Healthcare Sector Bankruptcies Are On The Rise

Jun 22, 2023

The state of the healthcare sector has been in consistent flux for the last decade, and it has been especially tumultuous since the Covid-19 pandemic. Though healthcare has historically been perceived as an “always in-demand” industry, the reality is that healthcare organizations have been equally impacted by razor thin margins, challenging workforce constraints and the results of oscillating economic headwinds.

This has resulted in numerous healthcare organizations having to undergo significant restructuring processes to optimize their processes, or worse, completely shutter their operations.

Take for example Envision Healthcare, which was long known to be one of the most successful national medical groups. At its prime, Envision’s services accounted for nearly 29 million patient encounters across 830 service locations, with nearly 17,000 physicians under its umbrella. Earlier this year, the company formally declared that it would be pursuing restructuring and Chapter 11 Bankruptcy proceedings, given mounting financial pressures and corresponding losses.

The press release outlined some of the company’s challenges that caused this financial state, including a nearly 65 to 70 percent decrease in patient visits during the height of the pandemic, increased claims denials for emergency care by insurance carriers (causing denied or delayed payments), and the escalating clinician shortage leading to high labor costs.

Similarly, famed digital health company Babylon announced earlier this month that it would be shutting down its operations and closing its Austin headquarters permanently after struggling to secure funding.

The company was celebrated as an incredibly novel and forward thinking force in healthcare, as it sought to revolutionize care delivery with artificial intelligence: “Our AI system can efficiently read, comprehend, and learn from anonymized, aggregated, and medical datasets—when patients give consent for us to use their health information in this way. And our complementary set of AI tools can help make decisions about triage, causes of symptoms, and future health predictions. Our work has led to more than 20 peer-reviewed papers and 30 groups of patents.” Unfortunately, however, with growing financial pressures, plummeting stock prices and a failed merger, the company was significantly in the red and had to cease operations.

Traders work during the opening bell at the New York Stock Exchange (NYSE) on March 16, 2020. (Photo ... [+] by JOHANNES EISELE/AFP via Getty Images)

Late last week, yet another healthcare giant was reported to be preparing for bankruptcy filings: Rite Aid Corporation. According to news reports, the healthcare and pharmacy titan is preparing to pursue bankruptcy restructuring as it faces mounting debt from opioid settlements in addition to general economic challenges.

Earlier this year, the United States Department of Justice took formal legal action against the company, scrutinizing its business and prescribing practices in relation to the opioid crisis. Though Rite Aid has a historical legacy of market success, the company has also been struggling with the challenges of the current economy, especially as the pharmacy business has significantly transformed over the last decade.

Overall, the above three examples represent relatively unrelated sub-industries within the wider healthcare sector, from clinical delivery services to digital health and the pharmacy business. This illustrates that the healthcare industry overall, regardless of the specific sub-sector, is at a challenging crossroad; the intersections of financial pressures, economic contraction, staffing shortages, regulatory scrutiny and mounting systemic challenges have made the healthcare industry a tough environment to succeed in.

This phenomenon is not particularly new; even during the dot-com bubble burst in the early 2000s and the later financial crisis in 2008, healthcare companies faced their own array of challenges, forcing them to cut costs, restructure and prove their value in the public marketplace.

Nevertheless, the focus on innovation has never been higher, as companies continue to invest billions of dollars in digital health tools, virtual health services and new modalities of healthcare delivery— all in an attempt to increase their market share and disrupt a historically unchanged market while also providing value to patients. However, the rising rates of healthcare sector bankruptcies proves one thing for certain: to succeed in healthcare, organizations must remain nimble, continue to innovate rapidly, and most importantly, pivot to changing market and patient needs.