Healthcare Bankruptcy Trends Stabilize Mid-Year, but Funding Pressures Loom for Healthcare Providers
Gibbins Advisors’ new report finds Chapter 11 filing activity stabilized in Q3 2025, even as Medicaid funding cuts and reimbursement uncertainty threaten to reshape the landscape ahead.
Gibbins Advisors has published its Third Quarter 2025 Healthcare Bankruptcy Report, analyzing Chapter 11 filings by healthcare companies with more than $10 million in liabilities from January 1, 2019, through September 30, 2025.
Following a slower mid-year period, Q3 2025 saw 12 new filings, aligning with the six-year quarterly average. While year-to-date activity remains about 16% below 2024 levels on an annualized basis, past patterns suggest that Q4 may bring a modest increase in activity consistent with historical trends.
Middle-market organizations ($10M–$50M in liabilities) continue to represent the majority of filings, in line with prior years. The overall reduction in 2025 activity reflects fewer mid-to-large cases ($100M–$500M), offset by a slightly higher proportion of large filings exceeding $500M in Q3 2025.
Across subsectors, Senior Care and Pharmaceuticals together account for nearly half of all filings since 2019. In 2025, Senior Care and Hospital filings have shown a measured increase compared to 2024, while activity in other subsectors has moderated. Senior Care filings are also positioned to slightly exceed Pharmaceutical filings for the first time since 2021.
Outlook: Policy Shifts and Economic Forces Signal a Tougher Road Ahead for Providers
1. Medicaid funding cuts, coverage losses and the Federal Government shutdown,: The so-called One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, enacts the largest federal health spending reduction in U.S. history — $964 billion in Medicaid cuts over 10 years and an estimated 10 million people losing coverage. Unless Congress decides otherwise, an additional 5.1 million are expected to lose insurance with the expiration of enhanced premium tax credits at the end of 2025, heightening uncompensated care for providers and increasing insurance premiums for individuals.
Lapses in federal funding amid the government shutdown further threaten provider payments (e.g., pass-through federal funds) and program continuity (e.g., telehealth), though core federal healthcare programs remain operational.
2. Interest rates and funding cuts impacting M&A: The Federal Reserve implemented two consecutive 0.25% cuts in September and October 2025, lowering the target range to 3.75%–4.00%. Yet, ongoing Medicaid reductions, tariffs, market volatility and the recent government shutdown continue to dampen M&A — just 15 hospital and health-system deals were announced in Q3 2025, compared with 27 in Q3 2024.
3. Labor and supply cost pressures: Median healthcare staff pay rose 4.3% in 2025, up from 2.7% in 2024, reflecting continued workforce strain. Healthcare sector unemployment remains low at 3.1% as of August. Tariff-related inflation and elevated drug costs continue to erode margins.
4. Hospital performance: Median hospital operating margins stood at 1.9% in August 2025, down from 2.1% in FY 2024, and is the lowest monthly CYTD margin this year.
5. Pressure on, and pressure from payors: Health insurers continue to grapple with rising loss ratios from government programs, leading to premium increases exceeding 20%. CMS finalized a 5.1% increase in the 2026 Medicare Advantage rate benchmark for insurers, the largest in a decade, though whether benefits would flow through to providers remains unclear.
6. Macroeconomic forces shifting care delivery: Care delivery continues to migrate away from hospitals and skilled nursing facilities toward outpatient, community, and home-based settings, with an estimated $50 billion in revenue shifting to independent, non-hospital sites.
For questions, comments or more information, contact Clare Moylan: cmoylan@gibbinsadvisors.com. Please refer to the downloadable report for source references of data points noted in the above summary.