While health care bankruptcies are trending to triple the level seen in 2021, home-based care is – for now – seemingly immune to the surge of filings seen across the continuum.
Overall, there have been 40 health care bankruptcies filed through June 2023, compared to 46 filings in 2022. In 2021 there were only 25 filings, and in 2020 there were 45, according to data from a recent Gibbins Advisors report.
There are a number of factors that are contributing to this trend of bankruptcy filings, including capital market constraints, care shifting out of institutional settings and the expiration of continuous Medicaid enrollment.
Payers’ rate increases not keeping pace with inflation is another factor accelerating this trend.
Plus, labor and supply cost pressures continue to headwind across all health care industries, according to the report.
In general, widespread bankruptcies have the potential to be disruptive.
“It can be [disruptive], particularly in rural areas where there’s less care generally, less population density and fewer providers” Ronald Winters, principal at Gibbins Advisors, told Home Health Care News. “In other areas where there’s greater density and more competition, probably less so, but if organizations cease to exist because they go bankrupt and can’t reorganize or be sold, that certainly can impact the access to care.”
Senior care, along with pharma, is seeing the most bankruptcies. In fact, senior care made up 26.1% of large health care bankruptcies from 2019 through Q2 2023.
“Most of what we’re seeing in senior care is troubles with nursing homes and senior living facilities,” Winters said.
Despite the senior care sector leading bankruptcy filings, home-based care has gotten through the last few years seemingly unscathed. Since 2020, only two home-based care businesses have filed for Chapter 11 — STAT Home Health-West in Q4 2022 and Compassionate Homecare in Q2 2020.
“We haven’t been seeing many true bankruptcies much in the home care and hospice market,” Amber Popek, a partner at the public accounting firm Forvis, told HHCN. “We’re still seeing activity on the M&A side. It’s come down from where it was a couple years ago, but we’re definitely still seeing activity, which speaks to buyers still seeing profitability out there.”
However, Popek noted that home-based care is seeing some margin decline, which can be attributed to COVID-19 related funding drying up and inflation.
She believes that one of the reasons bankruptcies may be less prevalent in the home-based care space is that patient preference is driving more demand.
“Through the pandemic, there has been more of a desire for patients to be at their home for their health care needs,” she said. “Also, from a greater perspective, care in the home is, overall, not as expensive as an institutional setting, the hospital or a nursing home. I think that it’s kind of a win for health care funding overall.”
Winters similarly pointed out that home-based care providers may be seeing patients that would have normally gone to a facility.
“I think home care is benefiting at the expense of nursing homes in certain states where the Medicaid payer is trying to have the care provided in a home-based setting,” he said.
It’s not an absolute certainty that home-based care providers will continue to go unscathed, however. In fact, it’s not a certainty that they’ve gone unscathed thus far.
“This doesn’t mean home health organizations didn’t go bankrupt,” Winters said. “What it may mean is that [the business that filed for bankruptcy] may not have met the size threshold. We only focused on organizations that had $10 million of liabilities or more, meaning liabilities to employees, vendors, banks, creditors, all of that. I think there’d be a lot of [home-based care] companies that are under that threshold.”
Certainly, smaller home health providers unable to adjust to payment rate decreases or greater Medicare Advantage penetration could have fallen into that category.
But Popek still doesn’t see home-based care providers as particularly at risk for bankruptcy.
“A lot of home care and hospice agencies are backed by an investment group, whether that’s private equity, or some other type of affiliation,” she said. “Not all, but there’s a fair amount of agencies that have support, which can help avoid those situations.”
In 2022, 37 of the 628 health care PE transactions that took place were home health and hospice deals. PE investors were involved in about 50% of home health deals in 2018 and 2019, according to data from a Private Equity Stakeholder Project report.
Looking ahead, home-based care providers hoping to avoid filing for bankruptcy should stay on top of their finances.
“Make sure they are running efficiently, try to have relationships with lenders and investors, so that they can be called upon, if needed, and just prepare,” Popek said. “I think planning is about the best they can do right now.”
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