About 1 in 5 healthcare bankruptcies in 2023 owned by PE firms

A new report reveals a record year for healthcare bankruptcies as more private equity-owned companies filed for bankruptcy in 2023.

There were approximately 80 healthcare bankruptcies last year, according to the report recently published by the Private Equity Stakeholder Project, a non-profit organization dedicated to identifying and engaging stakeholders affected by private equity (PE). Of those bankruptcies, at least 17 (21%) were owned by PE firms. Another 12 bankruptcies (15%) were also by companies with venture capital backing.

PE has been increasingly interested in healthcare companies. As of 2019, PE firms accounted for 65 percent of physician practice acquisitions, representing the vast majority of physician deals, the American Hospital Association (AHA) reports. At least 460 US hospitals, or about 8% of all private hospitals in the country, are also owned by PE firms, according to the Private Equity Stakeholder Project.

Physician practices, hospitals, and other types of healthcare organizations are attractive investments for PE firms. Healthcare is full of administrative complexity that firms can streamline to make greater profits. These deals have also interested healthcare leaders, many of whom are facing dire financial struggles after the COVID-19 pandemic.

However, has recently been in the spotlight, as a growing body of literature points to its negative impacts on a range of outcomes. Research has shown that PE involvement has led to higher healthcare costs, as well as potential harm to quality of care.

The rise in bankruptcies of PE-owned healthcare companies raises more questions about these investments, the Private Equity Stakeholder Project states in the report. Specifically, how does the PE business model create risk for healthcare at large?

The report found that bankruptcies among healthcare companies owned or backed by PE firms have substantially increased. Specifically, there has been a 112% increase since 2019, when there were only 8 PE-owned healthcare company bankruptcies.

The recent growth in these bankruptcies is consistent with other recent data, the report states.

Researchers at the Private Equity Stakeholder Project say bankruptcies among PE-owned healthcare companies may be due to the “much higher levels of debt” the firms take on compared to other companies, leaving “companies more vulnerable to changing market conditions, including high interest rates and rising labor costs.”

The business model may also prioritize the benefits of PE owners at the expense of companies, their patients, their employees, and the communities they service, the report states.

With market conditions slowly improving and elevated debt loads, the report predicts another high level of PE-owned healthcare bankruptcies in 2024. Already, Cano Health, a value-based primary care provider for Medicare and Medicare Advantage enrollees, filed for bankruptcy in February 2024.