YesCare, which offers healthcare services to inmates in nine U.S. states, has experienced an 80% decline in revenue after being ordered to pay $307.5 million in a jury verdict tied to allegations of inadequate medical treatment earlier this year, the company’s bankruptcy lawyers said on Monday.
According to YesCare attorney Jeremy Johnson, the ruling prompted prisons across the country to cancel their contracts with the company for outsourced healthcare services. Johnson made the remarks during YesCare’s first bankruptcy court hearing following its bankruptcy filing 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.
During the hearing, Jeremy Johnson rejected accusations that YesCare was following a previously unsuccessful bankruptcy strategy allegedly used by its owners to shield themselves from liability in medical malpractice lawsuits.
YesCare was created after its predecessor, Corizon Health, attempted to manage mounting lawsuits through a restructuring strategy known as the “Texas Two-step.” Under this process, Corizon divided into two separate companies YesCare and Tehum Care Services. YesCare assumed Corizon’s assets and prison healthcare contracts, while Tehum Care Services took on the company’s legal liabilities and malpractice lawsuits before filing for bankruptcy in Texas.
Creditors involved in Tehum’s bankruptcy case, including inmates who had filed malpractice claims against Corizon and YesCare, requested that Judge Rivera move the latest bankruptcy proceedings to Texas so the matter could be handled by a judge already familiar with the companies’ legal history. However, Rivera stated on Monday that he would not issue an immediate decision regarding the transfer request.
According to court documents, Tehum’s bankruptcy settlement gave plaintiffs the option to reject the agreement and continue pursuing legal action against YesCare. One of those plaintiffs later secured a $307.5 million jury verdict, a decision that ultimately pushed YesCare into bankruptcy.
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.
Jeremy Johnson said that YesCare currently provides medical care to around 20,000 patients every day across 19 correctional facilities in nine states. However, the company’s operations are changing quickly as it works to replace contracts that were terminated following recent legal challenges.
Johnson also revealed that YesCare owes approximately $20 million in secured debt to M2 LoanCo, along with another $95 million owed to unsecured creditors. In total, the company is facing at least $400 million in litigation-related liabilities, including the recent $307.5 million jury 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.
