Dive Brief:
- On Sunday, Miami-based CareMax filed for Chapter 11 bankruptcy, declaring $390 million in assets and $693 billion in liabilities.
- The company operates medical centers mostly for elderly patients and was the exclusive value-based managed service organization across Steward Health Care’s Medicare network prior to Steward declaring bankruptcy in May. In court filings, CareMax said broad industry headwinds, unaffordable leases and Steward’s implosion contributed to its bankruptcy filing.
- To generate liquidity, CareMax will sell its managed services organization business to private equity-owned Revere Medical, formerly known as Rural Healthcare Group, which purchased Stewardship Health last month.
Dive Insight:
CareMax has been losing money for several years, according to a statement from Paul Rundell, CareMax’s chief restructuring officer, filed in the U.S. Bankruptcy Court for the Northern District of Texas.
The company recorded a net loss of $37.8 million in 2022, which ballooned to a net loss of $683.3 million at the close of 2023.
By the petition date, CareMax carried $11 million in cash on hand — well below sufficient reserves to fund day-to-day operations, according to Rundell — and approximately $422.6 million in total funded debt obligations.
Several factors contributed to CareMax’s financial hardships, according to Rundell, including high labor costs, lags in reimbursement time and inflationary conditions. However, he said Steward Health Care’s bankruptcy filing this spring ultimately posed an “existential threat” to the health of the business.
CareMax, which employs 1,100 employees and serves approximately 260,000 patients annually across 46 clinical centers, became tied to Steward in 2022 when it purchased the provider’s Medicare value-based care business for approximately $135 million.
Following the acquisition, former Steward CEO Ralph de la Torre took a 15% stake in CareMax and the company became the exclusive Medicare managed service organization to Stewardship Health, Steward’s physician network.
De la Torre stepped down from his post at Steward in September amid contempt of Congress charges and international scrutiny over his business practices in Malta. However, de la Torre still sits on CareMax’s board of directors, according to the company website.
Steward’s financial and operational distress caused direct challenges to CareMax’s profitability, according to court filings. CareMax sought a buyer for its MSO business in January and intensified efforts to make a sale when Steward rejected its contract with CareMax during its own bankruptcy proceeding in June.
Revere Medical, which is owned by private equity firm Kinderhook Industries, is set to buy CareMax’s MSO business for $10 million in cash, in addition to future payments. Kinderhook expects the deal to close in the first quarter of next year, pending approval from the bankruptcy court and regulators.
Revere last month closed a deal to acquire Stewardship Health, a physician network Steward sold through bankruptcy, which has ties with CareMax’s business.
CareMax is also seeking a buyer for its core business, which provides medical services for elderly patients. CareMax said it is near a deal with an unidentified buyer, however details were not disclosed.
Unsustainable rental agreements dragged clinic profitability in recent years, according to court filings. Like Steward, CareMax leases a large portfolio of properties. CareMax pays approximately $2.2 million in rent per month and is on the hook for approximately $254.1 million more through 2043.
The company is hoping to divest from certain markets and cut rents to approximately $1 million.
The filing is the latest example of healthcare bankruptcies tied to private equity. Over 20% of healthcare companies that filed for federal bankruptcy protections last year had private equity owners, according to a study from watchdog group the Private Equity Stakeholder Project.
Private equity-backed companies typically carry higher levels of debt, leaving them more vulnerable to market forces, Eileen O’Grady, healthcare director at the PESP, told Healthcare Dive this spring.
Lawmakers have begun to take notice of the potentially poisonous relationship between private equity and healthcare companies. Several states, including Pennsylvania and Massachusetts, have advanced legislation that aims to increase transparency around company funding during the merger and acquisition process so that regulators can safeguard against deals that involve for-profit entities, including PE firms and real estate investment trusts.
Correction: In a previous version of this article, CareMax's landlord was misidentified.
