Healthcare bankruptcies have soared in 2023 as heightened interest rates, federal regulatory changes, labor shortages and fears of an economic recession squeezed a sector once known as inflation resilient.
So far this year, over 80 healthcare companies with more than $10 million in liabilities have filed for bankruptcy (including Chapter 11, Chapter 7, Chapter 9 and Chapter 15), according to data from BankruptcyData.com.
Staffing firms, hospitals, pharmaceutical companies and senior living facilities are among those that have filed.
Bankruptcies in the sector have spiked as government funding from the COVID-19 pandemic has lapsed, according to healthcare restructuring advisory firm Gibbins Advisors. The number of bankruptcies in 2023 are trending “materially higher” than historic data, according to Gibbins.
Forty companies with more than $10 million in liabilities filed for Chapter 11 bankruptcy, which allows the company to restructure operations, during the first six months of 2023, compared with 46 bankruptcies in the full year of 2022.
Here are five major healthcare bankruptcies so far this year:
Staffing firm Envision filed for Chapter 11 in May. The company, which outsourced emergency room services, said its bankruptcy was precipitated by over $7 billion it owed in debt, declining patient volumes and a “flawed” interpretation of the No Surprises Act.
The bankruptcy wiped out private equity firm KKR’s investment in Envision. In 2018, the PE firm shelled out over $5 billion to take Envision private in a deal valued at $9.9 billion, including debt.
Envision completed its restructuring earlier this month, announcing that its ambulatory surgery unit Amsurg would split from the staffing company and operate independently.
Envision said that the No Surprises Act — a law meant to protect patients from surprise out-of-network bills — caused the company to lose “hundreds of millions of dollars” in delayed or reduced payments from insurers. As a provision of the NSA, out-of-network providers and insurers must submit to third-party arbitration to decide how much to bill patients for medical services.
However, the arbitration process has been the target of several lawsuits, government regulatory changes and lobbying from both payers and providers. Some providers have accused insurers of refusing payment for medical services.
Brentwood, Tennessee-based staffing firm American Physician Partners filed for Chapter 11 bankruptcy in September. The company had been winding down the business since August, according to bankruptcy filings.
APP, the byproduct of a 2015 merger between two Tennessee-based healthcare companies, offered staffing for more than 100 hospitals and other sites in 15 states.
Although the company grew significantly from 2016 through 2020, the pandemic challenged APP’s finances, according to the filings. In 2022, APP reported a $140 million net loss for the year.
The company also attributed its struggles to the No Surprises Act. Like Envision, APP argued that the regulatory implementation of the law favored insurers, adding that payers were able to “significantly delay and unilaterally reduce of deny payments,” according to bankruptcy filings. Many of its claims remained unpaid by insurers, according to APP.
The company sought a sale before filing for bankruptcy — and secured a letter of intent to acquire — but the deal fell through in the summer, according to the filings. Bloomberg, citing sources familiar, reported in July that APP had failed to ink a deal with staffing firm SCP Health.
Retail healthcare company Rite Aid filed for Chapter 11 bankruptcy protection last month. Jeffrey Stein was appointed CEO and chief restructuring officer at the time of the announcement.
Rite Aid has been accused of knowingly oversupplying prescription painkillers, and is facing more than 1,600 lawsuits for allegedly contributing to the nation’s deadly opioid epidemic.
In court documents, Stein said that substantial debt, a “sub-optimal” retail footprint and competitive pressures drove the retail chain into bankruptcy. The company has between $1 billion and $10 billion in liabilities and assets.
“An orderly process — with support from key creditors — should help the company maintain trade credit and obtain post-petition financing to preserve thousands of jobs, continue operations in Chapter 11, and take the necessary steps to right-size the business for a successful emergence,” Stein said in an announcement on the restructuring.
At the time of the announcement, Rite Aid said it had entered an agreement to sell its pharmacy benefit manager, Elixir Solutions.
The U.S.-based units of “unicorn” digital care provider Babylon filed for Chapter 7 in August, with its U.K.-based business filing for administration in the same month.
Babylon aimed to integrate artificial intelligence into the healthcare sector, and its U.K. subsidiary piloted a telehealth practice that served approximately more than 700,000 people in the country.
The company started off well-funded and was backed by high-profile venture capitalists including the founders of Google’s AI subsidiary DeepMind. The London-based company went public in the U.S. through through a merger with a blank-check company in 2021 in a deal that valued the company at $3.5 billion and vaulted the company to “unicorn” status.
However, Babylon faced financial losses. In December the company’s share values plummeted to near-zero values on the New York Stock Exchange, prompting Babylon to undergo a reverse share split to avoid being delisted.
Months later, the company announced it would nab an infusion of cash and go private in a deal with AlbaCore Capital Group-backed MindMaze, a neurotherapy company.
But the deal collapsed in August, prompting Babylon to shut down its core U.S. operations and look for a buyer for its U.K. business. In September, Babylon announced “substantially all” of its UK assets sold to U.S.-based healthcare services firm eMed.
Digital therapeutics company Pear Therapeutics filed for Chapter 11 bankruptcy in April, announcing it would lay off the majority of its workforce — 170 employees — and keep a team of 15 people to continue operations.
The Boston-based company offered prescription apps cleared by the Food and Drug Administration for insomnia and substance use disorders, but the company said it struggled with payer reimbursements. Pear, which largely worked with state Medicaid agencies to cover its apps, said in 2022 that reimbursement for prescription digital therapies was moving slowly.
A month prior to filing, Pear announced that it would explore strategic alternatives, including a potential sale or merger. Last year, the company went through two rounds of layoffs, announcing in November that it would cut 22% of its staff.
In May, Pear announced it sold some of its platforms — including its schizophrenia, depression and migraine programs — at auction for $6.05 million.
In its most recent monthly operating report filed in U.S. Bankruptcy Court for the District of Delaware and dated Oct. 31, Pear Therapeutics had approximately $74 million in total current assets.
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