Private equity bankruptcies in health care increased by 112% in 2023

Private equity firms owned more than 20% of the healthcare companies that went bankrupt last year. The nonprofit Private Equity Stakeholder Project, which surveys multiple industries, said it observed at least 17 such bankruptcies in 2023, compared with eight in 2019 and even fewer over the previous three years, marking a 112.5% ​​increase. during the last five years.

Private equity-backed companies carry among the highest debt loads in the healthcare industry, leaving them particularly vulnerable to market factors, said Eileen O’Grady, project healthcare director for Healthcare Dive. “The cost of debt is the number one factor in this trend,” she said.

The report cited several repeat offenders, including KKR, whose physician staffing agency Envision Healthcare and oncology provider GenesisCare filed for bankruptcy last year, and HIG Capital, which backed weight management brand Jenny Craig. Both firms also have other companies bypassing the line with high credit risks, he said.

The report also cited US Renal Care, Elara Caring and LifeScan, which it said “have been able to stop the bankruptcy can” by relying on distressed swaps in which companies distribute assets to creditors at a reduced valuation to avoid bankruptcy.

The report acknowledged five-year highs in general and high-impact (liabilities of more than $100 million) health care bankruptcies last year. However, the group said private equity acquisition strategies and broader macroeconomic conditions have combined to drive more of its portfolio companies into bankruptcy. Rising debt levels, often taken on to help fund dividends for investors, leave privately held companies more vulnerable to changing market conditions, including high interest rates and rising labor costs, it said. report. The implementation of the No Surprises Act also prompted high-profile bankruptcies like that of Envision Healthcare.

The report cited Moody’s Investors Service data suggesting more private equity-owned bankruptcies may be on the horizon. Among the 45 health care companies that the rating agency deemed “obligations considered speculative and subject to high credit risk,” 42 were owned by private equity firms.

Another wave of private equity-led healthcare bankruptcies is expected in 2024, as nearly all of the most distressed healthcare companies are owned by private equity firms, according to the Private Equity Stakeholder Project.

State and federal lawmakers have recently begun investigating the role of private equity in health care to understand how the firms affect companies and patients. Senators have launched two separate investigations into private equity since December, with one focused on the firms’ involvement in hospital operations and another focused on private equity-funded emergency departments. The Federal Trade Commission, the Department of Justice and the Department of Health and Human Services launched their own investigation last month, evaluating private equity deals in health care.

“There are situations where private equity firms are buying distressed companies, and then those companies remain distressed,” O’Grady said. “Whether the private equity firm made the situation worse or was just prolonging the inevitable is probably situational. But at the end of the day, are they making things better? In many cases, they’re not.”