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Senior care, physician practices hit hard by bankruptcies
Healthcare provider bankruptcies fell 28% in 2024 but remained high, led by senior care, pharma, and physician practices, with rising costs, fee cuts and debt driving distress.
Senior care, pharmaceutical companies and physician practices led healthcare provider bankruptcies in 2024 despite an overall dip in Chapter 11 bankruptcy filings, according to a new report from Gibbins Advisors.
The healthcare restructuring advisory firm recently released its annual report on Chapter 11 filings in the healthcare sector with liabilities over $10 million. The 2024 report identified 57 healthcare provider bankruptcy filings last year, representing a 28% decline from 79 in 2023. However, the number of healthcare bankruptcy filings was still the second-highest level Gibbins Advisors has recorded in the last six years (2019-2024), behind 2023's filings.
The senior care and pharmaceutical subsectors continued to experience the highest rates of Chapter 11 filings in 2024, with filings in these subsectors representing almost half of all healthcare provider bankruptcies last year.
Clinics and physician practices also saw high bankruptcy activity in 2024, the report added. Bankruptcy filings in this subsector reached their highest level in six years because of 10 filings in 2024 versus an average of just four per year from 2019-2023.
Bankruptcies in the clinics and physician practices subsector, as well as the medical equipment and supplies subsector, have increased steadily since 2021, according to the report.
However, bankruptcies filed by hospitals were still high in 2024, with one of the largest filings appearing in this subsector. The report identified five hospital sector filings last year versus the high of 12 filings in 2023. Among these filings was the Steward Health Care System case, which is the largest hospital sector bankruptcy over the last 30 years.
Steward Health Care filed for Chapter 11 bankruptcy in May 2024 after struggling with $9 billion in debt. The system was one of the largest private for-profit hospital operators in the U.S., with 31 hospitals under its umbrella at the time of filing.
Bankruptcy filings were actually more common among large organizations like Steward Health Care. The report found nine Chapter 11 filings with liabilities over $500 million in 2024 versus 12 filings in 2023 and an average of just three per year from 2019-2023.
The report also showed that filings in the $100 million to $500 million range were holding steady, with 14 filings reported in 2024. Additionally, bankruptcy activity accelerated in the fourth quarter of 2024.
Meanwhile, middle-market cases with liabilities between $10 million and $100 million dropped significantly in 2024. The number of filings fell by a third, from 51 filings in 2023 to 34 in 2024.
More physician practice bankruptcies to come
Clinics and physician practices are experiencing a notable uptick in bankruptcies lately, and experts at Gibbins Advisors expect the trend to continue into 2025.
"We've already observed a rise in bankruptcy filings among physician practices, and the 2.83% reduction in Medicare's physician fee schedule for FY2025 will further strain this sector, impacting both physician groups and the hospitals that own them," Clare Moylan, principal at Gibbins Advisors, said. "Given these trends and our ongoing experience, we anticipate an increase in physician practices needing restructuring support in 2025."
CMS finalized the Medicare Physician Fee Schedule cut in November 2024, with the payment reduction taking effect on Jan. 1, 2025. The recent cut marks the fifth consecutive payment reduction for physicians, which physician groups say is devastating to physicians and their practices.
"Physician practices cannot continue to absorb increasing costs while their payment rates dwindle," according to an American Medical Association summary of the CMS final rule.
"Both the Medicare Payment Advisory Commission and the Medicare Trustees have issued warnings about access to care problems for America's seniors and persons with disabilities if the gap between what Medicare pays physicians and what it costs to provide high-quality care continues to grow," the summary continued.
Gibbins Advisors also said in its report that pressure from other payers is mounting as reimbursement "rate increases lag and are not always in line with cost inflation." High government payer mix also signals greater financial pressure, according to the report.
Additionally, labor and supply costs continue to challenge physician practices, as well as hospitals and other healthcare organizations, and capital market constraints, like high interest rates, make it difficult for providers to pull themselves up from razor-thin margins.
These long-term financial headwinds are widening the gap between the "haves" and "have-nots," the report stated.
"While the new presidential administration introduces some uncertainty to the healthcare system, the core factors driving healthcare distress remain unchanged," said Ronald Winters, principal at Gibbins Advisors. "Standalone and rural providers will continue to face significant financial challenges, and collaborating with communities on effective restructuring solutions is vital to preserving essential healthcare services in those regions."
Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.
