High stakes in Corizon/YesCare bankruptcy decision

Private equity-backed prison healthcare contractor YesCare (formerly Corizon Health) is trying to complete a process which would allow the company to shed millions of dollars in legal and financial liabilities.

If allowed to succeed, YesCare will be an example for other private equity-owned companies and their owners on how to accumulate and then evade liability. The move has been opposed by tort claimants against the company, civil rights organizations, multiple U.S. senators, and a federal watchdog.

For more than a year, YesCare has been in bankruptcy proceedings related to its use of a controversial process known as the Texas Two-Step, in which a company divides into multiple entities and places its liabilities into a shell company, which later declares bankruptcy.[1]

See our October 2023 report: “YesCare Dodges Liability for Prison Conditions: Merger, Division, and Bankruptcy”

YesCare has been owned by private equity firms for about 17 years. It was owned by private equity firm BPOC from 2007 to 2017.[2] In 2017, BlueMountain Capital Management became the company’s largest shareholder.[3] In June 2020 investment firm Flacks Group bought YesCare to become its sole owner.[4] As of March 2024, the company is owned by private equity investor Perigrove Capital.[5]

Beginning in May 2022, Corizon Health took a series of steps to restructure and divide itself in two, becoming Tehum Care Partners, a shell company laden with Corizon’s debts and liabilities, and YesCare, which got all of Corizon’s active corrections contracts.[6] In February 2023 Tehum declared bankruptcy, putting claims against the company on hold.[7]

The company’s liabilities are large and widespread. It has been estimated to owe more than $82 million to more than 1,000 creditors including former patients, employees, and vendors. At least 100 people have had holds placed on lawsuits alleging Corizon relating to poor healthcare, including allegations of negligence or worse – including one claim from a patient who says his medical care was so poor that he went blind in one eye.[8]

YesCare has attempted a legal strategy that would benefit it immensely if it succeeds – while covering a only fraction of malpractice claims asserted by patients. In October 2023, YesCare came to a $37 million agreement with a committee of creditors to resolve the shell company’s bankruptcy case. Under the proposed deal, more than 350 personal injury claims would have been resolved at estimated rates between 17% and 36%, and 175 claims from vendors resolved at estimated rates between 19% and 34%.[9]

The bankruptcy judge overseeing the case declined to approve the settlement, citing lack of information. The decision notably came after the settlement mediator’s resignation, following reports that he had been in a romantic relationship with an attorney representing YesCare.[10]

The bankruptcy case has garnered greater attention from lawmakers, civil rights organizations, and a federal watchdog.

In late October, nine U.S. senators wrote a letter to Corizon’s successor companies criticizing “attempts to circumvent these claims through the bankruptcy process,” requesting information on the new companies’ ownership structures, and demanding appropriate relief for plaintiffs’ claims against Corizon.[11]

Plaintiffs have brought the entire bankruptcy into question since the first mediator’s resignation. Tehum, the bankrupt YesCare shell company, received court approval to proceed with a new mediator in late November.[12] However, in January plaintiffs from the lawsuits against Corizon filed a motion asking the bankruptcy judge to toss the Corizon bankruptcy case.[13]

The motion to dismiss – filed by the official tort committee representing prisoners, former prisoners, and family members suing Corizon – alleges that the two-step scheme was “borne from a fraudulent transaction,” and that the shell company was “created to perpetrate an obvious fraud.”[14]

In late January, Senator Elizabeth Warren sent a letter urging the U.S. Justice Department to oppose the bankruptcy plan and consider joining the tort committee’s motion to dismiss.[15] “Corizon is misusing the bankruptcy system to evade accountability and block the company’s victims and their families from obtaining justice,” she said in an accompanying statement.[16]

The US Trustee, which acts as Justice Department’s bankruptcy watchdog, responded by urging for the dismissal of the bankruptcy.[17]

As of March 2024, the bankruptcy case is ongoing.[18]

Meanwhile, officials have continued discussion with the troubled company. In March, Maryland officials agreed to extend a contract with YesCare at least through the end of 2024, at a cost of $125 million.[19] In January, Massachusetts officials accepted bids from prison healthcare contractors for a contract to begin in June. Bids include YesCare and its biggest private equity-owned competitor Wellpath.  In a statement, U.S. Senator Elizabeth Warren emphasized deep concerns over YesCare and Wellpath in particular.[20]

The outcome in Corizon’s bankruptcy has significance beyond this one case. Wellpath has been private equity-owned since 2018 and has been subject to similar scrutiny for providing inadequate healthcare in prisons and jails.[21]

Corizon and its private equity owners must not be allowed to game the courts to evade liability. The bankruptcy should indeed be dismissed, and the tort claimants given just recovery.

[1] Nicole Einbinder and Dakin Campbell. “Hidden Investors Took over Corizon Health, a Leading Prison Healthcare Company. Then They Deployed the Texas Two-Step.” Business Insider, August 21, 2023. https://www.businessinsider.com/corizon-health-bankruptcy-yescare-texas-two-step-law-2023-8.

[2] Beecken Petty O’Keefe & Company. “Corizon Health | Portfolio | BPOC.” Accessed March 14, 2024. https://www.bpoc.com/portfolio/corizon-health.

[3] Geert De Lombaerde. “Corizon Lands $100M Investment.” Nashville Post, November 27, 2018. https://www.nashvillepost.com/corizon-lands-100m-investment/article_5705fbf4-4dc8-5947-9ee8-64147e7d1aeb.html.

