Healthcare Sector Bankruptcy Filings in 2024 Reach Second-Highest Level in Six Years

While the number of filings was 28% lower than the peak in 2023, the sector continues to face headwinds, according to a new report by Gibbins Advisors.

January 23, 2025

Gibbins Advisors, a leading healthcare restructuring advisory firm, has has published its annual 2024 report of healthcare sector Chapter 11 bankruptcy filings for cases with liabilities exceeding $10 million. The year saw the second-highest level of healthcare bankruptcy filings in the past six years (2019-2024), with filings decreasing by 28% from the peak in 2023.

There were 57 healthcare bankruptcy filings studied in 2024, down from 79 in 2023, but exceeding the 2019-2022 average of 42 filings per year.

Middle-market cases, defined as those with liabilities between $10 million and $100 million, declined significantly, dropping by one-third from 51 in 2023 to 34 in 2024. However, very large bankruptcies remain elevated in the post-COVID-19 era. There were 12 filings with liabilities exceeding $500 million in 2023 and 9 in 2024, compared to an average of just 3 per year from 2019 to 2022. Filings in the $100 million to $500 million range held steady, with 14 cases reported in 2024, close to the 16 cases filed in 2023.

The Gibbins Advisors study found that, consistent with previous trends, the Senior Care and Pharmaceutical subsectors comprised almost half of the healthcare bankruptcies filed in 2024. Clinics/Physician Practices bankruptcy filings reached their highest level in six years, with 10 cases in 2024 compared to an average of just four per year from 2019 to 2023. Bankruptcy activity in this subsector, along with Medical Equipment and Supplies, has shown steady growth since 2021.

In the hospital sector, there were five bankruptcy filings in 2024, down from a high of 12 in 2023. However, one case in 2024, Steward Health Care System, which includes 31 hospitals, represents the largest hospital sector bankruptcy in the last 30 years.

The healthcare sector continues to face financial headwinds, with some organizations better equipped to meet those challenges than others. Examples of industry drivers include:

Capital constraints – With the Federal Reserve cutting interest rates three times between September and December 2024, many analysts are optimistic that lower rates, along with other factors, will boost healthcare M&A activity in 2025.

Cost increases and labor shortages – Healthcare sector unemployment remains low at 2.6% as of December 2024, so healthcare workforce shortages persist and may worsen in the next decade, particularly in rural areas. Wage growth slowed on average in 2024, but managing labor cost remains a challenge for a majority of providers.

Pressure from payors: Rate increases lag and are not always in line with cost inflation. Medicare Advantage claim denials continue to impact providers. Many providers have little negotiating leverage with commercial or managed care payors. Medicare’s physician fee schedule rate reductions of 2.8% in FY2025 are expected to apply further financial pressure on physician practices.

Changing regulatory context: With the new presidential administration, there may be changes in the healthcare regulatory environment with respect to areas such as anti-trust policy and Medicaid funding, which could have a material impact on providers and investors.

Widening gap between “haves” and “have nots”: Hospital operating margins improved on average from 2023 to 2024, but there is a widening gap between higher and lower performers, with smaller and rural providers most at risk.

Macroeconomic forces shifting care delivery: Care continues to move outside of the institutional setting, creating business model challenges for many healthcare providers, yet opportunities for others.

What does Gibbins Advisors predict for 2025?

“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,” said Clare Moylan, Principal at Gibbins Advisors. “Given these trends and our ongoing experience, we anticipate an increase in physician practices needing restructuring support in 2025.”

“While the new presidential administration introduces some uncertainty to the healthcare system, the core factors driving healthcare distress remain unchanged,” said Ronald Winters, Principal at Gibbins Advisors. “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.” 

For questions, comments or more information, contact Clare Moylan: cmoylan@gibbinsadvisors.com