Bankruptcies among PE-backed healthcare companies spiked in 2023, report finds

More than a fifth of the healthcare companies that filed for bankruptcy last year were owned by private equity firms, which also have a hand in many healthcare companies teetering on the brink in 2024, according to a report published yesterday by the Private Equity Stakeholder Project (PESP).

The nonprofit—which investigates the impacts of private equity ownership and involvement across multiple industries—said it spotted “at least” 17 such bankruptcies in 2023, as opposed to eight in 2019 and even fewer during 2020, 2021 and 2022.

The group’s report also names and shames specific “repeat offender” firms. These included KKR—its physician staffing agency Envision Healthcare (which it no longer wholly owns) and oncology provider GenesisCare filed for bankruptcy last year—and H.I.G. Capital, which backed weight management brand Jenny Craig. Both firms also have other companies skirting the line with high credit risks.

The report also outlined several private-equity-owned companies that “have managed to kick the bankruptcy can down the road” by relying on distressed exchanges, in which companies deal out assets to creditors at reduced valuation to stave off bankruptcy. Among these were U.S. Renal Care, Elara Caring and LifeScan.

PESP acknowledged that 2023 was broadly a big year for healthcare bankruptcies, and pointed to reports from Gibbins Advisors and S&P suggesting half-decade highs in overall and high impact (liabilities over $100 million) healthcare bankruptcies.

Still, the group said private equity’s go-to profit strategies and broader macroeconomic conditions have combined to lead more of their portfolio companies to the chopping block.

Increased levels of debt, often taken on to help fund dividends for investors, leave private-equity-owned companies “more vulnerable to changing market conditions, including high-interest rates and rising labor costs,” PESP wrote in the report. The implementation of the No Surprises Act also fueled high-profile bankruptcies like Envision Healthcare's, they added.

PESP’s report outlined Moody’s Investors Service data suggesting that more private-equity-owned bankruptcies are on the horizon. Among the 45 healthcare companies to which the ratings agency gave a B3 negative or lower—which are considered by Moody’s to have “obligations considered speculative and subject to high credit risk"—42 were owned by private equity firms.

Among these is value-based primary care provider Cano Health, which already filed in February and, PESP noted, was loaded up with $655 million in debt before going public by minority investor and prior owner InTandem Capital Partners. Cano Health laid off 21% of its workforce before filing, “and its bankruptcy has the potential to impact more jobs and care for thousands of patients,” PESP wrote.

The nonprofit built its report by combining data from Gibbins Advisors, Pitchbook and searches for relevant news, litigation and bankruptcy dockets. Alongside the private equity ownership findings, the analysis also found that at least 12 of 2023’s healthcare bankruptcies were among companies with venture capital backing.

Private equity has become a punching bag for regulators and lawmakers amid recent high-profile events. Financial struggles and hospital shutdowns at Steward Health Care, for instance, have spurred congressional hearings and scrutiny of its former owner Cerberus Capital Management. Practice roll-up schemes funded by the firms have also drawn the Biden administration’s ire, prompting investigations and allegations that investors are pumping up healthcare costs with little return in quality.

PESP was recently among those testifying to antitrust regulators about private equity firms that over-leverage their portfolio companies with little repercussion to investors.