[4] Matt Blois. “Investment Firm Acquires Corizon.” Nashville Post, June 30, 2020. https://www.nashvillepost.com/investment-firm-acquires-corizon/article_eeba5a0a-486c-5779-886c-2d50b1befc5a.html.

[5] Perigrove Capital. “Portfolio Companies.” Accessed March 14, 2024. https://www.perigrove.com/portfolio-companies/.

[6] Private Equity Stakeholder Project. “Private Equity-Owned YesCare Dodges Liability with ‘Get-out-of-Jail-Free Card,’” October 17, 2023. https://pestakeholder.org/news/private-equity-owned-yescare-dodges-liability-with-get-out-of-jail-free-card/.

[7] Jimmy Jenkins. “Prison Health Care Provider Declares Bankruptcy, Leaving Arizona Malpractice Claims on Hold.” USA TODAY, February 17, 2023. https://www.usatoday.com/story/news/local/arizona/2023/02/17/former-arizona-prison-health-care-provider-declares-bankruptcy-lawsuits-on-hold/69915763007/.

[8] Beth Schwartzapfel. “A Prison Medical Company Faced Lawsuits from Incarcerated People. Then It Went ‘Bankrupt.’” USA TODAY, September 19, 2023. https://www.usatoday.com/story/news/nation/2023/09/19/corizon-yescare-private-prison-healthcare-bankruptcy/70892593007/.

[9] Akiko Matsuda. “Prison Contractor YesCare in $37 Million Deal to End Texas Two-Step Bankruptcy.” Wall Street Journal, October 3, 2023. https://www.wsj.com/articles/prison-contractor-yescare-in-37-million-deal-to-end-texas-two-step-bankruptcy-73b58ca2.

[10] Akiko Matsuda. “Prison Health Contractor YesCare’s Bankrupt Affiliate Gets New Mediator.” Wall Street Journal, November 15, 2023. https://www.wsj.com/articles/prison-health-contractor-yescaresbankrupt-affiliategets-new-mediator-4cfa103e.

[11] Senators Warren, Durbin, Hirono, Merkley, Blumenthal, Wyden, Sanders, Welch, and Booker. “Letter Re Corizon Texas Two-Step,” October 24, 2023. https://www.warren.senate.gov/imo/media/doc/2023.10.24%20Letter%20re%20Corizon%20Texas%20Two-Step.pdf.

[12] Dietrich Knauth. “Prison Healthcare Company Restarts Mediation after Bankruptcy Judge Jones Quits.” Reuters, November 15, 2023. https://www.reuters.com/business/healthcare-pharmaceuticals/prison-healthcare-company-restarts-mediation-after-bankruptcy-judge-jones-quits-2023-11-15/.

[13] Dietrich Knauth. “Malpractice Plaintiffs Seek to End Prison Health Co. Bankruptcy.” Reuters, January 17, 2024. https://www.reuters.com/legal/government/malpractice-plaintiffs-seek-end-prison-health-co-bankruptcy-2024-01-17/.

[14] Official Committee of Tort Claimants and Certain Tort Claimants. “Motion for Structured Dismissal of Chapter 11 Case,” p. 2. In re Tehum Care Services, Debtor, January 16, 2024.

[15] Dakin Campbell and Nicole Einbinder. “Sen. Warren Asks Justice Department to Consider Nixing Corizon’s Bankruptcy.” Yahoo Finance, February 1, 2024. https://finance.yahoo.com/news/sen-warren-asks-justice-department-210601867.html.

[16] U.S. Senator Elizabeth Warren. “Warren Urges Justice Department Scrutiny of Corizon’s Bankruptcy System Abuse,” February 1, 2024. https://www.warren.senate.gov/oversight/letters/warren-urges-justice-department-scrutiny-of-corizons-bankruptcy-system-abuse.

[17] Dakin Campbell and Nicole Einbinder. “Justice Department calls for dismissal of the Corizon bankruptcy,” Business Insider. Fbruary 25, 2024.  https://finance.yahoo.com/news/justice-department-calls-dismissal-corizon-231837464.html

[18] Akiko Matsuda, “Judge in Prison Healthcare Contractor’s Bankruptcy Intends to Keep Narrow Focus,” Wall Street Journal, March 4, 2024. https://www.wsj.com/articles/judge-in-prison-healthcare-contractors-bankruptcy-intends-to-keep-narrow-focus-d9f2de24

[19] Pamela Wood. “Maryland Extends Contract with ‘Uniquely Terrible’ Prison Health Provider.” The Baltimore Banner, March 13, 2024. https://www.thebaltimorebanner.com/politics-power/state-government/maryland-yescare-extension-QTO6FYX5AVBN3HVKBD7CFYWG4E/.

[20] Adam Piore. “Warren Raises Concerns as State Considers Prison Healthcare Bids.” Boston Globe, February 14, 2024. https://www.bostonglobe.com/2024/02/14/metro/prison-health-care-massachusetts-wellpath-yescare/.

[21] Senators Warren, Durbin, Ossoff, Markey, Warnock, Butler, Welch, Merkley, Blumenthal, Sanders, Hirono, and Booker. “Wellpath Letter,” December 18, 2023. https://www.warren.senate.gov/imo/media/doc/2023.12.18%20Wellpath%20letter1.pdf.