Hospital sector will face sustained challenges in 2023; bankruptcies likely: 5 things to know

While hospitals largely avoided the growing trend of healthcare bankruptcies in 2022, the ending of COVID-19 protections will add to ongoing labor expense and inflationary challenges and mean much of the sector will remain under pressure, according to a report from restructuring firm Gibbins Advisors.

There were only two hospital sector bankruptcies of entities with over $10 million in liabilities in 2022. That number could increase in 2023, the report warned.

"The hospital sector was particularly insulated from financial distress during the pandemic; however those protections have ended and we are now seeing a lot of struggling hospitals, particularly rural and community hospitals," said Ronald Winters, principal.

The outlook for the year ahead points to the following areas of potential financial distress across the healthcare industry, the report noted. Five things to know:

  1. Recession fears: The capital market constraints seen in late 2022 are expected to continue.
  2. New baseline on labor cost: There may be a shift away from more expensive contract labor costs, but increases in pay and benefits awarded to attract and retain staff are expected to set a new baseline on expenses.
  3. Pre-COVID macroeconomic factors remain unchanged: The pandemic exacerbated existing trends related to new technology and a shift from inpatient to community-based healthcare delivery.
  4. Market returns: Healthcare providers may have to sell investments at a loss to provide necessary cash flow.
  5. Rate increases from payers will not likely meet cost inflation: Those systems more reliant on government payers are expected to be the most challenged.

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