Analysis | By Marie DeFreitas CFO editor for HealthLeaders.
This report zooms in on the financial distress in healthcare.
KEY TAKE AWAYS:
Healthcare bankruptcies, although down from 2023, continue to exceed the average amount.
Senior care and pharmaceuticals were the source of almost half of healthcare bankruptcies.
CFOs will need to examine what options are available for additional funding, especially for small, rural health systems.
A new report is pointing out where distress lies in the healthcare industry, and bankruptcies are still a major concern.
Gibbins Advisors, a leading healthcare restructuring advisory firm, has published its annual 2024 report of healthcare sector Chapter 11 bankruptcy filings, examining only cases with liabilities exceeding $10 million.
Although filings dropped by 28% from the peak in 2023, this year produced the second-highest level of healthcare bankruptcy filings within the past six years (2019-2024).
The numbers breakdown:
-The average number of healthcare bankruptcies from 2019-2022 was 42 per year
-There were 57 healthcare bankruptcy filings studied in 2024.
-This is down from 79 filings in 2023
The markets breakdown:
-Middle-market cases (liabilities between $10 million and $100 million) declined by one-third from 51 in 2023 to 34 in 2024.
-Large bankruptcies (liabilities exceeding $500 million) remained high post-COVID-19: 12 filings in 2023, and nine in 2024. (The average here was three per year from 2019-2022).
-Filings in the $100 million to $500 million range held steady: 14 cases in 2024, 16 cases in 2023.
The study had a few more key findings:
On track with previous trends, two sub-sectors were the source of almost half of healthcare bankruptcies: senior care and pharmaceutical. Both have caused much stress for providers over the past few years. Drug prices are skyrocketing, and Medicare Advantage denials keep pouring in.
Many CFOs have said they turn to the 304B drug pricing program when able, and this may be the best tactic given today’s hectic healthcare climate. As for Medicare Advantage, strategizing here is even tougher. CFOs should keep active in policy-making discussions and contacting their senators, on top of closely strategizing with and keeping tabs on payers and denials.
Clinics/Physician Practices bankruptcy filings reached their highest level in six years, growing to 10 cases in 2024 compared to a four-per-year average from 2019 to 2023, according to the study. This likely came from numerous factors, including labor costs, supply costs, payer tactics, and private equity mishaps. This steady growth of bankruptcies in this sub-sector calls for the need for policy action to counter costs in some areas and make resource opportunities available in others.
Ronald Winters, principal at Gibbins Advisors, highlighted the financial stress of smaller and rural providers, and called for collaboration:
“While the new presidential administration introduces some uncertainty to the healthcare system, the core factors driving healthcare distress remain unchanged,” he said. “Standalone and rural providers will continue to face significant financial challenges, and collaborating with communities on effective restructuring solutions is vital to preserving essential healthcare services in those regions.”
The results are clear on the game plan for rural providers: collaboration will be key to enduring financial woes. CFOs of these types of systems should ensure they are proactive in creating collaboration opportunities for their health systems.
