By Dietrich Knauth
May 11 (Reuters) – YesCare, which provides medical care to prisoners in nine U.S. states, has seen its revenue fall by 80% since being hit with a $307.5 million jury verdict over allegations of substandard medical care earlier this year, its bankruptcy attorneys said on Monday.
The verdict caused prisons around the U.S. to terminate their contracts with YesCare for outsourced medical services, YesCare attorney Jeremy Johnson said at the company’s first court appearance after filing for bankruptcy in Fort Myers, Florida on Friday.
The sharp decrease in revenue caused YesCare to miss payroll for its 1,500 employees on May 8, and the company does not yet have financing lined up to pay those employees, Johnson told U.S. Bankruptcy Judge Luis Rivera, who is overseeing the bankruptcy.
“This is a true free fall situation,” Johnson said.
YesCare might have to liquidate in bankruptcy after the “cataclysmic” financial meltdown, but it is in talks with its lenders on new financing that could help stabilize the business and pay its employees, Johnson said.
At the hearing, Johnson pushed back against claims that YesCare was repeating a failed bankruptcy playbook that its owners have previously used to avoid liability for medical malpractice lawsuits.
YesCare’s predecessor, Corizon Health, previously tried to address the lawsuits by splitting into two companies, YesCare and Tehum Care Services, in a process called the “Texas Two-step.” YesCare took over Corizon’s assets and contracts, while Tehum Care Services inherited the lawsuits and liabilities before filing for bankruptcy in Texas.
Creditors from the Tehum bankruptcy, including prisoners that filed malpractice lawsuits against Corizon and YesCare, asked Rivera to transfer the new bankruptcy case to Texas so it can be heard by a judge who is already familiar with the companies’ litigation history. Rivera said Monday that he would not immediately rule on the transfer motion.
Tehum’s bankruptcy settlement allowed plaintiffs to opt out of the deal and continue to sue YesCare. One of those opt-outs won the $307.5 million verdict that tipped YesCare into bankruptcy, according to court documents.
The $307.5 million verdict is believed to be the largest verdict in correctional health litigation history, and YesCare intends to challenge the verdict, Johnson said.
YesCare currently services 20,000 patients daily at 19 facilities in nine states, Johnson said. The company’s footprint is changing rapidly, as it tries to replace the canceled contracts.
The company owes about $20 million in secured debt to a company called M2 LoanCo, and it owes $95 million to unsecured creditors. YesCare has at least $400 million in litigation debt, including the recent $307.5 million verdict.
M2, which funded the Tehum bankruptcy and is in talks to fund the YesCare bankruptcy, has not yet committed to providing additional money for YesCare’s missed payroll, Johnson said.
YesCare is hoping to return to bankruptcy court next week with an agreement to fund employee payroll, Johnson said.
The case is CHS Florida LLC, U.S. Bankruptcy Court for the Middle District of Florida, No. 26-bk-01087
For YesCare: Jeremy Johnson and Trinitee G. Green of Polsinelli
For Tehum creditors: Nicholas Zluticky of Stinson
Read more:
Prison health company YesCare files for bankruptcy
Senators, states ask US Supreme Court to curb ‘two-step’ bankruptcy abuse
Prison health company YesCare strikes deal in ‘Texas two-step’ bankruptcy
(Reporting by Dietrich Knauth in New York)
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