The Executive Suite: Health care bankruptcies in 2023 reach highest level in five years

Health system bankruptcies rose to 79 filings in 2023, the highest number in the last five years, according to a new report.

Gibbins Advisors, a Nashville, Tennessee-based health care restructuring consulting firm, tallied the figures for Chapter 11 bankruptcy cases filed from 2019 to 2023. Last year’s figure was the most since 2019, when there were 51 cases filed.

Health care bankruptcy filings rose across six consecutive quarters through the third quarter of 2023. But it was unclear if a decrease in the fourth quarter last year indicates an emerging trend, the report said.

“We saw a dramatic increase in healthcare bankruptcy filings in 2023, continuing the trend which began in mid-2022” Gibbins Advisors Principal Clare Moylan said in a news release. “Key observations from 2023 are the return of large bankruptcy cases with over $100 million in liabilities, and a spike in hospital filings, both of which appear to primarily be a result COVID-19 pandemic-related protections ending.”

Five drivers

Gibbins Advisors listed five factors contributing to the financial distress of health care organizations:

Capital market constraints. Interest rates may go down in 2024, but refinancings, access to capital, valuations and transactions still are affected by relatively high interest rates.
Labor and supply cost pressures. Agency labor is settling down in some markets, but there were large cost increases over the last two years and minimum staffing rations would be a challenge.
Revenue pressure. Payment rate increases are not keeping up with inflation and the end of Medicaid continuous enrollment may increase the number of uninsured patients.
Possible optimism. Rates and volumes could increase this year, but costs likely will remain a challenge, particularly for smaller organizations with revenues less than $500 million.
A shift to out-of-hospital care delivery. There will be challenges and opportunities as care moves out of hospitals and skilled nursing facilities to outpatient, community and home-based settings.

“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,” said Moylan.

By the numbers

Last year there were 12 hospital bankruptcies, up from 11 in 2020, 2021 and 2022 combined.
Organizations with liabilities from $10 million to $50 million accounted for the most filings, totaling 39 last year.
There were 20 bankruptcy cases filed by pharmaceutical companies, the most of any subcategory.
There were six clinics and physician practices that filed for Chapter 11 bankruptcy protection in 2023.

While there has been much analysis of hospitals’ financial condition, the Gibbins Advisors report noted not all failing hospitals file for bankruptcy, for two key reasons.

The hospital may be owned by a larger health system that can close it and settle obligations without needing to go to court. Or, bankruptcy may not be an effective tool if a troubled hospital has no buyer or financial backers and already has closed, according to Gibbins Advisors.

From 2018 to 2023, there were 117 total acute care hospital closures and 69 hospitals opened, resulting in net closure of 48 hospitals, according to Gibbins Advisors, which cited data from the Medicare Payment Advisory Commission. There were no closures of rural hospitals in 2021 during the COVID-19 pandemic, but seven rural hospital closures last year was lower than the average of eight closures a year from 2014 to 2020, the report said.