Despite indications that fewer healthcare providers will file bankruptcy in 2024 than in 2023, healthcare companies are still heading to court to file for Chapter 11 protection.
A recent study revealed 58 companies with $10 million or more in liabilities were heading for bankruptcy filings by the end of 2024 for a 27% decline compared to 2023, which recorded 79 such cases, healthcare restructuring advisory firm Gibbins Advisors reported in its Interim 2024 Report in August.
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But of those healthcare providers that have filed for bankruptcy this year, several have been major players.
The largest U.S. private hospital operator Steward Health Care, which operated 31 hospitals in eight states, in May filed for bankruptcy to sell its assets and reduce $9 billion in debt. In September the debtor sold six hospitals in Massachusetts for $343 million.
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Hospitals and health center operator CarePoint Health Systems, whose facilities operate as safety nets for a large underprivileged community, on Nov. 4 filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware to reorganize its unsustainable debt.
The New Jersey-based debtor claimed in court papers that it faced financial and liquidity challenges resulting from unreimbursed Covid-19 expenditures and inadequate state government funding to cover a disproportionately large number of uninsured and undocumented patients who are admitted through its emergency rooms.
Wellpath files Chapter 11 to sell assets
Finally, Wellpath Holdings, a leading healthcare provider for prisons and mental health facilities, and 38 affiliates on Nov. 11 filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas to reorganize its businesses and sell certain assets to an ad hoc group of its prepetition lenders.
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The debtor blamed rising operating and labor costs, increased liability insurance expenses, underperforming contracts, and declining liquidity for causing its financial distress.
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The Nashville, Tenn.-based debtor reached a restructuring support agreement with 85% of its prepetition first-lien lenders and 80% of its second-lien lenders to sell its behavioral health division, Recovery Solutions, to an ad hoc group of lenders, who will serve as its stalking-horse bidder in a bankruptcy auction and provide about $522 million in debtor-in-possession financing to finance Wellpath's operations during the Chapter 11 case.
The stalking horse will open the bidding with a credit bid of an aggregate amount of $377 million owed under the DIP facility, plus the assumption of seller liabilities, according to the bidding procedures motion.
The debtor will also seek sales of its State and Federal Division and Local Government Division following the Recovery Solutions transaction, court papers said.
The debtor listed $1 billion to $10 billion in assets and liabilities in its petition. It owes about $644 million in funded debt obligations, including $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.
Its largest unsecured creditors include Alpine CA Behavioral Holdco, owed about $17.9 million; AU Medical Center, owed about $11.9 million; Correct RX Pharmacy Services, owed about $9.5 million; and Diamond Drugs Inc., owed about $7.4 million.
The debtor is seeking approval of $522.3 million in debtor-in-possession financing, which includes $105 million in new money and a rollup of $417.3 million of prepetition debt.
Wellpath, owned by private equity firm H.I.G. Capital, operates 420 facilities in 39 states, providing medical and mental health services to correctional facilities, inpatient and residential treatment facilities, forensic treatment facilities, and civil commitment centers.
The company employs more than 13,000 workers and serves nearly 200,000 patients daily.
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