Older people and skilled nursing are paving the way for healthcare bankruptcy filings
Bankruptcy filings in the healthcare sector have risen 25% this year overall, with the aged care sector – including aged care homes and skilled nursing – leading the way, the results show. of a new survey by healthcare restructuring consultancy Gibbins Advisors.
And this trend is expected to continue into 2023, due to COVID-19-related resource depletion, inflation, labor shortages and supply chain disruptions. The news comes after bankruptcies of major healthcare organizations in 2021 were 44% lower than 2020 levels.
According to Gibbins Advisors, the majority (54%) of major healthcare bankruptcies in the 18 months to June were in the senior living and skilled nursing sector. Most residential and aged care bankruptcy cases this year are in the lower middle market – the liability range of $10 million to $50 million – with only one large case in the liability range over $100 million.
According to Gibbins Advisors, of the 40 Elder Care Chapter 11 bankruptcies with liabilities greater than $10 million, 75% include organizations that provide senior living services – assisted living, memory care and living autonomous. Of the 40 bankruptcies, 16 related specifically to assisted living/memory care/independent living, and 14 involved both senior living facilities and skilled nursing facilities. Ten were specifically skilled nursing.
Among the senior living companies that filed for Chapter 11 bankruptcy this year are Michigan-based American Eagle Delaware Holding Co., which operates Eagle Senior Living; Andover Senior Care, based in Kansas, doing business as Victoria Falls Assisted Living; BSPV-Plano, which owns and operates The Bridgemoor at the Plano Seniors 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 second highest number of bankruptcy cases was pharmaceuticals, with 10% of case volume. Hospitals saw 16 cases in 2019 and 2020, including only three since 2021.
Temporary pandemic measures, including the CARES (Coronavirus Aid, Relief and Economic Security) Act; Paycheck Protection Program; Tax credits for employee retention; and state programs have opened up new sources of income for cash-strapped providers. Lender waivers and extensions have also given providers the time and flexibility to focus on day-to-day operations.
“Providers who may have been cash-strapped before the pandemic now had strong cash balances, which helped weather the storm of higher costs for infection control measures, as well as staffing and volume changes. said Clare Moylan, director of Gibbins Advisors.
But financial difficulties loom on the horizon, according to the survey, as these safety nets expire or fade. In the absence of new COVID-19 related funding and significant labor costs due to reliance on recruitment agencies – which can cost more than three times that of full-time employees – the outlook is difficult for service providers.
Senior life, the company said, will face continued challenges through 2023, including inflation and increases in interest rates – which recently hit a 40-year high – which could affect demand and real estate valuations; significant labor costs; and supply chain and procurement challenges that can continue for several months.
“Healthcare organizations without sufficient cash reserves to fund operating losses and debt service may have more difficulty accessing capital in the current climate than they have in the past two years, which may lead to more restructuring activity, including bankruptcies,” Gibbins Advisors Principal Ronald M. Winters said.
Earlier this year, S&P Global Market Intelligence predicted the healthcare sector – including retirement homes – would have the highest likely default rate in the first quarter, fueled by staffing shortages and pandemic fears.