Chapter 11 bankruptcies spiked across healthcare in 2023, particularly for hospitals

2023 was the biggest year for healthcare Chapter 11 bankruptcy filings in the past half-decade, according to a new research report from Gibbins Advisors.

The restructuring advisory firm spotted 79 filings with liabilities of $10 million or more across healthcare-related sectors such as hospitals, practices, pharmaceuticals, medical equipment suppliers, lab services and senior care.

That total is more than 1.7 times the volume seen in 2022 and more than three times that of 2021, two years that Gibbins characterized as having “very few filings.” It was also 1.5 times higher than 2019, the second-highest calendar year included in the firm’s five-year review.

A fair share of those bankruptcy filings, 28, were larger organizations with more than $100 million in liabilities, Gibbins wrote in the report (PDF). This was also a jump over 2022’s seven large filings and 2021’s eight.

As in prior years, companies categorized as senior care and pharmaceutical organizations drove the bulk of the year’s filings with 15 and 20, respectively. The pharmaceuticals sector has also represented “an outsized share” of bankruptcies with liabilities exceeding $500 million over the past half-decade.

However, the firm highlighted “a notable uptick” in hospital bankruptcy filings, from 2021’s three and 2022’s two to 2023’s 12 filings. A third of the hospital filings in 2023 were among organizations with liabilities of $100 million or more.

Gibbins noted that not all hospitals in financial distress turn to bankruptcy protection, particularly if the hospital is owned by a larger health system or is so nonviable that it wouldn’t be able to find a buyer or backer. Here the firm cited acute care hospital opening and closure data collected from MedPAC that suggest a net closure of 48 hospitals from 2018 through 2022.

Industry groups that track hospital closures have noted that shutdowns slowed early in the pandemic due to an influx of government relief funding. The end of those pandemic protections appears to be playing a large role in 2023’s spike of hospital bankruptcy filings, said Clare Moylan, principal at Gibbins Advisors.

“As we anticipated, restructuring activity in the hospital sector increased markedly in 2023 and we expect to see a continuation of that level of distress this year as hospitals, particularly rural and standalone hospitals, work through challenging profitability, liquidity and leverage dynamics,” Moylan said in a statement.

Gibbins added that healthcare bankruptcy filings had increased for six consecutive quarters until Q4 2023, which was also noteworthy as the first quarter in some time without any senior care organization filings. The firm said it is “unclear” on why the bankruptcies slowed but suspects that the story may change in light of 2024 headwinds ranging from cost pressures, low pay rate increases, persistent high interest rates and the unwinding of Medicaid continuous enrollment.

“Despite the absence of senior care bankruptcy filings in Q4 2023, based on our knowledge of the market we expect to see senior care bankruptcies return in 2024” Tyler Brasher, director at Gibbins Advisors, said in a statement. “As for total case volume, we are seeing a lot of distress in healthcare as the market remains very challenging for providers, so we expect to see continued levels of healthcare bankruptcies in 2024 that we saw last year.”