ipopba - stock.adobe.com
2023 Healthcare Bankruptcies Reached Highest Level in 5 Years
There were 79 healthcare bankruptcies in 2023, 12 of which had liabilities over $500 million.
The number of healthcare bankruptcies in 2023 increased 71 percent from 2022, reaching the highest level in the last five years, a report from Gibbins Advisors revealed.
The report analyzed healthcare and medical sector Chapter 11 bankruptcy cases for companies with liabilities of at least $10 million.
In 2023, there were 79 healthcare bankruptcy filings, up from 46 in 2022 and 25 in 2021. The next highest volume over the past five years was 51 filings in 2019.
The number of cases with liabilities in the $10 million to $50 million range (39 bankruptcies) was 26 percent higher than in 2022 (31 bankruptcies). Bankruptcy filings with liabilities over $100 million saw a significant boost, rising from eight filings in 2021 and seven filings in 2022 to 28 filings in 2023.
Between 2019 and 2021, eight cases with liabilities over $500 million were filed, compared to 17 cases filed since July 2022.
Healthcare bankruptcies increased across all healthcare sectors. Pharmaceuticals had the highest case count in 2023 of 20, followed by senior care (15), hospital (12), medical equipment and supplies (7), and clinic/physician practices (6). Nineteen filings were in the “other” category, consisting of labs/diagnostic, healthcare manufacturing, and other miscellaneous cases.
Hospital bankruptcies, in particular, were at their highest level since 2019. Hospitals facing financial pressures do not always file for bankruptcy and may resort to closing instead, the report noted. There were 117 acute care hospital closures between 2018 and 2022 and 69 hospitals opened, leading to a net closure of 48 hospitals. Seven rural hospitals closed in 2023, lower than the average of eight per year from 2014 to 2020.
Despite an overall increase in healthcare bankruptcies in 2023, the number of filings decreased in the last quarter of the year after six consecutive quarters of growth. The number of bankruptcies progressed from 19 in Q1 2023 to 21 in Q2 and 28 in Q3 before declining 60 percent to 11 filings in Q4. The report stated that it is unclear if the Q4 trends represent an emerging trend.
A few key factors have contributed to financial challenges in the healthcare sector. High interest rates have impacted access to capital, while new requirements from the Federal Trade Commission (FTC) and state anti-trust regulations may limit merger and acquisition possibilities.
Additionally, labor and supply expenses continue to squeeze margins and payment rates from payers are generally not aligned with inflation.
Patients are frequently receiving care in outpatient, community, and home-based settings instead of hospitals and skilled nursing facilities. This shift can potentially create opportunities for some healthcare sectors and headwinds for others.
Gibbins Advisors predicts that smaller organizations with revenue under $500 million may face harsher challenges than larger health systems in 2024 as financial hurdles persist.
Going forward, healthcare organizations can avoid future financial challenges, such as bankruptcy, by developing investment strategies, reviewing budgets and staffing models, and prioritizing revenue cycle management, the report concluded.
