All sectors have their share of bankruptcies every year, but the health care sector is experiencing these filings in a concerning way; major players are going under as the weight of financial headwinds takes a huge toll. The health care system has variously been described as being in the throes of a crisis, and companies within the system are no exception.
The yearly average for bankruptcy filings in America has been approximately 42, but a recent report authored by Gibbins Advisors says that in 2023 there were 79 such filings while 2024 had 57 bankruptcy filings. Bankruptcy filings seem to be on the rise and this year doesn’t seem to have a chance of bucking that worrying trajectory.
Of particular concern are the noteworthy giants that have filed for bankruptcy so far this year. Genesis HealthCare filed for bankruptcy in July, LifeScan Global also filed for Chapter 11 bankruptcy protection in July, and Prospect Medical, based in Los Angeles, submitted its bankruptcy filing in January. These are industry giants, and this shows how serious the problems facing the sector are.
Lawton R. Burns, a professor at the Wharton School of the University of Pennsylvania, says there is plenty of wreckage in the industry. Burns authored a book on the health care ecosystem in America and it is widely acclaimed in industry circles. So, he knows what he is talking about when he points out that bankruptcies have been on a steep upward trajectory since 2010.
He points out that the largest common factor behind this increase in the number of bankruptcies is the widening gap between the revenue of health care firms and their expenses. Burns says prior to 2024, health care costs grew at approximately the same rate as the growth of the country’s GDP. However, in 2024, costs accelerated at a rate higher than GDP expansion and that has increased the financial stress experienced by health care companies.
One factor that has had a profound impact on health care costs is ballooning labor costs. During the pandemic, staff shortages created a huge demand for health care professionals, especially nurses. Firms rushed to hire and the competition for the available professionals pushed wages markedly up.
As this high labor cost and other factors within individual firms as well as external factors that they can’t control exerted their impact, margins were squeezed to levels that caused bankruptcy filings to begin ticking upwards.
The recently enacted Big Beautiful Bill Act is projected to shrink Medicare and Medicaid funding significantly over the coming ten years, and this paints a gloomy picture for the future of entities in the health care sector. Facilities for senior living and nursing homes will particularly be hit hardest since their margins are already slim. Any additional squeeze will push many over the edge.
The entire health care sector, including firms like Astiva Health that focus on serving minorities, now have to come up with strategies geared at enabling them to navigate the tough times which patients and the entire sector are facing.
NOTE TO INVESTORS: The latest news and updates relating to Astiva Health are available in the company’s newsroom at https://ibn.fm/Astiva
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