Healthcare bankruptcy filings have slowed over the past three quarters, according to a new analysis by healthcare restructuring advisory firm Gibbins Advisors.
The report analyzed healthcare sector Chapter 11 bankruptcy filings from 2019 through mid-2024 for companies with more than $10 million in liabilities. The cases were also analyzed by ownership type around the time of filing, including private equity, privately held, publicly traded or nonprofit.
After bankruptcy filings increased over 10 consecutive quarters to a spike in the third quarter of 2023, they have slowed in 2024. In 2023, 79 cases were filed, while 2024 is on track to see 58 cases based on the current run rate. That would come out to a decline of 27%.
The decline in case volumes is largely driven by middle-market companies, which the report defined as those with liabilities between $10 million and $100 million. The filings of very large companies, like with liabilities exceeding $500 million, nonetheless remain at the elevated levels seen in 2023.
Though this decline appears to be a good sign, the report noted, financial challenges in the sector still persist. The report does not include restructuring efforts taking place outside of a bankruptcy filing, for instance.
“The trend of lower bankruptcy volumes is not resonating with the amount of financial distress we are seeing in our practice,” Clare Moylan, principal at Gibbins Advisors, said in a press release. “A possible reason could be financial restructuring taking place out of court rather than in bankruptcy. We wouldn’t be surprised if the case volumes increased from current levels as the year progresses.”
Drivers of financial headwinds cited in the report include high interest rates affecting capital markets, heightened antitrust scrutiny, cost hikes and labor shortages. Others include stagnating payer rate increases, Medicare Advantage denials and Medicaid enrollment disruptions. Care continues to shift beyond the institutional setting, implicating many providers’ business models while presenting an opportunity for others. And though some hospitals’ margins are improving, the gap between higher and lower performers—such as smaller and rural providers—is widening.
Specific subsectors appear more hard-hit by bankruptcies than others. Senior care and pharmaceuticals comprise nearly half of all filings, the report found. And filings from clinics and physician practices have surged, trending 60% higher this year so far. Medical equipment bankruptcies have been on a steady upward trajectory since 2021. And one health system—Steward Health Care—recently filed for bankruptcy, the report highlighted.
Over the past five years, nearly half of all healthcare bankruptcy filings were privately held debtors. A quarter were publicly traded, less than a fifth were nonprofit and 14% were PE-backed. Nonprofit cases focused on senior care and hospitals. PE-backed bankruptcies saw the highest concentration in medical equipment and supplies.
There were no nonprofit debtors with more than $500 million in liabilities, given the very large cases were typically PE-backed or publicly traded companies.
“The very large bankruptcy cases with liabilities over $500 million include sizeable healthcare enterprises, so when you see six such cases filed year to date, that represents a much bigger number of healthcare facilities,” Ronald Winters, principal at Gibbins Advisors, said in the announcement. “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.”