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In recent months, the financial downfall and bankruptcy of Steward Health Care has dominated the news. But aside from Steward, Chapter 11 filings are less prominent, though the industry is still facing financial headwinds.
An August 14 report by Gibbins Advisors, a healthcare restructuring advisory firm, analyzed Chapter 11 bankruptcy cases among medical industry companies with more than $10 million in liabilities from the beginning of January 2019 to the end of June 2024.
Researchers found that while there was a sharp rise in bankruptcies in Q3 2023, the number of filings has decreased in the following three quarters through Q2 2024.
So far, there have been 58 cases filed in 2024. Compared to the 79 cases filed in 2023, 2024 is on track to see a 27% overall decline in bankruptcy filings, according to the report.
Size matters. The decline in filings, researchers reported, is due to the bankruptcy filing activity among middle-market companies—companies with liabilities ranging from $10 million to $100 million—which is currently 33% lower in 2024 than last year. However, bankruptcy filings from large healthcare companies, with liabilities over $500 million, remain as high as 2023 and are on track to report 12 bankruptcies, the report found.
Senior care and pharmaceutical companies were the top two subsectors, making up 26 of the 58 bankruptcy filings in healthcare. However, the report also pointed to a rise in filings from clinics and physician practices, which are 60% higher in 2024 to date, and medical equipment companies, which have already had eight bankruptcies compared to seven last year.
Of all the healthcare bankruptcies over the last five years, about 45% were filed by privately held debtors (excluding private equity [PE]-backed companies). Some 24% were filed by publicly traded companies, 17% by nonprofits, and 14% by PE-backed companies.
What does it all mean? Clare Moylan, co-founder and principal at Gibbins Advisors said in a press release last week that while there has been a decline in bankruptcies, the healthcare industry is still experiencing financial stress.
“We wouldn’t be surprised if the case volumes increased from current levels as the year progresses,” she said.
In the release, Gibbins Advisors pointed to continued high interest rates, antitrust scrutiny from state regulators and the Federal Trade Commission, cost increases, and labor shortages as some of the financial challenges the industry is facing.
“We are seeing elevated financial distress in nursing homes, senior living, pharmacy, physician practices, and rural and standalone hospitals…strained by legacy debts, cash shortages, and profitability challenges,” Ronald Winters, co-founder and principal at Gibbins Advisors, said in the release.