News roundup: Cano Health files Ch. 11 bankruptcy, delisted (updated), Walgreens lays off more, Allina Health outsources 2,000 RCM jobs to Optum

February 6, 2024 | by

Cano Health’s telenovela moved to a Delaware court, where it filed for Chapter 11 bankruptcy. This prearranged voluntary Chapter 11 was filed on Sunday 4 February in the US Bankruptcy Court for the District of Delaware. Based on this Editor’s reading of their release, it’s a prepackaged reorganization of this beleaguered primary care provider. It also promises an exit by Q2 2024. It features several parts that have to be approved by the Court in short order:

  • A Restructuring Support Agreement (the “RSA”) with major lenders (the “Ad Hoc Lender Group”). They hold approximately 86% of Cano’s secured revolving and term loan debt and 92% of its senior unsecured notes. The RSA provides for the conversion of nearly $1 billion in secured debt to a combination of new debt and full equity ownership in the reorganized company. (See below as to what that means for Class A shareholders.)
  • Securing liquidity via a commitment for $150 million in new debtor-in-possession financing from certain of its existing secured lenders. 

In addition, Cano itemized several ‘first day’ motions to ensure continuity of operations–these also have to be approved by the Court: 

  • Paying associate wages, including for its doctors and nurses, without interruption
  • Continuing operations and honoring obligations to its affiliate physician groups
  • Ensuring patients at its clinics continue to receive quality value-based healthcare
  • Seeking authority to pay the existing pre-petition claims of certain vendors that are critical to the health and safety of Cano Health’s patients and critical to the operation of the Company’s medical centers.
  • Cano has authority to continue making ordinary course payments for all authorized goods and services provided on or after the filing date.

Earlier actions by their CEO laid groundwork for this reorganization through selling off operations and divesting staff. In September, they sold their Texas and Nevada operations to CenterWell Senior Primary Care, a unit of Humana, for $66.7 million, and exited California, New Mexico and Illinois late last year, with Puerto Rico winding up this quarter. Cano also cut 21% of staff (842 people) by November .

No comfort for their common Class A shareholders, though. Shareholders approved a 1 share for 100 reverse share split to buoy price last December, though the NYSE had notified Cano on 29 December of delisting based on their market capitalization not meeting their standards. Cano’s shares stopped trading as of last Friday at $2.30. What is usual, and signaled by the RSA conversion, is that common shareholders–probably including the infamous Cano 3 who owned about 35% of the shares–will receive bupkis, nada, zip, zero in the reorganization.

Update: The NYSE delisted Cano Health’s (CANO) stock late on Monday, citing the RSA conversion. Press release, Healthcare Dive.  The Class A shares are now listed OTC (the ‘pink sheets’) under CANOQ at $0.70. Shareholders are wholesale unloading with the day’s volume over 580,000 compared to the previous average of 340,000 shares.

Cano remains for sale during this process according to the release.

Here’s the 36-page filing, courtesy of Industry Dive. Healthcare Dive. FierceHealthcare dubbed this a ‘spectacular collapse’ (which it isn’t–that was Babylon Health) but includes some speculation from Ari Gottlieb, a principal at A2 Strategy Group whom this Editor has quoted before, that since Humana has a stake in and partnered with Cano, they should simply pick up what’s left. However, Humana may not be in a cash position to do so, given its recent losses in its Medicare Advantage business that also helped to sink Cano (partly paywalled). The local take in the Sun-Sentinel.

Less drastic but equally, more signs of the times:

Walgreens laid off 145 more staff, primarily in corporate. This follows on November’s 5% corporate layoff. No WARN notices have been filed and all are mum on what areas or states are affected. Nor is there any confirmation that this will be the end. Speculation is that more store closings are in the offing and once leaned down, Walgreens Boots Alliance will be sold off or parted out, with Shields Health Solutions perhaps the first on the block [TTA 25 Jan]. Healthcare Dive, Becker’s

Allina Health, a 10-hospital non-profit health system based in Minneapolis, Minnesota, is outsourcing 2,000 IT and revenue cycle management jobs to Optum. Happily, this is being done as a transition on 5 May from Allina to Optum with no layoffs or shift in workplace, as of this time. Rationale given is to trim needed expenses and ‘deliver on emerging spaces’, whatever that means.   Star-Tribune

*Updated for Cano Health delisting and additional information on Walgreens’ layoffs.

