YesCare Corp.'s announcement that it will wind down has reignited concerns over the private prison healthcare business model, fraught with tort risk that leaves companies vulnerable to insolvency.
The company’s bankruptcy is the second in three years for businesses built from the assets of Corizon Health Inc., once one of the largest for-profit providers in the sector. YesCare provided medical services to 20,000 incarcerated people daily before it missed payroll, lost contracts, and defaulted on a settlement, while only partially paying prior debts.
The company considered a potential restructuring when it filed for bankruptcy earlier this month, but its accumulating troubles and inability to line up new financing led it to declare on May 21 that it would be ceasing operations.
Defenders of correctional healthcare corporations say they face tort risks that other healthcare companies don’t. But the private equity-backed YesCare spent years winning big government contracts even as medical malpractice claims from prisoners mounted, said Bianca Tylek, executive director of Worth Rises, which advocates for incarcerated people. Courts should take notice, she said.
“It is a business model that is rife with sort of unethical behavior that is destined for bankruptcy courts—that actually relies on bankruptcy courts in order to continue,” Tylek said.
Industry Pattern
YesCare isn’t the only prison healthcare business to experience stress in recent years due to canceled contracts and personal injury claims.
Allison Day of Venable LLP represented the assignee that managed Armor Health Management LLC’s 2023 insolvency. The privately-owned provider operated in several states before losing most of its government contracts and accumulating $170 million in claims. Its assets were eventually sold to a company associated with its previous owners.
The success of such businesses in the industry depends on the quality of healthcare provided, and high numbers of complaints over poor care lead to lawsuits and governments refusing to renew contracts, Day said.
It’s telling that YesCare hasn’t been able to secure a bankruptcy loan, which demonstrates that lenders perceive the business as risky, she said.
“There’s a lot of money to be made on one hand,” Day said. “On the other hand, when you’re working in a health care system, especially with prisoners, you’re going to have an overwhelming amount of lawsuits.”
Wellpath Holdings Inc., another major for-profit correctional healthcare provider, reorganized in bankruptcy last year following failed efforts to address a nearing debt maturity wall.
Susanne Moore of Blackstone Trial Group PLLC said there will likely continue to be stress on the system until guardrails are placed on tort claims. Incarcerated patients can bring deliberate indifference claims in addition to standard medical malpractice claims that carry no caps on damages, no punitive award limits, and allows for the payment of adversary attorneys fees, she said.
Moore is a former executive of NaphCare Operating LLC, which recently took over a major YesCare contract.
“Because of the lay of the land in terms of the law for deliberate indifference for the incarcerated population, there’s a very large incentive for plaintiffs attorneys to seek these cases out and, if they prevail, it’s a very big reward for them,” Moore said.
But Sen. Elizabeth Warren (D-Mass.), said in a statement Friday that YesCare’s trajectory reflects deliberate choices. In February, she reintroduced legislation targeting exploitative private equity practices in healthcare.
“The closer you look, the more you can see that this trail of devastation is all part of the company’s playbook,” Warren said.
Corizon to YesCare
Former affiliate Tehum Care Services Inc. was created through the Texas Two-Step maneuver meant to shed hundreds of millions of dollars in medical malpractice claims from Corizon. It filed for bankruptcy in 2023. Insiders like YesCare and its sole board member Isaac Lefkowitz promised $75 million to pay tort victims and other expenses. They defaulted on those payments earlier this year.
YesCare’s May 8 bankruptcy in Florida came after a $307.6 million jury verdict in Michigan, the loss of a $1 billion Alabama contract, and $9.7 million in unpaid wages for 1,500 healthcare workers.
Christopher Hampson, a University of Florida law professor, said for-profit correctional healthcare companies’ model can make healthcare providers uncomfortable as they try to avoid malpractice while operating under tight financial constraints, he said.
YesCare’s bankruptcy raises questions about how much profit beneficial owners took out of the businesses, Hampson said. If YesCare can’t meet its obligations, then arguably those distributions were unlawful or fraudulent transfers, he said.
“That’s one of the things that I hope that the bankruptcy will uncover—is what sorts of distributions went to shareholders in the last couple of years and can those distributions be clawed back,” Hampson said.
Inside the Case
YesCare’s legal adversaries are on high alert in its second insolvency. They’ve said cash it’s using to fund operations is controlled by insider lender M2 LoanCo LLC, which creditors say is affiliated with Lefkowitz. Only $50,000 has been allocated for a creditors’ committee, they say, which would be tasked with pursuing potential legal actions to boost creditor proceeds.
John Anthony, an attorney representing a tort claimant who won the $307.5 million judgment against YesCare, said he sees parallels between the for-profit prison healthcare business model and the for-profit nursing home industry where a captive population depends on a private company for medical care funded by public contracts.
In both, the structure rewards cost-cutting, Anthony said. Those business models undercut companies that deliver adequate care because they have to compete against those that “institutionalize substandard care, and periodically pass their assets through bankruptcy as part of the economic cycle, with the owners unimpaired except for the legal expense,” he said in an email.
“For so long as it is possible for a private owner of a healthcare firm to orchestrate a ‘Texas two-step’ and/or ‘rinse and repeat chapter 11,’ the good guys in this industry will suffer,” Anthony said, “and the patients, residents, and inmates will suffer much worse.”