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Cano Health's fall from grace

Illustration of a wall of cracks with bandaid-shaped red crosses

Illustration: Sarah Grillo/Axios

Troubled primary care provider Cano may have a difficult restructuring road, given reimbursement headwinds in Medicare Advantage.

Why it matters: CMS payment pressures could mean turbulence for other investor-backed primary care companies laden with debt.

Catch up quick: The Miami-based company filed for Chapter 11 bankruptcy late Sunday. The next day, Nasdaq said it would start the process to delist Cano.

  • Cano is working with investment bank Houlihan Lokey, as well as financial adviser AlixPartners and lawyer Weil, Gotshal & Manges, on its restructuring.

What's happening: Cano has seen a steady erosion of its stock since its $4.4 billion SPAC deal with Jaws Acquisition Corp. in 2021.

  • In the last few years, Cano has executed a spate of acquisitions that weren't properly integrated, the source says.
  • Cano has been breaking up its business since last year, and its stock is trading at 65 cents a share as of this morning.

Zoom in: Per CEO Mark Kent in his first day declaration, Cano pursued an "aggressive" acquisition strategy that failed to realize "material synergies" while experiencing sustained operational efficiencies.

  • Kent cited regulatory and industry headwinds, as well as increased Medicare Advantage competition.

The big picture: The groundswell of excitement around primary care investments, buoyed by big-ticket buys from Amazon and CVS in the last two years, has slowed considerably.

  • New Medicare Advantage payment rules from CMS, designed to rein in overpayments to MA plans, is expected to significantly impact revenues and margins.
  • "Private equity has disappeared from this space for now," an industry banker says.

What we're watching: TA Associates, Sun Capital and Arsenal have Medicare Advantaged-focused primary care portfolio companies — all acquired during a sunnier time for such investments.

  • Sun Capital bought Miami Beach Medical Group for a reported $500 million-plus in 2020.
  • TA Associates snapped up InHealth MD Alliance in 2019, and Arsenal acquired Best Value Healthcare in 2020, for undisclosed prices.
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