Major healthcare bankruptcies jumped by 84% from 2021 to 2022, returning the sector to a pre-pandemic rate of new Chapter 11 filings, according to new research from Gibbins Advisors.
The healthcare restructuring advisory firm said it found a total of 46 bankruptcies among organizations with more than $10 million in liabilities during 2022. The increase was largely driven by activity in the final months of the year, with a nearly threefold uptick in new filings when comparing the fourth quarter and the first quarter.
For comparison, there were 51 such bankruptcy filings in 2019, 45 in 2020 and just 25 in 2021, according to the report (PDF).
Senior care facilities and pharmaceutical companies bore the brunt of the damage in 2022, with the former subsector bearing 12 bankruptcy filings and the latter 14.
Exiting the year relatively unscathed were hospitals, which logged just two major Chapter 11s (Puerto Rico-based San Jorge Children’s Hospital in the third quarter and California-based Pipeline Health in the fourth quarter) during the past year.
Further, while senior care and pharma’s 2022 bankruptcies represented a “similar” proportion of total filings relative to 2019, the two hospital filings are a contrast to the 10 seen during the pre-pandemic period, Gibbins Advisors wrote in the report.
2022’s return of healthcare bankruptcies was driven by the “COVID hangover” of higher labor and supply costs, exhausted government relief funding, low investment returns, interest rate increases and little opportunity to pass along costs, the firm wrote.
“All these factors place a strain on cash flow and access to capital, and without a strong balance sheet such constraints are typically the reason behind companies filing Chapter 11 bankruptcy,” Ronald Winters, principal at Gibbins Advisors, said in a release. “The hospital sector was particularly insulated from financial distress during the pandemic; however, those protections have ended and we are now seeing a lot of struggling hospitals, particularly rural and community hospitals.”
Gibbins’ analysis reviewed $10 million-plus Chapter 11 bankruptcies filed between 2019 through 2022 from BankruptcyData, an online database of corporate bankruptcy and restructuring information, according to the report. The firm included filings identified by BankruptcyData as falling within the healthcare sector and included other cases not initially identified using related Standard Industrial Classification codes.
The firm’s report forecasts “continued distress and market consolidation” through 2023 and 2024 for senior care and pharma/biotech companies. It also predicts that the hospital sector will soon begin logging more bankruptcies after a year of tight margins and limited relief on the horizon.
“Financial distress will persist if not worsen in 2023 as financial buffers wear thin,” Winters said. “COVID-related support deferred this process, but margin squeeze and macroeconomic forces are driving the healthcare market toward consolidation given the enormous scale and depth of expertise you need to compete effectively.”