The industry continues to face financial headwinds though, putting organizations on unstable footing.
One year after reaching a five-year high, healthcare bankruptcies are in decline, according to a report by healthcare restructuring advisory firm Gibbins Advisors.
While bankruptcies in the industry have slowed in the past three quarters, the report highlighted that organizations continue to deal with financial challenges and restructuring cases could be taking place outside of courts.
Bankruptcies spiked in 2023, which featured 79 filings, compared to 51 cases reported in 2019. This year in on track to see 58 cases, based on the 29 bankruptcies filed through June 30.
Last year also had 12 hospitals and health systems file for bankruptcy, compared to 11 cases from the previous three years combined. So far in 2024, only one hospital operator, Steward Health Care, has filed for bankruptcy, with 31 hospitals under its control.
The drop in bankruptcy volume is largely due to fewer cases involving middle-market companies with liabilities ranging from $10 million to $100 million. Meanwhile, bankruptcies involving very large companies with liabilities over $500 million remain at the high levels of 2023.
“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 a statement. “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.”
The decline in bankruptcies doesn’t mean hospitals and other healthcare organizations aren’t financially distressed.
Several factors are putting pressure on companies, according to Gibbins, including high interest rates and increased scrutiny by the FTC and other regulators.
Workforce shortages are also contributing to increased expenses, while payers are not ceding ground in rate negotiations and increasing coverage denials.
Though operating margins for hospitals continue to stabilize, the divide between higher- and lower-performing facilities is widening, especially in rural regions.
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
A report by Gibbins Advisors shows healthcare bankruptcies stagnating in the past three quarters, with 2024 on pace for 58 cases, compared to 79 in 2023.
Only one hospital company, Steward Health Care, has filed for bankruptcy this year, following 12 such cases in 2023.
Fewer bankruptcies are happening because cases involving midsize companies with liabilities ranging from $10 million to $100 million are down 33% year-over-year.