Bankruptcies in the healthcare industry — including those in senior living and care settings — increased by 84% in 2022, primarily driven by a “COVID hangover,” according to a new report by Gibbins Advisors.
That “hangover” includes skyrocketing labor and supply costs driven by a nursing shortage and ongoing supply chain issues, exhausted COVID-related government funding, limited ability to pass through cost increases, low returns on invested assets, and repeated interest rate increases throughout the year, the company said.
“All these factors place a strain on cash flow and access to capital, and without a strong balance sheet, such constraints are typically the reason behind companies filing Chapter 11 bankruptcy,” said Ronald Winters, a principal at Gibbins Advisors.
For example, Lifespace Communities’ continuing care retirement community Edgemere Dallas filed for bankruptcy in April, citing challenges from managing the effects of the COVID-19 pandemic and responding to a winter storm in February 2021. The case remains unsettled, with confirmation of the restructuring agreement expected on Feb 21, Jeremy Johnson of Polsinelli, an attorney for Edgemere, told the McKnight’s Business Daily.
The January Gibbons Advisors report is a follow up to an August analysis of healthcare company bankruptcies. Forty-six large healthcare bankruptcies were included in the recent study.
“Healthcare organizations need to be future-focused and looking at their operations and services with a critical lens,” said Clare Moylan, a principal at Gibbins Advisors. “If the board pays attention and acts early, there’s a lot more that can be done, but by the time you’re tight on cash, the options for the organization become much more limited.”
The August analysis showed that bankruptcies in long-term care settings, particularly in skilled nursing facilities, made up the lion’s share in the first half of the year. According to the current report, the pharmaceutical sector dominated healthcare company bankruptcies in the second half of 2022, driven by a spike in the fourth quarter. The overall number of large healthcare bankruptcies in the fourth quarter was almost three times the number of filings in the first quarter.
Gibbins Advisors predicts that the capital market constraints seen in late 2022 will continue in 2023, with a possible recession on the horizon.
