Pipeline Health System to Exit Bankruptcy

Robert Allen, right, will take over as CEO as the company exits bankruptcy.

El Segundo-based hospital operator Pipeline Health System, which filed for Chapter 11 bankruptcy on Oct. 2, has announced that its Chapter 11 recovery plan was confirmed by the U.S. Bankruptcy Court for the Southern District of Texas. The slimmed-down company expects to emerge from bankruptcy sometime next month.

During the bankruptcy period, Pipeline Health sold two Chicago-area hospitals that it had long been trying to offload. The company also submitted a restructuring plan that called for the elimination of $275 million in funded debt obligations and more than $55 million in unsecured liabilities.

The bankruptcy exit, which was announced on Jan. 13, also involves some key personnel changes, including the chief executive post. Longtime Chief Executive Andrei Soran will step down on the day the company officially exits bankruptcy. Succeeding him in that post will be the current chief financial officer, Robert Allen, who has 25 years of experience as a local hospital executive.

Prior to joining the team at Pipeline Health in November 2020, Allen served as chief executive of CHA Hollywood Presbyterian Medical Center. He previously held chief financial officer positions at several local hospitals, including Keck Medical Center of USC, California Hospital Medical Center, Valley Presbyterian Hospital and Sherman Oaks Hospital & Health Center.

In addition to Soran, three other executives will also be stepping down: Joe Badalian, chief operating officer; Dr. Bob Frank, chief medical officer, and Traci Bowen, chief human resources officer.

Pipeline Health specializes in operating safety net hospitals, which are required to serve all patients, regardless of insurance status or ability to pay. By this very definition, safety net hospitals tend to have more precarious finances than other hospitals.

According to figures provided by the Hospital Association of Southern California, of the 94 hospitals currently in Los Angeles County, 44 are considered safety net hospitals. The vast majority of patients of these hospitals are either on Medicaid (in California, Medi-Cal) or are uninsured.

In Los Angeles County, Pipeline Health operates Memorial Hospital of Gardena, Coast Plaza Hospital in Norwalk, Community Hospital of Huntington Park, and East Los Angeles Doctors Hospital. It also operates White Rock Medical Center in Dallas.

At the time of the bankruptcy filing, Pipeline Health also operated two hospitals in the Chicago area. Pipeline Health had been trying to sell the hospitals for more than a year, and in June won approval from an Illinois state board to sell the hospitals to a newly formed company called Resilience Healthcare. Proceeds from the sale were to help Pipeline Health stabilize its finances.

But unspecified delays came up in final negotiations; those delays helped trigger Pipeline’s bankruptcy filing.

Pipeline Health finally sold the hospitals during the bankruptcy period, leaving it with five safety net hospitals. Financial terms of the sale were not disclosed.

Pipeline Health reported total revenue of $3.2 billion during the 12 months ending in August. But a more accurate gauge of the company’s financial condition was operating revenue “after accounting for adjustments, denials and bad debt” of $684 million for the 12 months ending in August. Meanwhile, the company faced operating expenses of $761 million. The total net loss for that period was $272 million.

The company attributed its deteriorating finances and subsequent decision to file for bankruptcy to “significant, industry-wide financial challenges that have been exacerbated by the Covid-19 pandemic, including skyrocketing labor and supply costs, decreased ability to generate revenue, and delayed payments from various insurance plans for critical patient services already delivered.”