Cano Health appoints interim CEO as permanent; founder Hernandez steps down from board

August 22, 2023 | by

Cano Health made the obvious, and perhaps the only, choice. Interim chief executive officer Mark Kent was  appointed both as permanent CEO and joined the company’s board of directors. Founder Dr. Marlow Hernandez, the founding and former CEO up to 16 June when Mr. Kent was appointed, immediately stepped down from the board.

Mr. Kent has a strong background as an RN, as well as a senior executive in hospitals and as a founder of three startup healthcare management services organizations (MSOs) for Florida primary care providers in value-based care, most recently as CEO of Care Management Resources, Total Health Medical Group, and Your Partners In Health. Before then, he was a regional president of Humana. From his LinkedIn profile, he sounds like an accomplished and interesting executive. Another interesting facet: he runs investments for his Florida-based family office Kent Capital Investments which maintains investments in the above MSOs and others. Turning around a company staring at the abyss,  laying off 17% of staff and exiting states right and left in a restructuring, and successfully selling what’s left is another matter. It is not disclosed whether Kent Capital has an investment in Cano Health or if there are ties between the practices and Cano. The Care Management Resources website displayed on LinkedIn or in a routine search is not to be found.

The company release does not refer to any other members of the board, the Cano 3, or Dr. Hernandez’ future, though he is a shareholder. The Cano 3, who hold 35% of near-worthless shares in their collective portfolios (resigned directors Barry Sternlicht, Elliot Cooperstone, and Lewis Gold), remain silent. Healthcare Dive   Previous coverage of Cano Health: 15 August includes restructuring; 21 June

Cano Health at precipice of bankruptcy after disastrous Q2, lays off 700

August 15, 2023 | by

Primary care provider Cano Health may follow Babylon Health down the same drain. After announcing a horrible Q2 last week, Cano Health in its press release finally admitted that their “liquidity is not sufficient to cover the Company’s operating, investing, and financing uses for the next 12 months”. 700 people, or 17% of its current workforce, will be laid off during Q3 as part of restructuring.

Cano, or what will be left of it after the following, is officially up for sale either whole or partially, ASAP.

  • Cano will exit three states and one territory: California, New Mexico, and Illinois by the fall which presently have 5,000 members and 17 medical centers. Puerto Rico, with 8,000 members in an unenumerated number of affiliated practices, will wind up as of 1 January 2024. 40% of the layoffs they attribute to the exits, the rest to consolidation of and other downsizing of administrative operations.
  • Downsizing Texas and Nevada medical operations.
  • Massive restructuring in their core market of Florida.
  • Reducing their current 169 medical centers to 136 by the end of year
  • Their Q2 net loss was $270.7 million, adding on to Q1’s $60.6 million net loss [TTA 12 May]. This compares to prior year net loss of $14.6 million, an increase of over $256 million or over 1800 percent. This was attributed to lower Medicare Risk Adjustment (MRA) revenue and higher than expected medical expenses, along with adjustments and higher than forecast interest expenses.
  • Their adjusted EBITDA was equally dismal: $149.7 million, compared to $9.9 million profit in Q2 2022 and Q1’s $5 million,
  • Liquidity is $101 million as of 9 August–not enough to conduct business for 12 months (and an educated guess, to 31 December. Their line of credit (CS Revolving Line of Credit) is fully drawn while they engage in a rather complicated negotiation of something termed the “2023 Side-Car Amendment”. Supposedly this will be paid down ‘significantly’ by September. Despite this, here is the cautionary statement regarding the sale of the company or assets, which would not be in their release unless the company was truly in a deep hole indeed:

The Company has not set a timetable for the conclusion of this process and there is no assurance that the process will result in any transaction.  Cano Health does not intend to comment while it undergoes this process, unless required by law or the Company determines that it would be in its best interests.

