Bankruptcy filings jumped in early 2023, compared to a year earlier, and nursing homes continued to account for a large portion of them, market watchers have found.

Experts warn that a quartet of conditions, plus a structural Medicaid pay lag, will continue to test providers’ ‘viability.’ Some basic steps can help, they add.

Seventeen healthcare companies with individual liabilities of more than $10 million filed for Chapter 11 bankruptcy in the first quarter of 2023 compared with seven for the same period last year, according to a report from Gibbins Advisors, a healthcare restructuring consulting firm. Ronald M. Winters, a principal at Gibbins, said, however,  the simpler the debt sheet, the better the chance a facility has of avoiding bankruptcy. 

“For nursing homes, like any business, if you can’t cover the cost to operate, you have a viability problem absent a fast path to improvement,” Winters told McKnight’s Long-Term Care News on Monday. 

Like other healthcare facilities, nursing homes are facing strong headwinds from labor shortages combined with higher workforce costs, rising interest rates, and an end to pandemic aid, all of which are roiling companies.

But skilled nursing operators have an added challenge: most facilities get the majority of their funding from Medicaid, which pays on a schedule that lags the pace of rising costs, particularly during an inflationary period. Like other businesses dependent on fixed sources of income, the vast majority of those costs cannot be passed on to consumers, Winters said. He added that occupancy rates are under pressure as more and more states and the federal government increase resources for programs that allow people who need nursing home level care to remain in their homes longer. 

Fitch Ratings this week also drew new attention to nursing homes’ precarious position, noting that “persistently high wage inflation remains a major credit risk for US life plan communities and skilled nursing facilities given the very tight labor environment.”

“LPCs and communities with a significant SNF component will have to execute on productivity enhancements, cost savings and manage skilled nursing admissions to successfully operate through the current reality of tight staffing conditions and higher unit labor costs,” said Fitch Director Richard Park.

The Gibbins report found that the senior care sector, which includes nursing homes and senior living communities, comprised nearly 30% of the first quarter bankruptcies. Those companies, plus pharmaceuticals, accounted for half of the Chapter 11 filings, which continues a trend of the last few years, according to researchers. 

Winters said that facilities that can continue covering their weekly costs but have complicated liabilities can restructure that debt to get out of trouble. 

“Owing money to a small number of creditors may enable you to negotiate a solution ‘out of court’,” he said. “But if you owe money to many creditors, it becomes more difficult to negotiate with many at the same time and a bankruptcy can provide an easier forum … and be hard to avoid.”