Hospital closures, bankruptcies could see uptick in 2023

Many hospitals and health systems are on course for their worst financial year in decades, and more hospital closures and bankruptcies could be on the cards next year, according to recent reports on the state of hospital finances in the U.S.

Hospital expenses are expected to increase throughout the remainder of 2022, leading to an increase of almost $135 billion over 2021 levels. Labor expenses are anticipated to increase by $86 billion, while non-labor expenses are projected to increase by $49 billion.

In addition, backlogs for surgery and diagnostic services are preventing hospitals from recouping $22.3 billion in lost revenue nationally due to the cancellation of elective surgeries from March to May 2020. 

There are 631 rural hospitals — equating to about 30 percent of all rural hospitals — at risk of closing in the immediate or near future due to persistent financial losses on patient services, inadequate revenues to cover expenses and low financial reserves, according to a report from the Center for Healthcare Quality and Payment Reform.

Federal support has helped many hospitals remain open as they aim to provide care to their communities while simultaneously battling a range of challenges that include staffing shortages, supply chain disruptions, unfavorable payer mixes and inflation. As government assistance expires, many hospitals will be forced to file for bankruptcy or close their doors for good.

According to research published Aug. 19 by Gibbins Advisors, a healthcare restructuring advisory firm, Chapter 11 bankruptcy filings this year for large healthcare organizations (those with liabilities over $10 million) are tracking 28 percent higher than 2021. This comes after large healthcare organization bankruptcies in 2021 were 44 percent behind 2020 levels.

"Healthcare organizations without adequate cash reserves to fund operating losses and debt service may face more difficulty in accessing capital in the current climate than the last two years, which can lead to more restructuring activity including bankruptcies," Ronald Winters, principal at Gibbins Advisors, said in a news release. 

It will be critical for hospital financial executives to forecast cash flow and engage early with capital sources to secure the support they need next year. The challenging economic period comes at a time when the healthcare industry is undergoing several key shifts, including patient care moving to outpatient environments and disruptors such as tech companies and retail giants advancing further into the field.

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