Hospital Bailouts: Have They Gotten into the Right Hands?
Today on Yahoo! Finance: Peter Kaufman, Gordian Group President joins Yahoo Finance’s On The Move panel to weigh in on the latest healthcare and hospital bailouts as well as Hertz’s failed attempt to raise $500M in equity in bankruptcy due to the COVID-19 pandemic.
Below is a timestamped breakdown of the interview and a full transcript.
00:00 | $15B in stimulus funding was distributed to US Hospitals. Did the funding reach the right hospitals and has the industry benefited from this influx of funds? If not, what recourse is there for the Government?
03:00 | Is healthcare reform a possibility if Joe Biden becomes President and the Democrats win back the Senate in the 2020 election?
04:15 | Hertz’s $500M Share Offering. Why did they abandon the sale?
Julie Hyman (00:05):
Stimulus money goes to various industries. Airlines, of course, among them. Hospitals are also on the list and there have been some reports that some of those hospital chains that maybe didn’t necessarily need the money are funneling some of it to their top executives. What does this say about the hospital industry, but also what about the hospitals that are closer to insolvency or are having real issues? We’re joined now by Peter Kaufman. He is Gordian group president. He looks at those issues of restructuring and bankruptcy. So as it applies to the hospitals, Peter what do you think, I mean, did the hospitals that really need the money get enough or was that money funneled to others that maybe even misused the funds?
Peter Kaufman (00:46):
Julie, Adam, good to see you again. This is as usual when the government is trying to dole out money, a bit of a mess. There were very few guidelines for how money gets doled out, mostly based on historical revenues. And I think some portion of Medicare reimbursement and you know, of the 60 largest hospital chains that received $15 billion in total, more than half have either laid off employees, furloughed employees, or demanding, reduced salaries from employees. And the CEOs are as usual pocketing a lot of money, they’re making some face saving, give ups of about two weeks worth of salary to give to everybody else. And these large hospitals are not just hospitals, they’re private equity firms, they’re venture capitalists. They’re hugely in the money management business. And I’m sure that they’re taking various forms of hits during the last three months because of COVID. But by no means, did all of them need all this money. And conversely, I think there are a lot of mostly rural hospitals, inner city, hospitals that are not getting the funds they need, but all of this is to be expected when you know, the government’s inefficient. There were no great guidelines for how to dole out the money.
Adam Shapiro (02:10):
Hey, it’s Adam, and it’s good to see you. So I’m curious though, and that New York Times article, which highlights this, I’m looking at one part of it where it talks about, I think it was Tenet Healthcare, got $345 million from taxpayers. Their CEO, and by the way, they had laid off 11,000 workers. Their CEO donated for six months, money from his pay package, which is $24 million a year. And what he donated is about $375,000. So we get the point of those kinds of numbers, but what recourse is there? The government’s not going to go claw back that money. Is it?
Peter Kaufman (02:44):
No, there’s, there’s really very little recourse. I mean, some firms are being shamed into returning PPM PPP money, but it’s a much smaller amount and I don’t think anybody should expect for a wire to be coming from the hospitals, you know, back to the government.
Rick Newman (03:00):
Hey Peter, Rick Newman here, I’ll, I’ll follow up on that. So in the democratic primaries, before Joe Biden clinched the nomination, there was a lot of discussion about healthcare reform and should the government have a more active role. I think it’s fair to expect that it’s going to be something Biden is talking about in the fall and if Biden wins and he gets a democratic Senate, Democrats will possibly have the votes to do some reforms here. So, would you like to take a swag at how, if the government did have the power to do it, what would be sensible to do?
Peter Kaufman (03:32):
Well, I can only focus on solvency, insolvency, restructuring issues here, but I think a great first step would be to have some sanity about how material amounts of taxpayer money is doled out to the healthcare industry. And I think that what we’re seeing here is it just was to throw it up against the wall, see what sticks, and I’m not sure it’s really done any good and the receivers of all that money are still laying off people or furloughing them et cetera. So I think that’d be a good place to start, but I couldn’t begin to opine about how the US healthcare system should be reformed.
Julie Hyman (04:15):
Peter, before I let you go, while we have, got to ask you about a different company in bankruptcy and that’s Hertz. Yesterday abandoning that share sale, right? Because it was under scrutiny. But what do you make of the Hertz situation and this phenomenon of speculators piling into these companies that are in or near bankruptcy?
Peter Kaufman (04:38):
Well, I thought it was a really creative attempt by Hertz to end run the usual process of if you need cash, you go get use of the cash collateral of your lenders, or get your lenders or other lenders to loan you money called DIP financing in Chapter 11. Instead, here they tried to raise $500 million in equity. And even the offering material said there’s a very high likelihood you’re going to lose all of this money because shareholders in bankruptcies almost uniformly get wiped out unless Gordian Group’s advising the company. And I give them high credit for creativity, but the SEC stepped in and this thing went away. But it was different. It was interesting. The speculation in Hertz stock is quite interesting to me because there is no plan of reorganization that’s been promulgated or certainly publicly stated. And so, no one has any idea as an investing public what, if anything, the shareholders are going to get on the other side of Hertz.
Julie Hyman (05:44):
Peter, thank you. Peter Kaufman Gordian group president. Thanks for joining us.