CareMax, a Miami-based provider of medical services primarily for the elderly, filed for Chapter 11 bankruptcy on Sunday. The company listed $390 million in assets and a staggering $693 billion in liabilities. This article delves into the factors leading to CareMax’s bankruptcy, focusing on the impact of Steward Health Care’s financial troubles.
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CareMax attributed its bankruptcy filing to several key factors, including industry-wide challenges, unsustainable lease agreements, and the significant impact of Steward Health Care’s bankruptcy in May. CareMax was the exclusive value-based managed service organization (MSO) for Steward’s Medicare network. Court filings reveal that Steward’s financial collapse posed an “existential threat” to CareMax.
CareMax’s Financial Struggles and Steward’s Downfall
CareMax has been experiencing financial losses for several years. In 2022, the company reported a net loss of $37.8 million, which dramatically increased to $683.3 million by the end of 2023. As of the bankruptcy filing, CareMax had only $11 million in cash on hand, insufficient to cover daily operational costs, and approximately $422.6 million in total debt.
Contributing factors to CareMax’s financial difficulties include escalating labor costs, delays in reimbursement, and inflationary pressures. However, the company emphasized that Steward Health Care’s bankruptcy filing in the spring was the decisive blow.
CareMax’s ties to Steward began in 2022 with a $135 million acquisition of Steward’s Medicare value-based care business. This deal made CareMax the exclusive Medicare MSO for Steward’s physician network, Stewardship Health. Following the acquisition, former Steward CEO Ralph de la Torre acquired a 15% stake in CareMax and joined its board of directors.
Steward’s subsequent financial distress and operational challenges directly impacted CareMax’s profitability. Steward’s rejection of its contract with CareMax during its bankruptcy proceedings further exacerbated the situation.
CareMax Seeks Buyers for its Business Segments
To generate liquidity, CareMax plans to sell its MSO business to Revere Medical (formerly Rural Healthcare Group), a private equity-owned company that recently acquired Stewardship Health from Steward’s bankruptcy proceedings. The deal, valued at $10 million in cash plus future payments, is expected to close in the first quarter of 2025, pending regulatory and court approvals.
CareMax is also actively seeking a buyer for its core business of providing medical services to elderly patients, and reports being close to a deal with an undisclosed buyer. High rental costs for its clinic locations have significantly hampered profitability. CareMax aims to divest from certain markets and reduce its monthly rent from $2.2 million to approximately $1 million.
Private Equity’s Role in Healthcare Bankruptcies
CareMax’s bankruptcy filing highlights the growing trend of private equity-backed healthcare companies facing financial distress. The high debt levels often associated with private equity ownership can leave these companies vulnerable to market fluctuations. This case underscores the need for greater transparency in healthcare mergers and acquisitions involving for-profit entities to protect against financially unsustainable deals.
