Broken whiter ceramic piggy bank in pieces on red surface
(Credit: PM Images / Getty Images)
Broken whiter ceramic piggy bank in pieces on red surface
(Credit: PM Images / Getty Images)

Healthcare bankruptcy filings are up 25% this year overall, with the senior care sector — including senior living and skilled nursing — leading the way, according to the results of a new survey by healthcare restructuring advisory firm Gibbins Advisors.

And that trend is expected to continue into 2023, due to the depletion of COVID-19 resources, inflation, workforce shortages and supply chain disruptions. This news comes after large healthcare organization bankruptcies in 2021 were 44% behind 2020 levels.

According to Gibbins Advisors, the majority (54%) of large healthcare bankruptcies in the 18 months up to June were in the senior living and skilled nursing sector. Most bankruptcy cases in senior living and care this year are in the lower middle market — the $10 million to $50 million liability range — with only one large case in the $100 million-plus liability range.

Of the 40 senior care Chapter 11 bankruptcies with liabilities over $10 million, according to Gibbins Advisors, 75% include organizations that provide senior living services — assisted living, memory care and independent living. Of the 40 bankruptcies, 16 were specifically assisted living / memory care / independent living, and 14 included both senior living and skilled nursing facilities. Ten were specifically skilled nursing.

Among the senior living companies filing for Chapter 11 bankruptcy this year have been Michigan-based American Eagle Delaware Holding Co., which operates Eagle Senior Living; Kansas-based Andover Senior Care, doing business as Victoria Falls Assisted Living; BSPV-Plano, which owns and operates The Bridgemoor at Plano senior living community; Indiana-based BVM The Bridges, also known as The Bridges Assisted Living & Memory Care and The Claridge House at the Bridges; Texas-based Christian Care Centers, a faith-based organization that operates three life plan communities; and Texas-based Northwest Senior Housing Corp., known as Edgemere.

The sector with the next highest number of bankruptcy cases was pharmaceuticals, with 10% of case volume. Hospitals saw 16 cases in 2019 and 2020, with only three since 2021.

Temporary pandemic measures, including the Coronavirus Aid, Relief and Economic Security (CARES) Act; Paycheck Protection Program; Employee Retention Tax Credits; and state-based programs provided access to new sources of revenue for cash-strapped providers. Waivers and extensions from lenders also gave providers time and flexibility to focus on day-to-day operations.

“Providers that may have been cash poor before the pandemic now had strong cash balances, which helped to weather the storm of higher costs related to infection control measures, and staffing and volume changes,” Gibbins Advisors Principal Clare Moylan said. 

But financial distress is on the horizon, according to the survey, as those safety nets expire or fade. With no new COVID-19-related funding and significant labor costs due to reliance on staffing agencies — which can cost more than three times that of full-time employees — the outlook is challenging for providers.

Senior living, the firm said, will face continuing challenges through 2023, including inflation and interest rate increases — which hit a 40-year-high recently — which could affect demand and property valuations; significant labor costs; and supply chain and sourcing challenges that may continue for several months.

“Healthcare organizations without adequate cash reserves to fund operating losses and debt service may face more difficulty in accessing capital in the current climate than the last two years, which can lead to more restructuring activity, including bankruptcies,” Gibbins Advisors Principal Ronald M. Winters said. 

Earlier this year, S&P Global Market Intelligence projected that the healthcare sector — including senior living — would have the highest probable default rate in the first quarter, fueled by staffing shortages and pandemic fears.