Jackson Hospital & Clinic, Inc. and its pharmacy subsidiary filed for Chapter 11 bankruptcy protection(petition date February 3, 2025; announcement February 4, 2025), in the U.S. Bankruptcy Court for the Middle District of Alabama. The 344-bed hospital, which traces its roots to 1894, sought court protection after defaulting on $60 million in bond debt in September 2024, with assets and liabilities each estimated between $100 million and $500 million.

Montgomery's primary safety-net hospital continues operating all facilities during the restructuring, maintaining emergency care, cardiac services, cancer treatment, and other critical services while navigating the Chapter 11 process.

Pre-Filing Financial Deterioration

Jackson Hospital employs approximately 1,641 full-time employees, 50 part-time employees, 361 PRN nurses, and 31 contract workers. The hospital's financial crisis accelerated after 2021, when it exhausted $60 million in investments.

Alabama's decision not to expand Medicaid created an unsustainable payer mix, with gross charges for uninsured patient care exceeding $45 million in 2023. The hospital simultaneously faced increased labor costs, stagnant reimbursement rates, and lingering COVID-19 impacts.

A failed HumanityCorp affiliation compounded these challenges. CAPTA Health Partners $28 million, a HumanityCorp affiliate, now appears on the unsecured creditors list at over.

The hospital's operational challenges extended beyond financial metrics. Years of deferred maintenance and capital improvements left the facility struggling to compete with newer healthcare facilities in the region. Equipment replacement cycles stretched beyond recommended timelines, and technology infrastructure lagged behind industry standards. These deficiencies created a negative feedback loop: outdated facilities made it harder to recruit physicians and retain patients with commercial insurance, further eroding the revenue base needed for capital investments.

Market dynamics in Montgomery also played a significant role in Jackson Hospital's distress. Competition from Baptist Health, part of the UAB Health System, and other regional providers intensified pressure on patient volumes and payer mix. While Jackson Hospital maintained its position as the safety-net provider, competitors increasingly captured commercially insured patients, leaving Jackson with a disproportionate share of uninsured and government-reimbursed care. This adverse selection problem is common among safety-net hospitals but was particularly acute given Alabama's non-expansion of Medicaid.

Path to Chapter 11

The hospital missed its bond interest payment on September 3, 2024, triggering S&P's downgrade to "D". The defaulted bonds, totaling $60 million and issued through the Medical Clinic Board in 2015, comprised the bulk of long-term debt.

Jackson Hospital engaged Eisner Advisory Group's Allen Wilen as chief restructuring officer in September 2024. Bondholders provided bridge loans through UMB Bank as trustee, with Kramer Levin serving as bondholders' counsel. In November 2024, the hospital secured $22 million from bondholders and $3.5 million in additional financing.

DIP financing negotiations centered on bondholders' requirement for a fully collateralized $20.5 million guarantee from the City of Montgomery. The council did not approve the guarantee on January 31, 2025, after which bondholders withdrew their proposal; the hospital filed four days later.

Chapter 11 Filing and DIP Financing

The bankruptcy petition was filed on February 3, 2025, with an emergency hearing set for February 5, 2025. Both Jackson Hospital & Clinic, Inc. and subsidiary JHC Pharmacy, LLC entered Chapter 11, with assets and liabilities each estimated between $100 million and $500 million.

Jackson Investment Group, parent of Jackson Healthcare, committed DIP financing to maintain operations. Despite the shared "Jackson" name, these entities are unrelated to the debtor hospital. The DIP facility enabled continued patient care while the hospital pursues restructuring alternatives.

First day motions prioritized operational continuity: employee wage and benefit payments, patient care obligations, and critical vendor relationships. The expedited hearing schedule reflected both the hospital's essential community role and urgent liquidity needs.

The court's immediate consideration of the emergency motions underscored the critical nature of Jackson Hospital's services to the Montgomery community. As the region's primary safety-net provider, any disruption to operations would have severely impacted access to emergency care, trauma services, and specialized treatment for the area's most vulnerable populations. The hospital serves not only Montgomery County but also draws patients from surrounding rural counties where healthcare options are even more limited.