Cano stock sank to the $0.40 to $0.45 range from a year ago in October of close to $10.

A stock commentator quoted in Becker’s (Seeking Alpha, paywalled) posits that any sale would be just about impossible without Chapter 11 bankruptcy. Logically, any investor would prefer to pick up assets at a fire sale without the encumbrances of a workforce, as brutal as that sounds. But the value of Cano is in its practices and workforce delivering primary care. Another wrinkle is that Cano is in current CMS agreements on Medicare Advantage and ACO REACH contracts that would have to be assumed. One would also assume that their search for a new CEO to replace interim Mark Kent is also on hold.

Not a peep yet from the Cano 3 (resigned directors Barry Sternlicht, Elliot Cooperstone, and Lewis Gold), but observers expect they will have something to say with 35% of near-worthless shares in their collective portfolios. Medical Economics, Reuters, FierceHealthcare, Healthcare Dive   Our prior coverage on CEO Marlow Hernandez’s ‘step down’ on 21 June has links to earlier stories.

This story is developing and will be updated.

Mid-week roundup: Colorado terms Friday Health Plans; Cano 3 continue to savage board; Amazon Pharmacy layoffs; hacking attacks: QuickBlox, Barts Health; Phreesia buys MediFind; financing pops for K Health, Amino

July 20, 2023 | by

Colorado liquidates, terminates insolvent insurtech Friday Health Plans. The Colorado Division of Insurance (DOI) had placed it into receivership in June after the company declared it would close, unable to find funds to operate its plans. On Monday, the DOI moved to liquidate its operations and terminate the plan effective 31 August. Their 30,000 policyholders on individual Affordable Care Act (ACA) exchange plans will be scrambling to find new coverage. In the receivership move, DOI had hoped that Friday had enough funds to keep the state plan solvent through end of year, but they did not. According to the Colorado Sun, Friday still owed unpaid Federal taxes as well as roughly $2 million in fee payments to the state’s insurance exchange, Connect for Health Colorado, which left the DOI without much hope. Friday had previously just about shut down its headquarters in Alamosa. This leaves not only 30,000 individuals scrambling, but also out eight months and perhaps thousands of dollars in deductibles as these plans tended to be high deductible. Colorado DOI opened a special enrollment period (SEP) for Friday policyholders and insurance brokers starting immediately through 31 October.  Providers are protected somewhat through the state’s Colorado Insurance Guaranty Association but many stopped taking Friday-covered patients last month. Friday’s crash-and-burn is the worst example of an insurtech’s demise to date and not promising for policyholders in other states such as Texas, Georgia, Oklahoma, and Nevada. Healthcare Dive

The Cano 3 attack in the continuation war with the Cano Health board. In the latest episode of this telenovela, resigned directors Barry Sternlicht, Elliot Cooperstone, and Lewis Gold, who among them have about 35% of the company’s shares, are still supporting interim CEO Mark Kent but pressing hard to oust three of the directors reelected at the last shareholder meeting, including Marlow Hernandez, the founder and former CEO. What’s new is that they have declared war on Sol Trujillo as chairman and Angel Morales as chair of the audit committee as allies of Dr. Hernandez. In addition to divesting five directors and the interim chief legal officer plus ending their high monthly equity awards, they support divesting non-core assets. Mark Kent will have to be Clark Kent ducking into the phone booth to succeed in this. Press release  Mr. Sternlicht cannot be in a good mood, as Starwood Capital Group is in default on a $212.5 million mortgage on an Atlanta office property, Tower Place 100, in the continuing souring of the commercial real estate market. Fortune

