At least 21% of the 80 healthcare companies that filed for bankruptcy last year were PE-owned, according to a report from the nonprofit Private Equity Stakeholder Project (PESP).

“PE’s excessive use of debt and aggressive financial strategies put healthcare companies at risk, and in turn threaten the stability of critical healthcare resources across the country,” Eileen O’Grady, research and campaign director at PESP, wrote in the report.

In addition to the 17 PE-owned healthcare companies that filed for bankruptcy in 2023, there were at least 12 bankruptcies among healthcare companies with venture capital backing, representing another 15% of the year’s total bankruptcies, according to the PESP report.

Comparatively, there were just eight bankruptcies in 2019 among PE-owned healthcare companies, the report noted.

One of the reasons the number of bankruptcies among PE-backed healthcare companies has increased is that the PE business model relies on high debt levels, O’Grady wrote in the report. That makes companies “more vulnerable to changing market conditions, including high interest rates and rising labor costs,” she wrote.

Interest rates increased 11 times between March 2022 and July 2023 (from 0.25% to 5.5%), according to PESP.

Healthcare companies have also faced rising labor costs and staffing shortages, and many have relied on more expensive contract labor, which compounds financial challenges, O’Grady noted.

Some PE firms have seen multiple healthcare company bankruptcies in recent years. KKR, one of the largest publicly traded PE firms, owned both staffing firm Envision Healthcare and cancer care provider GenesisCare—both of which filed for bankruptcy in 2023, according to PESP. The firm still owns three other healthcare companies with a high risk of default, O’Grady wrote.

The PE-owned bankruptcy trend is expected to continue, according to PESP.

“Another wave of PE-driven healthcare bankruptcies is expected in 2024—almost all [93%] of the most distressed US healthcare companies are owned by PE firms,” O’Grady wrote in the report.

The consequences of a healthcare company bankruptcy are more than just financial. It can cause a lack of healthcare access and lead to overburdened providers, according to PESP.

“The rise in bankruptcies raises questions about how the private equity business model creates risk for the healthcare system,” O’Grady wrote. “Private equity’s heavy use of debt to fund its healthcare investments is becoming a major liability for its portfolio companies as interest rates have risen and remained elevated and labor costs for many healthcare companies have skyrocketed.”

This report was initially published by Healthcare Brew.