Healthcare bankruptcies increased sharply in 2023and it seems that lots of the firms that went under had one thing in common: private equity (PE) ownership.
According to 1 study, at the very least 21% of the 80 healthcare firms that filed for bankruptcy last yr were owned by PE report from the nonprofit Private Equity Stakeholder Project (PESP).
“PE’s excessive leverage and aggressive financial strategies are putting healthcare companies at risk and, in turn, jeopardizing the stability of critical healthcare resources across the country,” Eileen O’Grady, research and campaigns director at PESP, wrote within the report.
In addition to the 17 PE-owned healthcare firms that filed for bankruptcy in 2023, there have been at the very least 12 enterprise capital-backed healthcare company bankruptcies, accounting for one more 15% of the yr’s total bankruptcies, in keeping with the PESP report.
In comparison, there have been only eight bankruptcies at PE-owned healthcare firms in 2019, the report said.
One of the explanations the variety of PE-backed healthcare company bankruptcies has increased is since the PE business model relies on high levels of debt, O’Grady wrote within the report. That makes firms “more vulnerable to changing market conditions, including high interest rates and rising labor costs,” she wrote.
According to PESP, rates of interest increased 11-fold between March 2022 and July 2023 (from 0.25% to five.5%).
Healthcare firms have also faced rising labor costs and staff shortages, and lots of have relied on this costlier contract workexacerbating financial challenges, O’Grady noted.
Some PE firms have seen multiple healthcare company bankruptcies in recent times. KKR, one in every of the biggest publicly traded PE firms, owned each staffing firm Envision Healthcare and cancer treatment provider GenesisCare – each of which filed for bankruptcy in 2023, in keeping with PESP. The company owns three other health care firms with a high risk of failure, O’Grady wrote.
PESP expects the trend of PE-owned bankruptcies to proceed.
“Another wave of PE-related healthcare bankruptcies is expected in 2024 – almost all of them [93%] “The most distressed U.S. healthcare companies are owned by PE firms,” O’Grady wrote within the report.
The consequences of a healthcare company going bankrupt aren’t just financial. It can result in a lack of access to healthcare and, in keeping with PESP, result in an overload of providers.
“The rise in bankruptcies raises questions about how the private equity business model creates risks for the health care system,” O’Grady wrote. “Private equity’s heavy use of leverage to finance its healthcare investments is becoming a major burden on its portfolio companies as interest rates have increased and continue to increase and labor costs have skyrocketed for many healthcare companies.”
This report was originally published from Health brew.
