Health care Chapter 11 bankruptcy filings rose by one-third from January through March, from nine in the fourth quarter of 2025 to 12 in the first quarter of this year. This increase returns the number of filings to the seven-year quarterly average, according to the latest report from Gibbins Advisors.
Mid-market cases, with liabilities from $10 million to $50 million, drove first-quarter activity, representing approximately two-thirds of total case volume. Larger cases, with more than $100 million in liabilities, remained flat, with three filings in each of the last three quarters.
Senior care and clinics/physicians accounted for two-thirds of the first-quarter volume, with each posting four filings. Pharmaceutical filings increased modestly to two cases following zero filings in the fourth quarter of 2025. Senior care and pharmaceuticals together continue to account for nearly half of all health care bankruptcy filings since 2019.
Merger and acquisition activity rebounded in the first quarter as providers pursue strategic positioning and prepare for the impact of the One Big Beautiful Bill Act. Twenty-two hospital and health system transactions were announced, which was the highest first-quarter volume since 2020.
The report cited several factors that likely will drive the activity through the remainder of 2026:
- Medicaid funding and coverage losses. Federal Medicaid spending is projected to fall by $964 billion over 10 years, including $392 billion in cuts to supplemental provider funding and $326 billion from coverage losses because of work requirements. The largest federal health spending cut in history primarily will affect safety-net providers with a high government payor mix and reliance on supplemental payments, as well as providers serving working-age populations.
- Widening gap between haves and have-nots. Non-profit hospital credit quality is trifurcated, according to Fitch. The top 20% have strong balance sheets and are located in growth markets; the middle 65% are stagnating; and the bottom 15% are deteriorating. This divide is expected to widen as industry headwinds increase pressure.
- Pressure on and from payors. Hospital claim denials reportedly have increased by 12% (inpatient) and 14% (outpatient) from 2024 to 2025, with greater denial volumes also accompanying an uptick in payer's audits. A 2025 survey found 41% of providers now see denial rates of 10% or greater. Insurers cite increasing costs and risks as the reason to hike premiums by a median rate of 18% nationally in 2026.
- Labor and supply cost pressures. Hospital expenses remained elevated entering 2026, with cost pressure broadening across labor and non-labor. Although an imminent medicine shortage is unlikely given inventory levels, generic drugs and supply costs are increasing. Median health care staff pay rose 4.3% in 2025, up from 2.7% in 2024, reflecting continued labor market strain.
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