Record Number of Healthcare Companies File for Chapter 11 Bankruptcy

So much so that one major healthcare company, responsible for nursing homes and senior living facilities, has recently filed for Chapter 11 bankruptcy, despite taking out $50 million in loans.

In fact, at one point, 1300 nursing homes had an infection rate of 75% or higher, according to the US Department of Health and Human Services, which caused significant financial strain on these facilities.

Due to the rise in inflation, nursing home companies are struggling to find the money to pay their staff, which is part of the reason why staff shortages are so low.

Employees report that the emotional and physical challenges of the industry, low pay, and poor working conditions are reasons why they leave these healthcare facilities.

This has led some companies to take out loans, but left unable to pay the loans back, which has resulted in Chapter 11 bankruptcy filings.

13 companies filed in 2021, 12 in 2022, and 15 in 2023, with this number potentially going up in 2024.

Filing for Chapter 11 bankruptcy enables breathing room to create a reorganization plan and give creditors greater recovery than if they had gone into liquidation.

The report, which is published quarterly, shows the economic performance in the U.S. by tracking the increase or decrease in comparative Chapter 11 filings.

Johnson continued: “This is largely consistent with our report from a few years ago that analyzed the factors causing distress in healthcare. That report obviously didn’t anticipate the pandemic, but labor costs and litigation pressure were among the biggest causes of financial distress in healthcare.”

This includes the Evangelical Retirement Homes of Greater Chicago and Windsor Terrace Health, which listed between $1 million and $10 million in assets and liabilities.

As they could not give people a tour of their facilities, place uptake was low. Low uptake meant a loss of fees, eventually leading to bankruptcy.

According to McKnight Senior Living, Encore Healthcare Services of New York was revealed as the buyer of the senior living facilities. Encore Healthcare Services plans to spend $15 million on capital improvements.

Due to the company’s size, McKnights has said that Windsor Terrace Health’s bankruptcy will warn many that there will be a further collapse in the senior living sector.

In August 2023, the Nashville Senior Center filed voluntary petitions for relief under Chapter 11. The senior living company blamed the COVID-19 shutdown, high staff and supply costs, and more for its “acute liquidity crisis.”

Johnson continued: “This is consistent with what we’ve seen across the board” in senior living and care, and even healthcare generally, he added.

City News Tulsa called the Chapter 11 bankruptcy filing “a somber backdrop against the facility’s illustrious history as an extension ministry of the Oklahoma Conference of the United Methodist Church.”

However, the proposal has been met with apprehension as it could worsen the problem that is plaguing many of these understaffed and underfunded communities.

McKnights Senior Living has said that Magnolia has included assets between $1 and $10 million with matching liabilities in their filing.

The healthcare provider defaulted on loans up to $50 million, and according to WSJ, it comes just two months after it was hit with lawsuits that alleged these defaulted payments.

The Peterson Center on Healthcare website reported at the time that the $50 million was being used to evaluate digital health technologies to help improve health and lower the costs of healthcare.

This comes after the company had faced issues with cyberattacks and defaulting on government-backed loans.

The number of people wanting to go into residential care in rural areas declined, with more opting for having carers come to their homes.

Business Insider reported that a federal investigation had found that the company had violated wage laws for two decades, with these overtime wages being owed between 2018 and 2020.

HR Drive says a spokesman for the company said the company has always paid their employees fairly and that they are constantly reviewing their pay practices.

Seven of the 30 investigations found that Petersen’s had $88,000 in unpaid wages.

Skilled Nursing News reports that RehabCare is the top creditor, which has a total of $11.87 million in unsecured claims.

This includes an attack from the Cactus ransomware group, which caused them to lose business records and struggle to bill customers and insurers. They also had an attack from Blackcat, a hacking group, stopping payments to providers.

This included their servers, email addresses, and software, which only cost them more money.

Wired revealed that the people who had carried out the ransomware attack received $22 million, which many believe means Change Healthcare has paid them ransom.

It gives more reason for other attackers to believe there are profits to be made from stealing healthcare data, which will cause worry among healthcare providers, patients, and their families.

They had around 90 nursing homes across various states, 4000 employees, and a capacity for 6796 residents.

Business Wire reported that David Campbell, Peterson Health Care’s Chief Restructuring Officer, has said the company is committed to providing first-rate care to its residents and will return as a “stronger company.”

“The Healthcare Index has never been this high, but it’s a combination of distress across the healthcare markets. For example, we’re starting to see more hospitals filing for bankruptcy, but there is still substantial distress” across the senior living and care sector,” Johnson said.

Since 2010, the filing numbers have declined 23 times compared with the prior quarters and climbed 28 times according to the data. Right now, the data points to a steep downward trend.

“Bankruptcy filings in senior living continue to be driven by low occupancy. For the last few years, it’s [been] the obvious post-COVID pressures, but even as sales/occupancy are increasing, CCRC balance sheets are still over-levered and need restructuring,” Johnson said.

“There is simply too much debt for most of them to service and any issue at the community, such as a pressing capex need, can put the community under pressure,” Johnson said.