Healthcare Bankruptcies Surge in 2023: Private Equity Ownership a Common Factor

Healthcare bankruptcies surged in 2023, with a significant number of companies that went under having one common factor: private equity (PE) ownership. According to a report from the Private Equity Stakeholder Project (PESP), at least 21% of the 80 healthcare companies that filed for bankruptcy last year were PE-owned.

Eileen O’Grady, research and campaign director at PESP, highlighted that PE’s aggressive financial strategies and excessive use of debt put healthcare companies at risk, jeopardizing critical healthcare resources nationwide. The report also noted that there were 12 bankruptcies among healthcare companies with venture capital backing, representing another 15% of the total bankruptcies in 2023.

The increase in bankruptcies among PE-backed healthcare companies can be attributed to the high debt levels inherent in the PE business model. Rising interest rates and labor costs have further exacerbated financial challenges for these companies. In fact, interest rates increased 11 times between March 2022 and July 2023, reaching 5.5%, according to PESP.

Notably, some PE firms have experienced multiple healthcare company bankruptcies in recent years. KKR, a prominent PE firm, owned both Envision Healthcare and GenesisCare, both of which filed for bankruptcy in 2023. The trend of PE-owned healthcare company bankruptcies is expected to continue in 2024, with 93% of the most distressed US healthcare companies owned by PE firms, as per the report.

The consequences of healthcare company bankruptcies extend beyond financial implications, leading to a lack of healthcare access and overburdened providers. O’Grady emphasized that the private equity business model’s heavy reliance on debt is becoming a major liability for its portfolio companies, especially as interest rates and labor costs continue to rise.

This report sheds light on the risks associated with private equity ownership in the healthcare sector and underscores the need for a closer examination of how these financial strategies impact the stability of critical healthcare resources.