Major US Health Network Files for Bankruptcy

A person arrives at the U.S. District Bankruptcy Court for the Southern District of New York in Manhattan on Jan. 9, 2020. Brendan McDermid/Reuters

Miami, Florida-based CareMax health care network filed for bankruptcy on Sunday after reportedly being unable to pay back loans amid rising interest rates and other inflationary pressures.

CareMax filed its Chapter 11 petition in the U.S. Bankruptcy Court for the Northern District of Texas. The company listed assets in a range of $100 million to $500 million, liabilities between $500 million and $1 billion, and the number of creditors between 5,001 and 10,000.

Founded in 2011, CareMax has two primary business lines: a management services organization and clinical care centers. The health system operates 46 clinical centers, out of which 40 are in Florida, with the remaining in Texas, Louisiana, and other states. It employs around 1,100 workers and serves roughly 260,000 patients annually.

The company faced a “substantial increase in the cost of doing business, which outpaced revenue growth,” according to a filing made by CareMax chief restructuring officer Paul Rundell.

The health system had funded its growth spree by taking out loans. The company started facing “increased costs, which were compounded by rising interest rates and corresponding increased debt service payments,” the report said. This made it difficult for the system to remain in compliance with certain provisions of the loans.

At the same time, the company’s net losses also increased. Industry-wide headwinds drove down profitability. Changes in reimbursement rates from the Center for Medicare and Medicaid Services cut down revenues while inflation kept pushing up labor and other costs, the company said.

CareMax has entered into an agreement with an affiliate of Tennessee-based Revere Medical to sell a part of its management services organization (MSO) that supports care provided to roughly 80,000 Medicare beneficiaries, according to a Nov. 17 statement. The MSO handles the nonmedical work side of a medical practice.

CareMax is in the process of finalizing an agreement with another buyer to sell its operating clinic business. Details of the proposed terms and the buyer will be announced in the coming days after finalizing the deal.

The company has entered into a restructuring support agreement with lenders who hold 100 percent of the company’s secured debt obligations.

Lenders will provide $30.5 million to CareMax to support its operations during the restructuring process. The network said it expects the sales transactions to be completed by early 2025.

“After a careful review of the company’s strategic alternatives, we have determined that the transactions announced today are our best opportunity to protect the long-term value of the CareMax assets and ensure our patients, providers, and health plans can continue to rely on the comprehensive, coordinated care we provide,” CareMax CEO Carlos de Solo said.

Health Care Bankruptcies

Multiple hospitals have filed for bankruptcy over the past year. Last month, Clinical Care Medical Centers filed for Chapter 11 after facing “hurdles resulting from industry and regulatory headwinds.” The company had highly leveraged balance sheets and faced liquidity challenges as well.

Steward Health Care System, the largest physician-led hospital operator in the United States, made its bankruptcy filing back in May.

The system was facing “challenges created by insufficient reimbursement by government payors as a result of decreasing reimbursement rates.”

In addition, it was burdened by “skyrocketing labor costs, increased material and operational costs due to inflation, and the continued impacts of the COVID-19 pandemic,” Steward said at the time.

In 2023, there were 79 health care bankruptcies in the United States, the highest in the previous five years, according to Gibbins Advisors.

The team expects 58 such filings to take place this year, which would be an annual decline of 27 percent, according to an August report.

However, Gibbins pointed out that the lower numbers do not mean the financial challenges in the sector have eased.

“The trend of lower bankruptcy volumes is not resonating with the amount of financial distress we are seeing in our practice,” said Clare Moylan, principal at Gibbins Advisors.

“A possible reason could be financial restructuring taking place out of court rather than in bankruptcy. We wouldn’t be surprised if the case volumes increased from current levels as the year progresses.”