Healthcare bankruptcies hit 5-year high

Seventy-three healthcare companies, including 12 hospitals and health systems, filed for bankruptcy in 2023, the highest number of filings since 2019, according to a Jan. 25 report published by Gibbins Advisors, a healthcare restructuring consulting firm.

Hospital bankruptcy filings spiked in 2023 with 12 filings compared to a total of 11 filings from the previous three years combined. The senior care and pharmaceutical sectors comprised nearly half the total healthcare bankruptcy filings in 2023, in line with previous trends, according to the report.

"Restructuring activity in the hospital sector increased markedly in 2023 and we expect to see a continuation of that level of distress this year as hospitals, particularly rural and standalone hospitals, work through challenging profitability, liquidity and leverage dynamics," Clare Moylan, principal at Gibbins Advisors, said in the report.

Overall, case volumes in 2023 were more than three times the level reported in 2021 and over 1.7 times that of 2022. Large healthcare bankruptcy filings with liabilities over $100 million also surged in 2023, reaching 28 filings compared to seven in 2022 and eight in 2021.

Healthcare contnues to face various financial headwinds, but there may be good news coming down the pipeline for some providers, according to Gibbins Advisors.

Five insights from the report:

1. Capital market constraints

- Interest rates are expected to cool this year, but refinancings, access to capital, transactions and valuations are still hampered by relatively high rates.
- New Federal Trade Commission and state antitrust protections may limit strategic options.

2, Labor and supply cost pressures

- Significant expense increases over the past two years set a new baseline, which has created a margin squeeze. 
- Contract labor rates are softening in some markets, but staffing continue and possible federal mandates for minimum staffing ratios would compound the challenges.

3. Revenue pressure

- Payment rate increases are often not in line with cost inflation.
- Material increases in payer denials, particular in relation to Medicare Advantage.
- Unwinding of Medicaid Continuous Enrollment during 2023 may increase the number of uninsured patients.

4. Possible optimism

- Rate and volume increases may be on the horizon in 2024, but costs will likely remain a challenge, and smaller organizations with annual revenues under $500 million may fare worse than larger health systems.
- Pandemic-related Federal Emergency Management Agency funds may be available as one-time grants.

5. Continuing shift to out-of-hospital care delivery

- Care continues to shift from hospitals and skilled nursing facilities to outpatient and home-based settings, creating both opportunities and headwinds.

"We saw a dramatic increase in healthcare bankruptcy filings in 2023, continuing the trend which began in mid-2022," Ms. Moylan said. "Key observations from 2023 are the return of large bankruptcy cases with over $100 million in liabilities, and a spike in hospital filings, both of which appear to primarily be a result COVID-19 pandemic-related protections ending."

Click here for more details on the report.

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