Healthcare Bankruptcies Decline in 2024, but Sector Still Faces Challenges

Healthcare bankruptcies saw a significant decrease in 2024, but the industry continues to grapple with financial pressures, according to a recent report by restructuring advisory firm Gibbins Advisors. The analysis, which tracked bankruptcies with liabilities exceeding $10 million, reveals a complex landscape of financial health across various healthcare sectors.

Overall Bankruptcy Trends

In 2024, the healthcare sector recorded 57 bankruptcy filings, a notable decline from 79 in 2023. Despite this reduction, the number remains elevated compared to pre-pandemic levels, marking the second-highest amount of filings in the past six years. The average number of filings from 2019 through 2022 was 42 per year, highlighting the ongoing financial strain within the industry.

The decrease in bankruptcies was primarily driven by a sharp reduction in middle-market filings, defined as those with liabilities between $10 million and $100 million. Only 34 such cases were reported in 2024, down from 51 in the previous year. However, very large filings with liabilities above $500 million remained high, with nine cases in 2024 compared to 12 in 2023, significantly above the 2019-2022 average of three cases annually.

Sector-Specific Trends and Challenges

Senior care and pharmaceutical firms continued to dominate the bankruptcy landscape, accounting for nearly half of all filings in 2024. This trend aligns with patterns observed in previous years, suggesting persistent challenges in these specific healthcare segments.

Notably, clinics and physician practices experienced an uptick in bankruptcy filings, reaching 10 cases in 2024. This represents a significant increase from the average of four filings per year between 2019 and 2023. Clare Moylan, principal at Gibbins, expressed concern about this trend, stating, "We've already observed a rise in bankruptcy filings among physician practices, and the 2.83% reduction in Medicare's physician fee schedule for FY2025 will further strain this sector, impacting both physician groups and the hospitals that own them."

In contrast, hospital bankruptcies saw a decline, with only five hospital operators filing for bankruptcy in 2024, down from 12 in 2023. However, the sector still faced major disruption with Steward Health Care's high-profile filing in the spring of 2024, which was described as the largest hospital bankruptcy in 30 years. Steward's case, involving 31 hospitals across eight states, resulted in numerous asset sales and facility closures, underscoring the far-reaching consequences of financial distress in large healthcare systems.

Ongoing Industry Pressures

Despite the overall decline in bankruptcies, the healthcare sector continues to face significant financial headwinds. Workforce shortages, high labor costs, and pressure from payers remain persistent challenges. The report also highlighted a growing disparity between financially successful and struggling providers, suggesting that some organizations are better equipped to navigate these obstacles than others.

As the industry moves forward, the potential for increased restructuring activity, particularly among physician practices, looms large. The combination of regulatory changes, such as Medicare reimbursement cuts, and ongoing operational challenges may continue to test the financial resilience of healthcare providers across various specialties and scales of operation.