Larger Medical Bankruptcies Less Frequent in 2024: Report

The number of Chapter 11 bankruptcies among larger US medical companies — including physician groups — fell to 57 in 2024 from 2023’s 79 filings, a new report found. 

Still, the number outpaced each of the years from 2019 to 2022. And hospital systems continue to go under, including the largest one in decades.

The health care sector isn’t likely to experience relief this year, said Clare Moylan, principal with Gibbins Advisors , which issued the report. 

“We expect to see another year of elevated restructuring activity in healthcare as organizations grapple with the challenging operating conditions of margin pressure, workforce shortages, and changing models of care,” Moylan told Medscape Medical News. 

The report examines Chapter 11 medical bankruptcy filings of companies with liabilities at least $10 million. While lower than 2023, the number in 2024 — 57 — is higher than the 2019 (51), 2020 (45), 2021 (25), and 2022 (46.) The number of $500 million-plus bankruptcies was nine in 2024, down from 12 in 2023 but several times higher than the levels from 2019-2022.

In the big picture, these statistics are tiny. “The number of health sector companies that file bankruptcy is very small relative to the number of players in the market,” Moylan said. 

Indeed, by one estimate, there are nearly 10,000 health care companies with annual revenues of $10-$50 million. And there are a reported 7000 hospitals in the United States.

The Worrisome Role of Private Equity

However, bankruptcies are more common in the medical sector than many other parts of the economy, Eileen O’Grady, director of programs at the Private Equity Stakeholder Project, told Medscape Medical News. 

As she noted, medical bankruptcies at hospitals, nursing homes, and physician practices can lead to layoffs and cessation of services. Then patient loads can spike elsewhere, leading to worse care.

In 2024, pharma companies went bankrupt most often (14 filings), followed by senior care (11), clinics/physician practices (10), other (9), medical equipment/supplies (8), and hospital systems (5), according to the report.

Most notably, Steward Healthcare, said to be the largest private hospital chain in the nation, went bankrupt in 2024 after trying to address $9 billion in debt. It closed hospitals in Ohio and Massachusetts, according to Reuters, out of 31 that it operated in 8 states. 

According to O’Grady, almost all of the $500 million-plus bankruptcies were in companies that, like Steward, were owned by private equity. 

Why are private equity-owned companies so vulnerable? 

“Private equity characteristically relies on the use of high levels of debt,” O’Grady said. “It’s also very common for private equity firms to add additional debt to the companies they own to finance additional acquisition.”

What’s Left Out: Private Bankruptcy Deals

The report has some gaps. It doesn’t include bankruptcies of companies with liabilities under $10 million. Also, “there are chapter 7 liquidations which we do not include in our report. Very rarely there are municipal hospital districts that file chapter 9 bankruptcy, since they do not qualify for Chapter 11,” Moylan said. 

O’Grady noted that another important indicator on the medical bankruptcy front is the prevalence of “distressed exchanges,” in which companies try to avoid bankruptcy by privately negotiating with creditors.

“There seems to be an increase in the number of defaults by healthcare companies, and particularly private equity-owned healthcare companies, that aren‘t captured in these bankruptcy numbers,” she said. As she noted, distressed exchanges “happens out of court, so they‘re harder to trace.”

Why Smaller Hospitals Struggle

The report warns that while average hospital operating margins rose from 2023 to 2024, “there is a widening gap between higher and lower performers, with smaller and rural providers most at risk.”

This is because standalone providers face more financial headwinds, especially in rural areas, Moylan said. “They are disadvantaged on pricing from both payors and vendors resulting in immense margin pressure; attracting and retaining the clinical workforce is challenging which means reliance on more expensive interim labor; the corporate overhead is a significant cost and requires highly qualified people to manage the increasingly complex regulatory environment; the capital demands are significant for organizations which do not have material cash reserves; and the combination of population shifts and trend toward out-of-hospital care mean declining demand for inpatient services.”

In contrast, she said, large healthcare systems are better positioned to address these challenges.

What’s Next in 2025?

O’Grady predicts a similar number of business failures this year in the medical sector “given the number of healthcare companies are considered distressed by credit rating agencies.”

The new report points to several drivers of costs, such as growth in labor expenses, a decrease in physician pay via the Medicare Physician Pay Schedule, and new staffing requirements for nursing homes. On the other hand, lower interest rates may spur mergers and acquisitions.

The impact of Trump administration actions, O’Grady said, remains unclear.