The year 2023 witnessed a notable surge in healthcare bankruptcies, reaching the highest level in five years. Gibbins Advisors’ report reveals a 71% increase in bankruptcy filings compared to 2022, with 79 filings recorded, including 12 with liabilities exceeding $500 million. This surge is attributed to various factors including high interest rates, regulatory constraints, rising labor and supply costs, and shifting patient care preferences. While bankruptcies soared across all healthcare sectors, hospitals faced the highest level of distress since 2019. Despite a decline in filings in the last quarter of 2023, uncertainties persist regarding future trends. Gibbins Advisors predicts continued challenges for smaller healthcare organizations in 2024, emphasizing the importance of proactive financial management strategies.
In 2023, the healthcare industry witnessed a notable surge in bankruptcies, marking the highest level recorded in the past five years. According to a comprehensive report by Gibbins Advisors, a total of 79 healthcare entities filed for bankruptcy during the year, representing a staggering 71 percent increase compared to the previous year. This surge in bankruptcies sheds light on the significant financial strains experienced within the sector.
Among these filings, 12 cases revealed liabilities exceeding $500 million, indicating substantial financial distress among several prominent healthcare entities. Gibbins Advisors’ analysis primarily focused on Chapter 11 bankruptcy cases within the healthcare and medical sectors, specifically targeting companies burdened with liabilities amounting to at least $10 million.
The surge in healthcare bankruptcies throughout 2023 starkly contrasts with preceding years. For instance, there were only 46 filings in 2022 and merely 25 in 2021. This surge also outstripped the next highest volume observed over the past half-decade, which was 51 filings recorded in 2019.
Notably, bankruptcies were not only on the rise in terms of frequency but also in terms of financial magnitude. The number of cases with liabilities ranging between $10 million and $50 million witnessed a 26 percent increase from the previous year. Furthermore, there was a notable surge in filings with liabilities surpassing $100 million, jumping from eight cases in 2021 to 28 cases in 2023.
The surge in healthcare bankruptcies was pervasive across various sectors within the industry. Pharmaceuticals topped the list with 20 filings, closely followed by senior care facilities with 15 and hospitals with 12. Other sectors experiencing significant distress included medical equipment and supplies, as well as clinic/physician practices. Additionally, 19 filings fell into the miscellaneous category, encompassing labs/diagnostics, healthcare manufacturing, and other related cases.
Hospital bankruptcies, in particular, soared to their highest levels since 2019. The report highlights that some financially strained hospitals opt for closure rather than filing for bankruptcy, contributing to the overall trends. Despite this, the number of acute care hospital closures experienced a slight decline in 2023, with seven rural hospitals shuttering compared to an average of eight per year from 2014 to 2020.
Interestingly, while the overall trajectory of healthcare bankruptcies was upward, there was a notable decline in filings during the last quarter of 2023. This decline followed six consecutive quarters of growth, raising questions about the sustainability of this trend. Whether this decline signifies an emerging pattern remains uncertain, as noted in the report.
Several key factors have contributed to the financial challenges plaguing the healthcare sector. High-interest rates have hindered access to capital, while regulatory requirements from the Federal Trade Commission (FTC) and state anti-trust regulations have restricted merger and acquisition activities. Additionally, rising labor and supply costs, coupled with stagnant payment rates from payers, have further squeezed profit margins.
A notable shift in patient care preferences towards outpatient, community, and home-based settings has also emerged, presenting both opportunities and challenges for different healthcare sectors.
Looking ahead, Gibbins Advisors predicts that smaller healthcare organizations with revenues under $500 million may face more severe challenges in 2024 as financial hurdles persist. To mitigate future financial risks, healthcare organizations are advised to develop robust investment strategies, review budgets and staffing models, and prioritize revenue cycle management.
The surge in healthcare bankruptcies in 2023 signals a critical need for proactive measures to address the sector’s financial challenges. While the decline in filings in the last quarter offers a glimmer of hope, uncertainties loom over future trends. Healthcare organizations must develop robust financial management strategies to mitigate risks and ensure sustainability. With smaller organizations facing heightened vulnerabilities, strategic planning, and prudent decision-making are essential in navigating through the ongoing turmoil. By prioritizing investment strategies, cost management, and regulatory compliance, healthcare entities can safeguard their financial stability and continue delivering quality care to communities. As the industry grapples with unprecedented challenges, resilience, and adaptability emerge as indispensable virtues in shaping its trajectory.
