A Prescription for Distress: What’s Really Ailing Canada’s Healthcare Sector

Under the Stethoscope: Canada’s Health Sector

Canada’s healthcare system is often described as universal, resilient, and sacrosanct. Yet behind its public impression lies a complex network of private operators, suppliers, and service providers facing increasing financial, overtime and staffing pressure.

From diagnostic labs and dental chains to long-term care homes, rehabilitation facilities, and medical device firms, the economic pulse of healthcare in 2025 is irregular. Rising costs, staffing shortages, regulatory rigidity, and delayed reimbursements are converging into a perfect storm.

While large public hospitals remain government funded inadequately, the surrounding ecosystem of private and semi-private providers that make up Canada’s “shadow healthcare economy” now contends with the same financial headwinds that have strained other service sectors.

When a retailer fails, another tenant takes its place. When a healthcare provider fails, a community loses care. Across Ontario, hospitals are already operating under strain, with funding gaps and policy constraints creating multi-year deficits. The real cost is seldom financial. It is measured in delayed diagnoses, longer waits, and communities left without essential services.

Causes of Ailment

A deeper look reveals three primary causes.

1. Cost Disease and Inflation Pressure

Healthcare’s cost base has always been steep, but post-pandemic inflation has pushed it to unsustainable levels.

Labour represents over 60% of total operating costs in most healthcare settings. With nurses and technicians in short supply, wage inflation outpaces provincial funding increases. For smaller clinics and private operators, this creates a fundamental mismatch between fixed reimbursement rates and rising payrolls.

Medical supplies, pharmaceuticals, and insurance premiums have also climbed.  That’s a problem magnified for operators locked into long-term service contracts with governments or health authorities that leave little room for cost pass-through.

2. Frozen Funding and Regulatory Inertia

Reports indicate that between 2022-23 and 2027-28, Ontario has budgeted $21.3 billion less than what will be required to sustain existing health-sector programs and meet its expansion commitments in hospitals, home care, and long-term care. Thousands of unplanned closures of hospital emergency departments, permanent closures of some hospital facilities substantiate this further.

The consequences of this extend beyond hospitals. Diagnostic centres, clinics, and private service providers are now absorbing the downstream effects of systemic underinvestment. Margins that once supported reinvestment have been eroded by compliance obligations and rising operating costs, leaving little capacity for modernization or recovery.

At the same time, provincial approval requirements often slow or obstruct restructuring efforts. Transferring a clinic license, for example, may require health ministry consent, a process ill-suited to the pace at which insolvency situations unfold.

3. Capital Fatigue and Liquidity Constraints

During the pandemic, government relief programs and lender forbearance masked deep structural weakness.

As those supports expired, liquidity eroded rapidly. Many healthcare operators had expanded or taken on debt under the assumption that post-COVID volumes would rebound swiftly. Instead, demand stabilized unevenly: elective procedures returned, but staff attrition, regulatory backlogs, and deferred maintenance costs left operators overextended.

Capital markets, meanwhile, have turned cautious. Traditional lenders prefer secured real estate-backed exposure, while venture or growth capital is retreating from life sciences and digital health after years of overvaluation.

The result: a capital vacuum at the very time when providers most need liquidity to modernize operations.

The Symptoms of Financial Decline

Data from the Office of the Superintendent of Bankruptcy and provincial regulators indicate a 66% rise in healthcare and social assistance insolvencies, as reported in the OSB’s 2024 Annual Report.

Recent filings illustrate the widening scope of distress, from high-tech innovation to community-based care. Case in point include: Synaptive Medical, ELNA Medical Group, SRx Health Solutions, and FGC Health.

1. Synaptive Medical (Toronto, 2025): The neuroimaging company’s CCAA filing, with over USD 100 million in debt, illustrated how even advanced health technology ventures can falter under the weight of scale and funding gaps. Despite valuable intellectual property, its growth model was capital-intensive and heavily reliant on export markets.

2. ELNA Medical Group (Quebec, 2024): One of Canada’s largest clinic networks sought creditor protection under CCAA in December 2024. High fixed costs, physician attrition, and the financial strain of multiple acquisitions weakened liquidity. The consolidation model, shaped by private-equity-style growth, struggled to integrate disparate operations within a publicly funded payment environment.

3. SRx Health Solutions (Ontario, 2025): The integrated healthcare services provider entered CCAA to stabilize operations amid liquidity pressure and cross-border capital misalignment of its Canadian subsidiary. The case underscored the vulnerabilities of fragmented corporate structures in regulated sectors.

4. FGC Health (Alberta, 2024): The multi-clinic and pharmacy operator was placed into receivership after breaching multiple loan covenants and defaulting on obligations to CWB Maxium Financial. Despite prior forbearance attempts, liquidity exhaustion and related-party payments triggered enforcement. The case highlighted the fragility of leveraged healthcare models and the risks of weak financial governance in regulated operations.

The Anatomy of a Sector in Distress

Healthcare insolvency differs from conventional corporate collapse. A retailer can close its doors overnight. A healthcare facility cannot. Regulatory oversight, patient continuity, and professional obligations create constraints that make rapid shutdowns politically and ethically untenable. This dynamic carries several implications:

1. Receiverships are complex: Maintaining operations during court supervision requires specialized monitors who understand licensing and patient care.

2. Sale processes are slower: Buyers must satisfy regulatory, clinical, and ethical standards before acquiring healthcare assets.

3. Going-concern value depends on trust: Patients, doctors, and suppliers are reluctant to return once the stability of a facility is in doubt.

Insolvency in this sector is therefore less about liquidation and more about stabilization.

Prescriptions for Operators and Lenders

Key lessons for operators and lenders include:

1. Liquidity is Lifeline: Healthcare working capital cycles are long and reimbursement remains slow. Operators must maintain liquidity reserves and diversify exposure across payors.

2. Engage Lenders Early: A collaborative approach with secured creditors, including equipment financiers and banks, increases the likelihood of forbearance or short-term bridge funding.

3. Focus on Core Services: In periods of distress, scaling back non-core offerings and directing resources toward areas with defensible margins helps preserve viability.

4. Protect Compliance and Licensing: Lapses in regulatory filings, accreditation, or professional standards can erode enterprise value faster than financial loss.

5. Consider Strategic Alliances: Partnerships with hospitals, insurers, or larger networks can create operational stability while allowing operators to maintain independence.

Vital Signs of Opportunity for Distressed Investors

For turnaround specialists and private capital, healthcare has emerged as a frontier of structured opportunity.

Real estate tied to specialty medical facilities such as diagnostic labs, surgical suites, and seniors’ residences is now trading below replacement cost. Investors with operational partners can acquire and reposition these assets in ways that traditional lenders cannot.

Consolidators are also finding room to expand through insolvency-driven acquisitions. By integrating back-office systems, renegotiating leases, and adopting technology, buyers can restore profitability where standalone clinics could not.

Diagnosis Ahead

Healthcare insolvencies in Canada currently reflect friction at the intersection of cost, compliance, and capital access.

The coming years are likely to bring continued pressure on mid-sized operators, while new entrants with disciplined cost structures and innovative service models gain ground.

As in all restructuring, success will depend on early intervention, transparent dialogue, and creative capital solutions.

That said, insolvency in healthcare should not be seen as terminal. It is a form of intervention, and a proof that even systems built to heal must occasionally be healed themselves.

By Divi Dev. Divi is a restructuring lawyer and the founder of Divi Distressed Investments, L.P., specializing in business rescue and distressed corporate investments advisory. Divi provides legal services through a professional law corporation. The views expressed are personal.