Amazon Pharmacy has laid off 80 employees, mostly pharmacy technicians and team leaders, in continuing cutbacks there. This is the former PillPack. One would think that it would be expanding based on the growing medical needs of One Medical and Amazon Clinic. About the latter which was to roll out nationally today but was questioned on data privacy grounds, as of today there is no update announcement. To date, Amazon has released an amazing 27,000 workers. Semafor, Becker’s

Cybersecurity also racked up some hacks in the past week or so:

  • A popular software framework used in telehealth and financial applications, QuickBlox, was found to have several critical security flaws. The QuickBlox SDK (Software Development Kit) and API (Application Programming Interface) that are used for developing chat and video applications had a vulnerability that led researchers to take over multiple accounts and compromise the user database and extract PHI. The vulnerability also permitted a hacker to impersonate a physician or patient and alter health records. This was reported by Team82 and Check Point Research (CPR) teams but have since been fixed. Blow-by-blow with screenshots in Cybersecuritynews and overview in Becker’s.
  • Barts Health NHS Trust was hacked by BlackCat, a/k/a ALPHV. What was stolen was about 70 terabytes of data, which BlackCat claims as the largest breach in UK medical history. ALPHV listed the stolen data, including employee identification documents, including passports and driver licenses, and internal emails labeled “confidential”, around 30 June. Barts runs five London-based hospitals and serves more than 2.5 million patients. The Barts Health hack adds to NHS misery with an earlier attack on a University of Manchester NHS dataset with information on 1.1 million patients across 200 hospitals. The same CLOP Russian ransomware gang that got Johns Hopkins [TTA 19 July] also got Ofcom, the UK’s communications regulator.  TechCrunch

Yes, there is good news in M&A and funding:

Phreesia is buying MediFind. No purchase price or management transition was disclosed. Phreesia is a patient intake platform that grew from a tablet used in practices for scheduling and patient check-in to a fully featured platform for workflow, claims, outreach and patient education. MediFind uses machine learning and analytics to connect patients with leading experts, clinical trials, health systems, and healthcare technologies. Phreesia is one of the few 2019 vintage IPOs to not crater–it’s trading on the NYSE at above $32 though as recently as end of 2021 its share price was double. Phreesia release.

K Health gained an unlettered venture round of $59 million from Cedars-Sinai, its new partner, plus current investors, including Valor Equity Partners, Mangrove Capital Partners, and Pico Venture Partners. This brings funding for this Israeli company to $330 million through a Series E. K Health’s platform uses a chat function that pre-screens patients with symptoms, uses AI to suggest possible diagnoses based on that person’s medical history, age, and gender, and will connect with a doctor or nurse if needed–which sounds somewhat like Babylon Health and Zipnosis. The chat can be used for primary care, some pediatric areas, urgent and chronic care management. K Health claims that 10 million individuals have interacted with K Health’s AI, and 3.1 million patients in 48 states have chatted with a doctor or nurse. FierceHealthcare

Amino, a navigation platform, received $42 million in credit financing from Oxford Finance. This was the final part of its $80 million venture raise in May. Amino connects physical and mental healthcare providers and benefits programs with members at self-insured employers and health plans, managed by third-party administrators, brokers, and human resources. Members access recommendations for providers and relevant benefits. Amino’s total funding is $125 million, mostly in venture rounds. Its last letter round was a Series C in 2017. It’s a busy sector with similar companies like Accolade, Rightway, and Transcarent.  Mobihealthnews

Mid-week update: Cano Health CEO finally booted, interim named; further information on Oracle Cerner layoffs

June 21, 2023 | by

Cano Health CEO Marlow Hernandez stepping down, but remains on Cano’s board of directors. It looks like Florida-based value-based primary care provider Cano Health is finally starting to clean up its act. The fallout from the long-delayed shareholder meeting taking place last Thursday (15 June) was that the Cano 3 (resigned directors Barry Sternlicht, Elliot Cooperstone, and Lewis Gold), finally got their way with ousting Hernandez. Mark Kent, who was named chief strategy officer in April, will be taking over as interim CEO while the board performs an external search. No time frame was specified.

