In 2024, the healthcare industry experienced a significant number of financial challenges, with an elevated rate of bankruptcies that surpassed pre-pandemic averages. According to a recent report by Gibbins Advisors, despite a slight decrease from the previous year, the sector saw a substantial increase in bankruptcy filings, particularly among physician practices and large hospital systems. The report highlighted a six-year high in physician practice bankruptcies and the largest hospital sector bankruptcy in three decades. This trend is expected to continue into 2025, driven by ongoing financial pressures such as reimbursement cuts and rising operational costs.

The restructuring advisory firm identified 57 Chapter 11 bankruptcy filings among healthcare entities with liabilities exceeding $10 million in 2024. Although this figure was lower than the 79 filings recorded in 2023, it still remained above the average of 42 filings observed between 2019 and 2022. Larger organizations, defined as those with more than $500 million in liabilities, also faced heightened financial distress, with nine such cases in 2024 compared to an average of three annually from 2019 to 2022.

Senior care companies and pharmaceutical firms were major contributors to the overall bankruptcy numbers, similar to previous years. However, the most notable increase came from clinics and physician practices, which saw a jump from six filings in 2023 to ten in 2024. This uptick has been attributed to mounting pressures on government and commercial reimbursements, as well as inflationary supply costs. Clare Moylan, a principal at Gibbins Advisors, noted that the upcoming 2.83% reduction in Medicare’s physician fee schedule for fiscal year 2025 will likely exacerbate these challenges, leading to further restructuring needs in the coming year.

The hospital sector, while seeing fewer bankruptcy filings—only five in 2024 compared to 12 in 2023—faced one of its most significant events in recent history. Steward Health Care, a 31-hospital system, filed for bankruptcy, marking the largest hospital sector bankruptcy in the past 30 years. This event underscores the ongoing financial struggles within the hospital industry, even as some smaller hospitals managed to avoid bankruptcy through alternative means. MedPAC data revealed a net closure of 49 acute care hospitals between 2019 and 2023, with rural facilities being particularly affected. While closures slowed in 2024, the sector continues to grapple with financial constraints similar to those impacting physician practices.

Ronald Winters, another principal at Gibbins Advisors, emphasized that while the new presidential administration introduces uncertainty, the fundamental factors driving healthcare financial distress remain unchanged. Standalone and rural providers, in particular, face significant challenges, and effective restructuring solutions are crucial for maintaining essential healthcare services in these regions. Looking ahead, the report suggests that lower interest rates, more lenient antitrust enforcement, and a shift toward outpatient care could lead to increased mergers and acquisitions or other structural changes in the healthcare landscape in 2025. Early signs of this trend include the January 11 filing of Prospect Medical Holdings, a 16-hospital system, which intends to streamline operations outside its home state of California.