The primary care chain has been searching for ways to climb out of financial turmoil.
Cano Health has filed for Chapter 11 bankruptcy, reaching a decision that appeared inevitable after months of financial struggle.
The Miami-based provider, which offers value-based primary care to over 300,000 members, announced the filing is part of a restructuring support agreement with lenders holding approximately 86% of its secured revolving and term loan debt and 92% of its senior unsecured notes, allowing Cano to reduce its debt and potentially find an M&A partner.
To stay afloat during the restructuring, which the company expects to emerge from in the second quarter of this year, Cano has also received a commitment for $150 million in debtor-in-possession financing from some of its existing secured lenders. The liquidity funds are subject to court approval.
Through its recent moves, Cano said it expects to save approximately $290 million in costs by the end of 2024.
“By entering this court-supervised restructuring process, we are positioning the Company to achieve those goals on an accelerated basis and focus on what we do best – improving health outcomes for patients at a lower cost,” Cano CEO Mark Kent said in the news release. “I am confident we will emerge from this process a stronger organization with the necessary resources in place to continue delivering the quality of care our patients expect and deserve.”
Part of an industry trend
Cano is part of a recent bankruptcy surge in healthcare. According to a report by Gibbins Advisors, 2023 had the highest number of bankruptcy filings in the past five years with 79, which was more than three times the level recorded in 2021.
The past year featured 28 filings with liabilities over $100 million, compared to just seven in 2022 and eight in 2021.
Although the rise in bankruptcies in 2023 mainly affected the senior care and pharmaceutical subsectors, the factors that caused financial distress—capital market constraints, labor and supply cost pressures, and revenue—are also impacting the entire healthcare industry.
In the case of Cano, the company could not claw its way out of sizeable debt despite attempts to evolve. After being appointed CEO this past August, Kent narrowed the company's focus to its Medicare Advantage (MA) and ACO REACH business lines. However, Cano found MA to be less profitable than expected with adjustments made to the payment model and bonus program.
This problem isn't limited to Cano as all companies involved in MA are having tough sledding compared to previous years when MA was a cash cow ripe with overpayments.
In its filing with the Bankruptcy Court for the District of Delaware, Cano listed estimated assets and liabilities in the range of $1 billion to $10 billion.
It’s likely that the company will now look for strategic partners or buyers of all or some of its assets. That pursuit will be helped by Cano converting nearly $1 billion in secured debt to a combination of new debt and full equity ownership in the reorganized company through the restructuring agreement.
Cano has already been an active seller, divesting its Texas and Nevada primary care centers to Humana’s CenterWell Senior Primary Care business for nearly $67 million.
That sale was sandwiched between second and third-quarter earnings reports which saw the company experience net losses of $270.7 million and $491.7 million, respectively. Cano also cut 21% of its workforce in the third quarter of last year to create nearly $65 million in annualized cost reductions.
Editor’s note: This story has been updated on 2/6/2024.
Jay Asser is the contributing editor for strategy at HealthLeaders.
Cano Health filed for bankruptcy in the District of Delaware and entered into a restructuring support agreement to cut debt and receive funds for liquidity.
Cano is part of a surge in healthcare bankruptcies while its inability to turn its business around through Medicare Advantage is indicative of the private program's drop in profitability.
The move will enable Cano to potentially sell off parts or all of the company when it emerges from restructuring in the second quarter of this year.