The Decline of Private Medicare: A Case Study of Cano Health

Private Medicare, once a lucrative sector in the healthcare industry, is facing new challenges, as exemplified by the case of Cano Health. The primary care provider's bankruptcy and operational changes raise concerns about the future profitability of Medicare Advantage. Is this an isolated incident, or a harbinger of shifts in the healthcare landscape? Let’s delve into the issue.

The Fall of Cano Health

The rapid growth of Cano Health, culminating in its 2021 IPO, resulted in nearly $1 billion in debt. Mismanagement, aggressive expansion, and poor market selection were cited as key factors contributing to the company’s financial downfall. Bankruptcy followed, with three board members resigning in protest of the governance strategy, and CEO Marlow Hernandez stepping down in June. The company's stock price plummeted over 90% from its debut, reflecting the market’s reaction to these internal troubles.

Despite these setbacks, Cano Health has secured a Restructuring Support Agreement with its lenders, which 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. The company has initiated voluntary Chapter 11 proceedings in the U.S. Bankruptcy Court for the District of Delaware and has received a commitment for $150 million in new debtor-in-possession financing. This restructuring process is expected to conclude in the second quarter of 2024.

Challenges in the Medicare Advantage Sector

Cano Health’s downfall has been linked to broader issues plaguing the Medicare Advantage sector. Criticism has arisen over the gaming of the system by private insurers running these plans. In response, the Biden administration is introducing a new payment model designed to reduce overpayment, potentially impacting the profitability of Medicare Advantage further.

The Impact of New Medicare Rules

The Centers for Medicare & Medicaid Services (CMS) has introduced a significant change in coverage criteria for private Medicare plans, through the introduction of the 'two-midnight' rule. This rule requires private Medicare plans to cover members’ hospitalizations at a higher inpatient rate if their doctors predict they’ll need to stay beyond two midnights. This change has the potential to impact the finances of hospitals and health insurers, potentially leading to financial difficulties, closures, and profit reductions.

However, patients enrolled in Medicare Advantage plans could potentially reap significant benefits, including better access to care and smaller out-of-pocket costs post-hospitalization. Further proposals aimed at improving the Medicare Advantage program are on the horizon, such as adding transparency to the prior authorization system and potentially reducing the Medicare Advantage base payment rate.

Looking Forward

Healthcare firm bankruptcies have been on the rise, and the COVID-19 pandemic has posed significant challenges to the industry, leading to layoffs, organizational changes, and public clashes with directors. The case of Cano Health serves as a stark reminder of the volatility and unpredictability of the healthcare industry. Both providers and patients need to be prepared for potential changes and challenges in the landscape of healthcare. As the industry adapts to these new rules and market conditions, the future of private Medicare plans could see substantial shifts.