Adria Malcolm for Business Insider
- Sen. Elizabeth Warren has criticized Corizon successor company YesCare for its opaque corporate structure.
- Newly obtained documents show YesCare agreed to send millions of dollars to companies controlled by insiders.
- Experts say the "unusual" corporate structure appears designed to divert profits and evade accountability.
One of the nation's largest providers of healthcare to prisoners was set up as an elaborate corporate shell game, according to newly unsealed and previously unreported court records. Experts said the highly unusual structure appears to have been designed to siphon off profits to opaque investors and evade accountability over allegations of substandard healthcare.
Many of those records, part of a lawsuit filed by a Missouri hospital system that had sued Corizon Health over $12 million in unpaid hospital bills, were unsealed after a months-long legal battle by Business Insider. They show that YesCorp, a Corizon successor company that took over Corizon's active contracts with jails and prison systems, was secretly controlled by an obscure management company linked to insiders. Documents show that the management company, in turn, was owned as of late 2022 by a troubled nursing home chain.
YesCare agreed to pay that company, and two other companies linked to insiders, millions of dollars each year in return for running large swaths of the company's operations.
Getty Images
YesCare's opaque ownership structure has come under repeated scrutiny. Last October, nine senators including Elizabeth Warren and Dick Durbin wrote a letter to YesCare demanding answers about its ownership structure and other matters. In response, YesCare's counsel, Raphael Prober, said even the company knew little about its owners. "YesCare is wholly owned by YesCare Holdings, LLC," he wrote, but the ownership of YesCare Holdings "is not information that is publicly available or known to YesCare."
In late January, in the wake of Prober's nonanswer, Warren called on the Justice Department to uncover YesCare's "full ownership."
The future of Corizon's bankruptcy now hangs in the balance, as Judge Christopher M. Lopez wraps up a two-day hearing in Houston today about whether to approve a proposed settlement or dismiss the case.
Farming out corporate control
As Business Insider previously reported, Corizon engaged in a controversial bankruptcy maneuver called the Texas Two-Step, which involved splitting into two companies. One company, YesCare, got more than $300 million in active Corizon corrections contracts, while the other company, Tehum Care Services, was saddled with the bulk of the company's liabilities — including lawsuits alleging medical neglect — and last year filed for bankruptcy.
One of the three insider companies, Geneva Consulting, controlled nearly every aspect of YesCare's finances, the unsealed records, bankruptcy filings, and public records show. Geneva had the power to collect all the revenue paid to YesCare by county and state agencies; the two companies even maintained joint bank accounts. Yet Geneva's track record is scant; it only incorporated in November 2021, six months before it got the YesCare contract.
An October 2023 disclosure filed as part of Tehum's bankruptcy plan says that the creditors' committee "believes Geneva is owned, directly or indirectly," by Tehum's parent company, a holding company called Perigrove 1018. But BI obtained YesCare bid documents filed with public agencies in Florida and Alabama in July and October 2022 in which YesCare says Geneva is "a wholly owned subsidiary" of nursing home operator Genesis Healthcare, which has long drawn the attention of regulators.
At least two government agencies with YesCare contracts said they were unaware of the Geneva relationship.
Court documents and emails obtained by BI indicate the Genesis relationship may have gone even deeper. A December 2021 email sent by Robert Green, then Maryland's top corrections official, to agency staffers says that a senior Corizon official "refers to Genesis as their parent company" and says that Genesis — not Corizon — requested a meeting. And in an October 2022 New Jersey business filing, Geneva registered to use YesCare as an alternate business name.
Green, who now heads the American Correctional Association, a trade group, declined to comment.
Maryland Department of Public Safety and Correctional Services
Lori Mayer, a Genesis spokesperson, did not respond to queries. Aaron Kaufman, an attorney for Tehum, said by email, "For the record, everything in our pleadings is accurate." He and his law partner declined to answer questions about Geneva's ownership.
The second insider company, CHS Employee Group, appears to have leased medical staff to YesCare. People linked to YesCare have registered local CHS Employee entities in several states, including at least two where YesCare operates. By late 2021, Corizon had faced over 1,000 lawsuits over negligent care, according to one estimate; one lawyer who represents clients who sued Corizon said YesCare's decentralized structure could have been an attempt to limit future liability.
"It's clear and obvious why they're doing it," a former Corizon executive said about YesCare setting up the arrangement. "If there is a malpractice suit it'd be against CHS Employee Group."
The third insider company, PharmaCorr LLC, provided pharmaceuticals and supplies to YesCare, and is owned by the private equity firm that was involved in Corizon's purchase in December 2021.
Chris Atkinson, an associate professor in the public-administration program at the University of West Florida, described YesCare's contracting out of core functions and control as "worrisome."
"Transparency is very important," he said, "and knowing who you are contracting with is an essential aspect of that."
