Private equity healthcare bankruptcies spiked in 2023, with more expected this year

Private equity healthcare bankruptcies hit a record high last year, with more expected this year, according to nonprofit Private Equity Stakeholder Project. 

“The healthcare default and bankruptcy wave is projected to continue in 2024 as companies are increasingly facing credit rating downgrades and potential defaults – and most of the companies at the highest risk are owned by private equity firms,” the organization reported.

The research was based on Gibbins Advisors’ list of Chapter 11 healthcare bankruptcies since 2019, which was published in January, and it was supplemented with data on Chapter 7 liquidations using Pitchbook.

Private equity deals in healthcare overall declined in 2023, with skilled nursing among the sectors with the steepest decline, according to the report. Of the 80 healthcare companies that filed for bankruptcy last year, at least 21 (21%) were owned by private equity firms, the data show.

Private equity’s heavy use of debt to fund its healthcare investments is a major reason for the increasing number of bankruptcies, given that interest rates have been elevated for the past year or so, PESP said. Additionally, wage increases have presented challenges for many healthcare companies, according to the report.

Private equity firms sometimes assume new debt to pay dividends to themselves and their investors, the authors said.

“These deals, known as dividend recapitalizations, often benefit private equity owners at the expense of the companies, their patients, their employees, and the communities they serve,” they wrote. “Utilization of debt as a funding source threatens the stability of critical healthcare resources across the country.”

The report comes on the heels of an announcement by the Justice Department, Federal Trade Commission and Health and Human Services Department, which said last month they they plan to jointly investigate private equity’s influence on healthcare.

“When private equity firms buy out healthcare facilities only to slash staffing and cut quality, patients lose out,” FTC Chair Lina M. Khan said previously in a press release. “Through this inquiry, the FTC will continue scrutinizing private equity roll-ups, strip-and-flip tactics and other financial plays that can enrich executives but leave the American public worse off.”