6 Reasons Healthcare Organizations Are Seeing Increased Financial Distress, Bankruptcies in 2023

Bankruptcy filings in the first six months of 2023 are trending substantially higher than historical filings, a new report finds.

According to a new report released by Gibbins Advisors, healthcare bankruptcy filings in the first six months of 2023 are trending materially higher than historical filings, with 40 bankruptcies filed through June 2023 compared to 46 filings in the full year of 2022.

If trends continue at this annualized rate, the healthcare restructuring advisory firm says the market could see 80 healthcare bankruptcy filings in 2023, eclipsing the last two years combined. That would be a 74% increase from 2022 and three times the level seen in 2021, the report says.

The acceleration in bankruptcy filings throughout 2022, especially the uptick seen in the fourth quarter of 2022, has continued into 2023 with an average of 20 cases filed in each of the last three quarters through June 2023, the report shows.

Large healthcare bankruptcy filings with more than $100 million in liabilities sharply increased in the first half of 2023. According to the report, in just six months, 13 cases were filed, nearly matching the 15 total cases from 2022 and 2021 combined. Five of those 13 bankruptcies were cases each with more than $500 million in liabilities.

So should major healthcare orginizations be worried? Not so fast.

According to the report senior care and pharma are leading the majority of the bankruptcies in healthcare. Hospital cases are trending up though, with six hospital filings the last 12 months compared to five in the previous 24-month period.

For those hospitals that are in trouble, there are six key drivers contributing to financial distress, the study says:

Capital market constraints

Interest rates are at their highest levels in 15 years, which is impacting borrower cash flow, refinancing ability, asset valuation, and transactions the report said.

Labor and supply cost pressures

Increases in pay and benefits to attract and retain clinical staff and reduce contract labor have set a new, higher baseline for expenses. At the same time, the report notes that inflation on non-labor costs has often exceeded expectations, putting pressure on hospital budgets. 

Market returns

While the stock market rebounding in 2023 has helped providers that rely on investment returns, the report says they may still need to sell such assets or dip into cash reserves to provide necessary cash flow.

Medicaid Enrollment

Pandemic-related protections on continuous Medicaid enrollment expired this year, with estimates that between 8 million and 24 million people will lose coverage, though many will re-qualify the report says.

Payer rate increases

The margin squeeze on healthcare providers is expected to continue, particularly for providers reliant on government payers like CMS. In fact, hospitals may be seeing a 2.8% payment increase for outpatient services for calendar year 2024, according to CMS’ 2024 OPPS proposed rule, but hospital groups say it is still not enough.

The report also called out the No Surprises act has having a large impact on providers’ costs.

Shifts in care from institutional settings

According to the report, COVID-19 accelerated the long-term trend of care shifting from inpatient to outpatient and community-based settings, creating both opportunities and headwinds.