Hernandez’s departure was not a surprise since Cano had a miserable Q1, with a $60.6 million net loss versus 2022’s barely-there $100,000. Their adjusted EBITDA was only $5 million, compared to $29.2 million in Q1 2022 [TTA 12 May]. Their new chairman of the board, Sol Trujillo, also has a background in turnarounds.

The Cano 3 own about 35% of the shares and one, Barry Sternlicht, invested at least $50 million in the cracked SPAC’s PIPE. They started to push for change back in April. Today (20 June), they issued a statement approving of Mark Kent’s interim appointment though they were not able to prevent the reelection of directors Alan Muney and Kim Rivera as they urged shareholders to do in a 15 June public statement. 

Despite the ouster, the Cano 3 still have plenty of disagreements with how the company is run, nailing these to the door in their 20 June statement responding to what they called an “Offensive Friday Afternoon “News Dump” Regarding its Leadership Transition”:

  • Per his employment agreement, Hernandez is required to step down as a board director now that he is no longer CEO. “Dr. Hernandez’s employment agreement plainly states that ‘the Executive shall be deemed to have resigned from all officer and board member positions that the Executive holds with the Company or any of its respective subsidiaries and affiliates upon the termination of the Executive’s employment for any reason.” They also cite a “history of insider dealings and fiduciary delinquency.”
  • They demand that directors Angel Morales, Dr. Alan Muney, Kim Rivera, and Solomon Trujillo resign immediately as “Dr. Hernandez’s enablers for far too long”. The board permitted the reelection of directors Muney and Rivera despite 82% of shareholders withholding their votes, citing Cano’s post-meeting statement. 
  • Shareholders now must entrust the selection of a new CEO to a board that is not reflective of the majority of shareholders who have lost over 90% of their share value, and not collaborating with the Cano 3 on reforming the board and a new direction of the company. “In fact, it rejected our Group’s two highly qualified director candidates and a proposal to collaborate on a credible refresh of the Board. We are left to question whether Dr. Hernandez and his boardroom allies are continuing to box us out because they are hiding something nefarious. If not, we urge the Board to immediately align with us on a path forward that includes the addition of our candidates – Guy Sansone and Joe Berardo, Jr. – and other essential changes to leadership and strategy.” Both Sansone and Berardo are very senior executives with long, successful records in leading healthcare services and startups.

(Cano Health shares closed at $1.42 today, a decent bump from their valley last week.) To be continued….  Healthcare Dive

Last Friday, TTA was one of the first to cover the Oracle Cerner layoffs (along with HIStalk) affecting the Cerner Federal teams. This week’s coverage elsewhere confirmed that the layoffs were a minimum of 500 to possibly 1,200, plus rescinded job offers and reduced open positions as this Editor saw from employees posting on the Reddit group. They–in particular, The Register (below), confirmed where this Editor would not go in cause-and-effect–that the layoffs were largely due to VA holding further implementations after multiple failures in the five VA systems where it was implemented between 2020 and 2022. The layoffs were also due to the Department of Defense (DoD) Military Health System (MHS) implementation as largely completed, although not glitch-free. It’s a clear cleanout of what Oracle perceives as a problem. 

Oracle did not respond to these publications’ requests for comments.

The new contract’s focus is to fix these five and implement a sixth (James Lovell in Chicago) which is joint with MHS by 2024. This has to be accomplished before implementation starts in the 160 remaining centers plus satellite medical clinics (CBOCs). VA has much leverage in the five one-year terms and the monetary penalty structure [TTA 18 May]. The pressure to perform for an awakened VA–and Congress–is going to be intense on those remaining, and whomever is shifted over from Oracle. This Editor also noted speculation that Oracle Cerner may start to wash its hands of the just-renewed VA EHR implementation by outsourcing most of it.  The Register, Becker’s, Healthcare Dive   TTA’s coverage of the Cerner/VA implementation here.