The healthcare sector has faced several Chapter 11 bankruptcy filings this year as a result of severe industry headwinds, despite a study claiming fewer healthcare providers are expected to file bankruptcy in 2024 compared to 2023.
Healthcare restructuring advisory firm Gibbins Advisors reported in its Interim 2024 Report in August that 27% fewer firms were set to file bankruptcy in 2024 compared to 2023.
But some major healthcare providers have recently filed for bankruptcy since that study was released.
Hospital Staff Essential Businesses Lead
Hospitals and health center operator CarePoint Health Systems, which operates as a safety net for a large underprivileged community, on Nov. 4 filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware to reorganize its unsustainable debt.
The New Jersey-based debtor faced financial and liquidity challenges resulting from unreimbursed Covid-19 expenditures and inadequate state government funding to cover a disproportionately large number of uninsured and undocumented patients who are admitted through its emergency rooms.
Following that bankruptcy filing, Wellpath Holdings, a leading healthcare provider for prisons and mental health facilities, and 38 affiliates on Nov. 11 filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas to reorganize its businesses and sell certain assets to an ad hoc group of its prepetition lenders.
The Nashville, Tenn., debtor blamed rising operating and labor costs, increased liability insurance expenses, underperforming contracts, and declining liquidity for causing its financial distress.
Finally, CareMax Inc., (CMAX) an operator of clinical care centers providing a comprehensive range of medical services, filed for Chapter 11 bankruptcy protection on Nov. 17 seeking a sale of substantially all of its assets.
Business Closing Filing Bankruptcy Chapter 11 Judge
The Miami, Fla.-based debtor listed $390 million in assets and $639 million in debts in its petition, which was filed in the U.S. Bankruptcy Court for the Northern District of Texas. Its largest unsecured creditors include Health Catalyst Inc., owed $3.38 million; Elevance Health Inc., owed $846,535; and Foresee Medical Inc., owed $722,222.
The debtor reported net losses of $37.8 million for the year ending Dec. 31, 2022, and $683.3 million for the year ending Dec. 31, 2023.
The company will seek court approval of $122 million in debtor-in-possession financing from its prepetition lenders, consisting of $30.5 million in new money and a rollup of prepetition debt.
CareMax cited a series of systemic and unique challenges over the last two years that resulted in a substantial increase in the cost of doing business, which outpaced revenue gains, according to a declaration from Chief Restructuring Officer Paul Rundell.
Among the challenges were industrywide headwinds that depressed profits, inflation that increased labor and operational costs, and various economic factors that constrained the company's ability to raise new capital.
The company also cited lingering effects from the Covid-19 pandemic and lagging industry reimbursement rates, which resulted in lower net patient revenue.
The company's growth strategy required large sums of capital and substantial operating expenses, according to court papers.
The debtor secured prepetition debt with costs that increased due to rising interest rates that led to increased debt service payments, making it difficult to comply with covenants under its credit agreement.
In February 2024, the debtor began defaulting on its prepetition debt, which consisted of about $35 million, according to court papers.
The debtor sought strategic alternatives such as an out-of-court restructuring and a prepetition sale of its assets, but opted for an in-court solution.
The debtor filed a prearranged Chapter 11 with a restructuring support agreement that calls for a sale of the company in a Section 363 auction. The debtor has reached an agreement to sell its Medical Shared Savings Program under its management services organization to Revere Medical, through its bankruptcy filing, according to Nov. 17 statement.
The company will name a stalking-horse bidder in a bidding procedures motion for its operating clinic business that is expected to be filed on or around Nov. 24, according to court papers.
CareMax operates 46 clinical centers with about 1,100 employees and 260,000 patients with facilities in Florida, New York, Tennessee, and Texas.
