Healthcare Provider Bankruptcy Filings Continue Despite Expected Decrease

As we move into 2024, the trend of healthcare providers filing for Chapter 11 bankruptcy appears to persist, even with projections indicating a potential decline in such cases. According to a recent report by healthcare restructuring firm Gibbins Advisors, a total of 58 healthcare companies with liabilities exceeding $10 million are expected to file for bankruptcy by the end of 2024. This marks a 27% decline from 2023, which saw 79 such filings.

Major Bankruptcies Shake the Industry

This year has witnessed several significant healthcare providers seek Chapter 11 protection. Among them is Steward Health Care, the largest private hospital operator in the U.S. With operations spanning 31 hospitals across eight states, the company filed for bankruptcy in May 2023 to facilitate the sale of its assets and alleviate a staggering $9 billion in debt. By September, Steward Health Care managed to sell six of its hospitals in Massachusetts for $343 million, showcasing the urgent restructuring measures businesses are taking to survive.

CarePoint Health Systems: A Safety Net in Crisis

In another notable case, CarePoint Health Systems, which serves as a safety net for underprivileged communities in New Jersey, filed for Chapter 11 protection on November 4, 2023. The U.S. Bankruptcy Court for the District of Delaware heard an appeal for the company to reorganize its unsustainable debt, citing financial challenges exacerbated by unreimbursed COVID-19 expenditures and insufficient state government funding. CarePoint claims that it is struggling significantly due to an influx of uninsured and undocumented patients navigating its emergency rooms.

Wellpath Holdings’ Restructuring Plan

On November 11, Wellpath Holdings, a prominent healthcare provider specializing in services for prisons and behavioral health, also filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas. The Nashville, TN-based company, along with 38 of its affiliates, aims to reorganize its businesses and sell specific assets to an ad hoc group of prepetition lenders. The restructuring plan has garnered support from 85% of its first-lien lenders and 80% of its second-lien lenders.

A Deep Dive into Wellpath’s Financials

Wellpath has reached a restructuring support agreement that includes the sale of its behavioral health division, Recovery Solutions, to its lenders, setting up a bankruptcy auction process. The lenders will act as the stalking-horse bidder and are offering approximately $522 million in debtor-in-possession financing to help sustain operations during the Chapter 11 proceedings. The initial bidding will begin with a credit bid amounting to $377 million owed under the debtor-in-possession facility, alongside the assumption of seller liabilities.

The company’s bankruptcy petition lists its assets and liabilities in the range of $1 billion to $10 billion. Of this, Wellpath has approximately $644 million in funded debt obligations, which consist of $61.5 million in a revolving credit facility, $472.5 million in first-lien term loan debt, and $110 million in second-lien term loan debt. Among its largest unsecured creditors are Alpine CA Behavioral Holdco at $17.9 million, AU Medical Center at $11.9 million, Correct RX Pharmacy Services at $9.5 million, and Diamond Drugs Inc. at $7.4 million.

Wellpath’s Operational Reach

Wellpath, which operates under the ownership of private equity firm H.I.G. Capital, provides essential medical and mental health services across 420 facilities in 39 states. The organization employs over 13,000 workers and plays a crucial role in serving nearly 200,000 patients daily across various environments, including correctional facilities and mental health treatment centers.

Conclusion: Challenges Ahead for Healthcare Providers

Despite indications of a potential decline in bankruptcy filings within the healthcare sector, 2023 has already proven to be challenging for several prominent players. As companies like Steward Health Care, CarePoint Health Systems, and Wellpath Holdings navigate the complexities of Chapter 11 bankruptcy, the healthcare landscape continues to evolve under financial strain brought on by a multitude of factors, including lingering COVID-19 debt, inadequate funding, and increased demand for services. As 2024 approaches, stakeholders in the healthcare industry remain watchful, contemplating the paths ahead.