Prison health care provider declares bankruptcy; suits held

Corizon Health, once one of the largest prison health care companies in the United States, has declared bankruptcy, leaving malpractice claims in Arizona and other states on hold and denying currently and formerly incarcerated people the justice they seek.

The bankruptcy filing also potentially could saddle taxpayers in Arizona and other states that hired Corizon with an additional financial burden years after their contracts expired.

Corizon ran prison health care in Arizona for six years from 2013 to 2019, generating claims of inadequate and unconstitutional care that are still being litigated today.

According to court filings in the Texas Southern Bankruptcy Court, Corizon, which is now called Tehum Care Services, declared Chapter 11 bankruptcy Monday.

Filing for bankruptcy triggers an automatic stay, immediately halting legal action against the company.

Nearly 200 civil cases were filed in Maricopa County Superior Court alone against Corizon from 2014 to 2021. In U.S. District Court for Arizona, more than 40 open civil cases list Corizon as a named defendant.

Corizon’s bankruptcy filing indicates the company has between 200 and 999 creditors, estimated assets of $1 million to $10 million, and estimated liabilities of $10 million to $50 million.

Lauralee Medley is suing Corizon in civil court in Maricopa County over what she said were improper body cavity searches performed by medical staff while she was incarcerated at the Perryville prison in 2019.

She was nearing the end of the trial last week in Phoenix when she said she received a phone call from the court saying a mistrial had been declared in response to the filing.

Medley said she had testified, presented evidence and believed she had a chance at winning over the jury and potentially getting a payment for damages she said she suffered.

But now, she said, Corizon has used the legal system to evade accountability.

“Corizon is playing a shell game, so they can get out of their debts,” Medley said.

What Medley and other litigants are referring to are the complex business maneuvers Corizon has completed in recent years in an effort to restructure the company.

Often referred to as a “Texas twostep,” Corizon in 2022 took advantage of laws in Texas that allow the company to split into two corporations through a divisional merger.

The company then divided its assets and liabilities between Corizon and a newly created corporation called CHS Texas.

A U.S. appeals court recently denied Johnson & Johnson’s attempts to perform the “two-step” to consolidate lawsuits against one of its products.

Writing in an order in a lawsuit filed against Corizon in Michigan, United States Magistrate Judge Patricia Morris said the divisional merger allocated the bulk of Corizon’s current contracts, employees, cash and equipment to CHS Texas, while “Corizon retained all of its expired contracts and their liabilities.”

CHS Texas was then acquired by a corporation called YesCare, and CHS began operating under its new parent company’s name. Corizon then changed its name to Tehum Care Services before declaring bankruptcy this week.

Laura Coordes, associate dean of faculty at Arizona State University’s Sandra Day O’Connor College of Law, said the purpose of bankruptcy, or Chapter 11 reorganization, is twofold.

“First, it’s going to halt all litigation against the company, and all claims against the company, to give it breathing space to assess its situation,” Coordes said. “And then using that breathing space, the company puts together a plan to reorganize, and to address its next steps, pay its creditors, and, ideally, emerge stronger financially.”

However, Coordes said in recent years, companies have been using more creative tactics like the “two-step,” which detractors call a bad faith use of the bankruptcy system.

“There’s a lot of debate about it,” Coordes said. “There are folks in the camp who say it’s fine, and there are others who think it’s really problematic.”

A representative for YesCare said the company is a completely separate legal and financial entity from Corizon Health and declined to comment on the bankruptcy. An attorney for Corizon Health listed in the bankruptcy filing did not respond to a request for comment.

According to court filings, Corizon has lost more than 20 contracts with states and counties in recent years, including the Michigan and Missouri departments of corrections.

Ian Townsend Cross, an attorney for the plaintiff in the Michigan case, said his review of the company found that most of its liabilities are from expired contracts, tort claims, wrongful death lawsuits, and debts owed to hospital systems and services providers that had gone unpaid.

Cross’ client, a formerly incarcerated man named William Kelly, alleges Corizon failed to diagnose and treat his kidney cancer in a timely fashion while it was the medical contractor in the Michigan Department of Corrections.

Cross’ firm, Margolis and Cross, filed suit against Corizon and several of its employees alleging medical malpractice and deliberate indifference in violation of the Eighth Amendment. For now, the case is in limbo. But Cross said the bankruptcy doesn’t just harm personal injury plaintiffs.

“It’s also about psychiatrists who provided services to the incarcerated population, optometrists, and a host of other people who have not been paid for their services,” Cross said.

While Corizon had the Arizona contract, its non-payment of community health care partners damaged its ability to schedule specialty care appointments for incarcerated people. The company owed one hospital in Gilbert more than $1 million for over a year in 2017, forcing the hospital administrators to beg for payment.

In a subsequent Corizon bankruptcy court filing in Missouri this week, the University of Missouri Health Care system alleges Corizon owes it more than $12 million in reimbursement payments.

Cross said he is assessing options on how to move forward, but the development could potentially trap his client and others in bankruptcy proceedings with a company that doesn’t have enough assets pay them.

The judge in the Michigan case ruled to allow Cross’ team to add CHS Texas as a defendant but declined the team’s request to add YesCare as well.

Corizon has a long history of legal problems wherever it has provided health care for incarcerated populations. The company was the defendant in scores of lawsuits during and after its time running the Arizona prison health care contract.

Attorney Anne Findling with the Phoenix law firm Robbins and Curtin has sued the company several times on behalf of incarcerated medical patients and their families. She received notice this week that two prisoner death cases she is currently litigating had been put on hold because of the bankruptcy filing. Both cases were set for trial.

“It’s in their interest to extend this forever,” Findling said of Corizon’s tactics to put debt payments on hold. “And in the meantime, all these folks who have lost their loved ones are left without any justice.”

Findling said they will try to get relief from the bankruptcy court to proceed with the wrongful death suits, but she fears there may not be many resources left from which to seek damages.

Findling said in cases where Arizona or the Arizona Department of Corrections is a co-defendant with Corizon, it may be that taxpayers end up on the hook for some of the judgments that otherwise could have been brought against Corizon.

“Because it was the state who decided to contract with these folks,” Findling said. “But ultimately, the state may be held liable, now that Corizon is insolvent.”

Arizona’s decision to move to privatized prison health care was partially driven by the appeal of having contractors that could indemnify the state for legal liabilities. Ironically, one of the 20 largest debts Corizon listed in the bankruptcy filing is more than $2.6 million owed to the Arizona Department of Corrections for “Indemnification.”

“The Department learned of Corizon’s bankruptcy filing on Feb. 14 and are awaiting further details and information. Given the litigation is still pending, we do not have further comment at this time,” the Arizona Department of Corrections said in a prepared statement.