Stayin’ alive–or trying. Bright Health Texas plan seized for liquidation; Cano Health reverse splits, up for sale

Bright Health’s future continues to dim. Last week, the Texas Department of Insurance (DOI) filed notice in Travis County district court that Bright Health’s subsidiary, Bright Health Insurance Company of Texas as defendant, was financially insolvent and would be liquidated. The insolvency and receivership was declared on 29 November. Bright Health’s Texas assets could not cover liabilities plus a required surplus under law. The Commissioner of the DOI is responsible for the liquidation that was done with the consent of Bright Health as an agreed with the defendant order (PDF link here).

Bright Health had exited the Texas market, ending its ACA plans in July and an agreement with Molina Healthcare to serve Medicaid and ACA Marketplace populations in Florida and Texas starting in 2024, according to July reports [TTA 6 July]. Reading the order, Bright Health and all of its entities including NeueHealth are enjoined from any actions regarding Bright Health Texas.

Is there a bottom short of Chapter 7? Bright Health is not only in major debt, reportedly $500 million, to JP Morgan to pay off its credit facility, but also to the Center for Medicare and Medicaid Services (CMS) to cover risk liabilities from its discontinued ACA (Affordable Care Act-individual plan) insurance businesses. That liability is, according to reports, $380 million in risk-adjustment payments, including $89.6 million in Texas. In the puzzle palace scheme of ACA plans, this is designed to ‘even out’ the differential between higher and lower-risk members in an ACA market. This risk adjustment of nearly $90 million also affects the bottom line of other plans in Texas run by Centene, Molina, and BCBS Texas, as well as smaller local plans, as this payment is distributed to them. But from the liquidation order, no one can collect on this risk adjustment as an asset (see page 7 of the order).

The sale of California plans to Molina in July was estimated at $600 million, and that was contingent on Bright Health surviving into 2024. The value of the plans, with continued losses, is likely reduced as it’s six months later. It is not expected to close until Q1 2024. For the $380 million payment owed to CMS, Bright has entered an interest-only repayment agreement with them, a favorable but ‘skin of the teeth’ arrangement. The credit facility from New Enterprise Associates in August was only $60 million. But their adjusted EBITDA reported at that time for Q2 and H1 were actually in the black: $6.4 million for Q2 and $670,000 for H1. 

The big question to this Editor, as it was to analyst Ari Gottlieb, is how the $89.6 million, now enjoined in Texas, is not considered a default on the risk-adjustment payment agreement and is turned over to the Department of the Treasury for collection. Read Mr. Gottlieb’s POV here on LinkedIn. But this Editor has to hand it to Bright Health. They have done a masterful job of tying states, CMS, and even Molina into Gordian knots that buy time against what seems to be the inevitable.  Becker’s

Cano Health is also trying to stay alive until it gets sold. The board and shareholders on 2 November (release) accepted a 1 for 100 reverse share split, exchanging 100 old shares of Class A and B stock for one Class A share. This is to regain compliance with the New York Stock Exchange’s (NYSE) listing rules. Cano is currently trading at $8.95 (5 Dec @ 13.33pm).

As previously reported, Cano lost $497 million in Q3. Some results showed improvement, with capitated revenue of $770.3 million increasing 23% and 7% PMPM (per member per month) versus Q3 2022. Not good was the adjusted EBITDA of $(66.1) million in Q3 2023 coming in at $(84.3) million lower than Q3 2022 ($18.2 million) due to a higher medical cost ratio (MCR). Reading further into the release, liquidity appears to be low–$53 million, consisting of cash and cash equivalents (excluding restricted cash of approximately $34 million). They also have a revolving line of credit with Credit Suisse, but it is fully drawn. Cano projects operating performance improvement for Q4. It continues to sell assets, lay off staff, and is for sale as a company on what is left, which is their Florida-based clinic network. 9 Nov release

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