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, threatening the stability of 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 PE business model’s reliance on high debt levels, making these companies more vulnerable to changing market conditions. Factors such as rising interest rates, labor costs, and staffing shortages have further exacerbated financial challenges for healthcare companies.
Notably, PE firms like KKR have seen multiple healthcare company bankruptcies in recent years, with some still owning healthcare companies at high risk of default. The trend of PE-owned healthcare company bankruptcies is expected to continue in 2024, with almost all of the most distressed US healthcare companies being owned by PE firms.
The consequences of healthcare company bankruptcies go beyond financial implications, leading to a lack of healthcare access and overburdened providers. O’Grady emphasized that the private equity business model’s heavy use of debt is becoming a major liability for its portfolio companies as interest rates rise and labor costs skyrocket.
This report sheds light on the risks posed by the private equity business model to the healthcare system and underscores the need for greater scrutiny of PE ownership in the healthcare industry.