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John R. Fischer, Senior Reporter | February 02, 2024
Bankruptcy cases among healthcare companies and providers in 2023 were the highest in five years.
Chapter 11 bankruptcy filings for healthcare organizations in 2023 were the highest they have been in the last five years and lined up with a continuing trend since 2020 that has seen such cases grow larger in number each year.
Total filings amounted to 79, which was three times the number in 2021 and 1.7 times that in 2022. The year that came closest to it was 2019, which saw 51 cases of bankruptcy in the healthcare sector, according to healthcare restructuring advisory firm Gibbins Advisors in its
Analysis of Chapter 11 Healthcare Bankruptcies since 2019 Full Year 2023 Report.
While half involved senior care and pharmaceutical subsectors, 12 cases were filed by hospitals in 2023 alone compared to 11 over the past three years combined. Additionally, the number of healthcare companies that declared bankruptcy with liabilities over $100 million was 28, four times the number in 2022.
While capital constraints, labor and supply costs, and revenue pressure escalated filings, the end of COVID-19 protections was likely the main contributor, especially for increases among hospitals and in the number of large healthcare bankruptcy filings, said Gibbins Advisors. It also said that the growing transition of care being moved out of hospitals and long-term nursing facilities into outpatient settings creates both opportunities and challenges.
“As we anticipated, restructuring activity in the hospital sector increased markedly in 2023 and we expect to see a continuation of that level of distress this year as hospitals, particularly rural and stand-alone hospitals, work through challenging profitability, liquidity, and leverage dynamics,” said Clare Moylan, principal at Gibbins Advisors, in a statement.
But in their report, Moylan and her colleagues say that this fate could potentially be avoided, or at the very least liabilities reduced, if hospitals and other healthcare businesses adopted certain practices:
- Come up with a smart strategy: Providers should evaluate which services work from profitability, staffing, and competitive standpoints, and get rid of those that do not work for them. They should also look at what projects and resources they are making capital investments in, and ask themselves if they require a partner to sustain their operations in the long term.
- Operate efficiently: Reviewing budgets can reveal wasteful spending, and doing the same for staffing models and benchmarks can show organizations their standing against competitors. They should also invest in automation and AI tools to improve workflows, form a disciplined approach to take key contracts to market and manage supply chains, and evaluate staffing, processes, and systems to see what is needed in-source and what can be outsourced.
