Healthcare bankruptcies hit a five-year high in 2023, which saw 12 hospitals and health systems file for bankruptcy, but have slowed over the last three quarters, according to a report published Aug. 14 by Gibbins Advisors, a healthcare restructuring consulting firm.
While there were 79 bankruptcy cases filed in 2023, based on the current run rate (calculated by annualizing six months of cases filed through June 30, 2024) this year is on track to see 58 cases, which would be a decline of 27%, according to the report.
Only one health system, Dallas-based Steward Health Care, filed for bankruptcy in the first half of 2024, but 31 hospitals are under the company's umbrella.
While average hospital margins are steadily improving this year, there is a widening gap between higher and lower performers, with smaller and rural providers most at risk. High-performing hospitals are more often making longer term strategic investments.
One caveat to note is that large bankruptcy cases with liabilities over $500 million include sizeable healthcare companies. With six such bankruptcy filings so far this year, these cases represent a far bigger number of healthcare facilities.
"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, principal at Gibbins Advisors, said.
Despite a slowing trend in healthcare bankruptcies overall, many financial headwinds persist.
Together, senior care and pharmaceuticals comprise about half of all healthcare bankruptcy Filings. However, certain subsectors are seeing higher rates of filings, including clinics and physician practices.
The healthcare sector continues to face financial headwinds, with certain subsectors under increasing pressure, and some organizations better equipped to tackle these challenges than others. Gibbins Advisors said examples of distress drivers include:
- Capital market constraints: high interest rates are hurting access to capital and transactions while increased antitrust scrutiny by federal and state regulators is limiting strategic options for providers and payers.
- Cost increases and workforce shortages: Expense increases are squeezing margins and workforce shortages are anticipated to persist over the next decade — particularly rural areas.
- Payer pressure: Rate increases lag and are not always in line with cost inflation. Medicare Advantage denials and slow payments are hurting providers, many of whom have little negotiating leverage with commercial payers.
- Medicaid disenrollment: As of June 14, more than 23 million people disenrolled across the U.S., increasing the risk of uncompensated care or interruption in reimbursement for providers.
- Macroeconomic forces shifting care delivery: Care continues to migrate away from the inpatient setting, creating significant business model challenges for many providers, but opportunities for others.
Click here for more details on the Gibbins Advisors report.