New bankruptcy data shows an underlying tension in the health care sector as challenging economic conditions come to the fore and the impact of pandemic-era aid fades further into the past.
Although the behavioral health sector appears to be less at risk for bankruptcies than the rest of healthcare, the analysis report by the national health care law firm Polsinelli and data aggregator Troller BK found an overall increase in business distress during the first quarter of the year.
While the first quarter’s results do not yet represent a trend in growing Chapter 11 filings, it does cite persistent economic pressure from high-interest rates and inflation as risk factors.
“Healthcare has sort of been perpetually distressed,” Jeremy Johnson, a bankruptcy and restructuring attorney for Polinelli and co-author of the report, told Behavioral Health Business. “But health care escaped a little bit unscathed through COVID because a lot of the healthcare businesses were getting a lot of money and a lot of support [from] the government.”
Traditionally, senior living settings such as nursing homes or continuing care retirement communities make up most bankruptcies. Now, hospitals are seeing a slight increase in bankruptcy filings, Johnson added.
In the health care sector, overall levels of business distress are high compared to the report’s baseline period of 2010. However, distress, as measured by a Polsinelli-TrollerBK index, is down slightly in the first quarter both sequentially and year-over-year.
The largest and smallest health care companies make up 81% of bankruptcies. Companies with $1 to $10 million in assets represent 39% of filings. Those with assets between $500 million and $1 billion accounted for 42%
Polsinelli and TrollerBK track fluctuations in Chapter 11 filings for private and public companies with more than $1 million in assets.
These bankruptcies include the now-defunct Delphi Behavioral Health Group and its subsidiaries. The company’s primary lender Brightwood Capital Advisors, acquired three remaining facilities with no competition on its stalking horse bid, according to court records.
Other notable recent bankruptcies include Pear Therapeutics, the first company to obtain FDA approval for a digital therapeutic. That was in 2017. The company filed for bankruptcy in April. It raised $409 million including an IPO, according to crunchbase.com.
Despite these stumbles, behavioral health has not seen notable bankruptcies outside of Delphi Behavioral.
“The behavioral landscape generally seems to be quite healthy,” Tani Weiner, an M&A attorney and principal with Polsinelli, told BHB. “There continues to be strong investment interest in behavioral companies.”
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