Private Equity Healthcare Bankruptcies Surge, More Expected in 2024

Private equity healthcare bankruptcies are on the rise, with a record high number reported last year and more expected in 2024, according to a recent study by the Private Equity Stakeholder Project. The organization found that companies owned by private equity firms are at the highest risk of default and bankruptcy, with healthcare companies facing credit rating downgrades and potential defaults.

The research, based on data from Gibbins Advisors and Pitchbook, revealed that private equity deals in healthcare declined in 2023, with skilled nursing among the sectors experiencing the steepest decline. Of the 80 healthcare companies that filed for bankruptcy last year, at least 21% were owned by private equity firms.

One of the main reasons for the increasing number of bankruptcies is the heavy use of debt by private equity firms to fund their healthcare investments. Interest rates have been elevated for the past year, and wage increases have also presented challenges for many healthcare companies. Private equity firms often take on new debt to pay dividends to themselves and their investors, a practice known as dividend recapitalizations.

The report comes at a time when the Justice Department, Federal Trade Commission, and Health and Human Services Department have announced plans to jointly investigate private equity’s influence on healthcare. FTC Chair Lina M. Khan expressed concerns about private equity firms buying healthcare facilities only to cut staffing and quality, ultimately harming patients.

As private equity’s role in healthcare comes under scrutiny, the industry faces challenges in maintaining stability and providing quality care to patients. The impact of private equity ownership on healthcare facilities and the communities they serve is a topic of growing concern among regulators and stakeholders.