The DIP financing structure reflected careful consideration of the hospital's unique circumstances. Unlike typical commercial bankruptcies where operations can be scaled back or temporarily suspended, hospital bankruptcies require maintaining full service capabilities throughout the restructuring process. Patient care standards, regulatory compliance, and medical staff retention all demand consistent funding streams that cannot tolerate interruption. The Jackson Investment Group's willingness to provide DIP financing without the municipal guarantee originally sought by bondholders represented a critical development in maintaining operational stability.

Stakeholder Impacts and Legislative Response

CAPTA Health Partners leads unsecured creditors at over $28 million, a legacy of the failed HumanityCorp partnership. Bondholders hold $60 million in defaulted debt, represented by Kramer Levin in restructuring negotiations.

The hospital's 2,000-plus employees continue working during the restructuring, though long-term benefit obligations remain uncertain. Montgomery residents maintain access to critical healthcare services, but questions persist about the facility's future ownership and service scope.

Alabama responded swiftly with legislative intervention. The state legislature passed SB222 in March and April 2025, adding Section 11-58-5.2 to the Code of Alabama. The law authorizes medical clinic boards to pursue debt readjustment when their lessee hospitals file Chapter 11.

This legislation addresses Jackson Hospital's unique structure, where the Jackson Medical Board owns major hospital assets while the hospital operates as lessee. The state intervention underscores the political significance of maintaining Montgomery's safety-net hospital.

The legislative response reflected broader concerns about healthcare access in central Alabama. Montgomery, as the state capital, requires robust healthcare infrastructure to serve not only its residents but also state employees, visitors, and the surrounding rural population. The potential closure or significant downsizing of Jackson Hospital would have created a healthcare crisis, overwhelming remaining facilities and potentially leaving thousands without access to emergency and specialized care. State legislators recognized that market forces alone might not preserve this essential infrastructure.

Trade creditors face significant uncertainty in the Jackson Hospital bankruptcy. Medical suppliers, pharmaceutical companies, and service providers must balance their exposure against the hospital's critical role in the community. Many vendors likely extended credit terms during the pre-bankruptcy period, hoping to support the hospital through its financial difficulties. Now these creditors must navigate the Chapter 11 process while maintaining relationships essential for post-bankruptcy operations. The presence of critical vendor motions in the first day filings suggests recognition of these delicate dynamics.

Dual Bankruptcy Structure and Strategic Implications

Alabama's new law enables an unusual dual bankruptcy structure: the Jackson Medical Board could file municipal bankruptcy under Chapter 9 while the hospital proceeds under Chapter 11. This parallel approach creates both opportunities and significant logistical challenges given the interdependence between the Board's real estate holdings and hospital operations.

The hospital pursues either a Section 363 sale or refinancing through a Chapter 11 plan. Jackson Investment Group's role as DIP lender may signal strategic interest in the hospital's future. Resolution depends on untangling the Medical Board ownership structure, securing exit financing, and determining whether the facility remains independent or affiliates with a larger system.

Jackson's case illustrates broader challenges facing safety-net hospitals in non-Medicaid expansion states. The convergence of regulatory constraints, reimbursement pressures, and failed partnerships pushed this 130-year-old institution into bankruptcy despite its essential community role.

For restructuring professionals, the case presents notable elements: attempted municipal guarantees for DIP financing, legislative creation of dual bankruptcy structures, and the complexities of reorganizing safety-net providers. The outcome will influence how similar facilities approach distress in comparable regulatory environments.

The Jackson Hospital bankruptcy demonstrates state legislatures' increasing willingness to intervene when traditional restructuring mechanisms prove inadequate. As healthcare sector distress continues, particularly among safety-net providers, the case may establish precedents for legislative solutions to complex ownership and operational challenges in hospital bankruptcies. For more bankruptcy analysis and restructuring insights, visit the ElevenFlo blog.