The volume of healthcare bankruptcy cases in 2023 was more than three times the level seen in 2021.
In 2023 there were 79 bankruptcy filings in the healthcare industry, the highest in the past five years—a significant increase compared to the 51 cases reported in 2019, according to the newest report from Gibbins Advisors.
The volume of cases in 2023 was more than three times the level seen in 2021 and 1.7 times the level in 2022. Even more, large healthcare bankruptcy filings with liabilities over $100 million surged in 2023, reaching 28 filings, compared to only 7 in 2022 and 8 in 2021.
The rise in healthcare bankruptcies in 2023 primarily impacted the senior care and pharmaceutical subsectors, so should CFOs of hospital and health systems care?
Yes. CFOs should still care.
Hospital and health system CFOs should still take note as challenges lie ahead. Capital market constraints, labor and supply cost pressures, and revenue strain all contributed to the bankruptcies seen in 2023, and all three of those challenges weigh heavy on hospital and health system CFOs too.
In fact, hospital bankruptcy filings also saw a significant increase in 2023, with 12 filings compared to a total of 11 filings from the previous three years combined.
Though there may be some optimism for providers with expected rate and volume increases in 2024, costs will likely remain a challenge. And as we know, smaller organizations with revenue under $500 million may face greater difficulties than larger health systems.
So, what was behind the three factors that contributed to financial distress in healthcare organizations?
- Capital market constraints: Despite an expected softening of interest rates in 2024, healthcare providers continue to face challenges in refinancing, accessing capital, and transactions due to relatively high rates, the report said. Additionally, new FTC and state anti-trust protections may limit strategic options.
- Labor and supply costs: Over the past two years, healthcare organizations have experienced significant cost increases, creating a margin squeeze. While agency labor is stabilizing in some markets, workforce challenges persist, and potential federal mandates for minimum staffing ratios could exacerbate the situation.
- Revenue pressure: Payment rate increases often do not keep up with cost inflation. Payers are also playing a role in revenue pressure, the report says, especially since there has been a considerable increase in denials from payers, particularly from Medicare Advantage plans.
What does the future hold?
Looking ahead to 2024, Gibbins Advisors predicts that senior care bankruptcies may return, despite the absence of filings in Q4 2023.
The firm also expects continued levels of healthcare bankruptcies similar to those seen in 2023.
Restructuring activity in the hospital sector is anticipated to remain high, particularly for rural and standalone hospitals dealing with profitability, liquidity, and leverage challenges.
Amanda Norris is the Associate Content Manager of Finance, Payer, Revenue Cycle, and Strategy for HealthLeaders.
Although the rise in bankruptcies in 2023 primarily impacted the senior care and pharmaceutical subsectors, hospital and health system CFOs should still care.
Why? The three main challenges that propelled those bankruptcies are the same issues all healthcare CFOs are facing.