reduce billing errors, accelerate reimbursements, and improve patient payment collections. At long last, it seems that hospitals have figured out that coding invoices properly ensures they’ll be paid by insurers faster.
• Payer Contract Negotiation: Hospitals are renegotiating contracts with insurance providers to secure better reimbursement rates and ensure timely payments. Some are also pursuing direct contracts with large employers for bundled healthcare services.
• Medicare and Medicaid Maximization: Given the significant role of government programs in hospital revenue, facilities are focusing on optimizing their coding and documentation processes to maximize reimbursement under Medicare and Medicaid.

3. Debt Restructuring and Financial Engineering

For hospitals burdened with high levels of debt, financial restructuring often involves renegotiating terms with lenders and exploring new financing options.

• Debt Refinancing: Some hospitals are refinancing existing debt at lower interest rates or restructuring loan terms to improve cash flow. However, with rising interest rates, this option has become more challenging, making proactive financial planning even more essential.
• Asset Sales and Leaseback Transactions: Hospitals may choose to sell non-core assets, such as medical office buildings or parking structures, and lease them back to generate immediate cash while retaining operational control. This is rarely a first choice, as lease costs can range from slightly to staggeringly above market, creating long-term expense issues in exchange for short-term cash.
• Revenue Bond Restructuring: Many nonprofit hospitals rely on municipal revenue bonds for financing. In some cases, hospitals are working with bondholders to restructure payment terms or defer obligations to maintain liquidity.

4. Service Line and Market Reassessment

To achieve financial sustainability, hospitals must align their services with market demand and identify high-margin specialties that can support overall operations.

• Service Line Rationalization: Hospitals are evaluating which service lines are financially viable and strategically important. Some may reduce or eliminate unprofitable services while investing more in areas with strong demand, such as orthopedic surgery, cardiology, and behavioral health.
• Geographic and Market Positioning: In competitive healthcare markets, hospitals are reassessing their geographic footprints, determining whether to expand, consolidate, or exit certain markets based on financial performance and community needs.

The Role of Leadership and Governance in Financial Restructuring

Successful financial restructuring requires strong leadership and governance. Hospital boards and executive teams must be proactive in assessing financial risks and making difficult decisions. Transparency with stakeholders—including staff, patients, investors, regulators, and the community—is essential to maintaining trust and ensuring smooth transitions during restructuring efforts.

Additionally, hospitals facing severe financial distress may consider engaging financial advisory firms or restructuring consultants to guide them through turnaround strategies, bankruptcy proceedings, or negotiations with creditors.

Looking Ahead: The Future of Hospital Financial Restructuring

The healthcare industry is at a pivotal moment, where financial sustainability is no longer a given, but a goal that requires deliberate and strategic action. Hospitals that successfully restructure their finances will not only survive current challenges but emerge stronger, more resilient, and better positioned to deliver high-quality care.

While partnerships and affiliations may play a role in some hospitals’ restructuring plans, the foundation for success lies in financial discipline, operational efficiency, and strategic adaptation. As hospitals navigate this evolving landscape, those that embrace innovation and sound financial management will be best equipped to meet the needs of their patients and communities.