In effect, the corrections agencies were contracting with Geneva, whether they knew it or not. And the nursing homes run by Genesis, Geneva's owner as of late 2022, have repeatedly been sanctioned for delivering substandard care.
In 2022, a Genesis facility in Connecticut was shut down after the death of two residents drew a state Department of Health investigation. That same year, the Massachusetts Attorney General's Medicaid Fraud Division levied almost $90,000 in fines and recoveries from two Genesis facilities for failing to follow regulations and properly train staff. A facility owned by the Allure Group — another nursing home group controlled by the same nursing home magnate, Joel Landau, whose private equity firm is a major investor in Genesis — was fined in 2020 by the New York State Department of Health for failing to report 25 coronavirus deaths at one of its facilities.
$34 million in gross profits before bankruptcy
One of the most striking unsealed documents, a presentation prepared by Corizon's financial advisor for its board in May 2022, just nine months before Tehum filed for bankruptcy, shows that the company reported almost $34 million in gross profit for 2021. The report projects that Corizon will clear between $24.9 million and $27 million annually over the next five years. In the report, those projected gross profits are mostly eaten up by debt servicing and administrative costs.
BI obtained the documents after partnering with the civil rights law firm Public Justice to ask a bankruptcy judge to remove a seal placed on them at YesCare's request. The documents were filed in response to a May 2022 lawsuit by the Missouri hospital system.
YesCare is "just a shell," said Martin Horn, a former commissioner of the New York City Department of Correction, which had contracted Corizon to provide healthcare to inmates on Riker's Island. Channeling payments through contractors, he said, could mean that money for patient care instead went into overhead or inflated expenses. "I would be concerned that there would be some piling on of costs," he said.
As of November 2022, YesCare had 21 active jail or prison contracts in a dozen states and oversaw the health of more than 39,000 prisoners, according to an internal YesCare client list BI obtained. Since then it has lost two contracts and won a massive $1 billion Alabama contract to care for 20,000 more prisoners.
Only one agency with a YesCare contract told BI it was aware of the extent to which YesCare had outsourced its operations.
Alabama Department of Corrections
YesCare disclosed its relationship to Geneva in its bid for the Alabama contract, and a spokesperson for the Alabama Department of Corrections said that "YesCare disclosed all requested information" during the bidding process.
But Thomas Mailey, a spokesperson for the New York State Department of Corrections and Community Supervision, which operates the Coxsackie Correctional Facility where YesCare provides care, said, "No, we are not aware of a relationship between YesCare and Genesis." A representative for Doña Ana County, in New Mexico, which operates a jail with a YesCare contract, said county officials there were likewise unaware of the Geneva connection. Bryan Baker, director of the county's detention center, said the facility is currently preparing to rebid its contract for medical and mental health services.
A representative for Okaloosa County, Florida, declined to comment specifically on Geneva, Genesis, or CHS Employee Group, as did representatives from Wyoming and Maryland, both of which have rebid their prison health contracts. The Okaloosa representative said its contract with YesCare "protects the County's interests, pricing, and ensures performance of the provider." Other corrections departments did not respond to BI's queries.
Deep insider ties
As BI previously reported, a Genesis director, Isaac Lefkowitz, straddled both sides of Corizon's Two-Step, serving as a director of both successor companies, YesCare and Tehum. He is also a director of Perigrove, the firm involved in Corizon's purchase, which lists the same Manhattan address as YesCare Holdings. He has sometimes expressed disdain toward the prisoners in the care of Corizon, and now YesCare, hundreds of whom have made claims of medical neglect. In a deposition cited in a February filing related to the motion to dismiss — the subject of today's hearing — Lefkowitz said, "These tort claimants are criminals, right; they're in jail?" adding, "These are criminals that file fictitious claims."
When reached for comment, Lefkowitz called BI's reporting "another hit piece riddled with inaccuracies and false statements."
David Gefner, who has been listed in incorporation records as a Tehum director and as YesCare's president, is also listed in records obtained by BI as Geneva's CEO. Those aren't the only companies Gefner is affiliated with; he's listed on incorporation records for CHS Employee Group in at least four states, Colorado, Florida, North Carolina, and Texas.
CHS Employee Group and PharmaCorr are each linked to Perigrove, which Gefner says on LinkedIn he founded as a teenager.
Seven of CHS Employee Group's state entities are registered to the same address above an auto-parts shop in Suffern, New York, that houses Perigrove's offices. And paperwork for six of the state entities list a Perigrove senior manager.
Storm Harper for Insider
Perigrove's website, meanwhile, lists PharmaCorr as a portfolio company. And a February 2022 balance sheet indicates that PharmaCorr was once a Corizon subsidiary.
All three insider entities had agreements to receive millions of dollars from YesCare's government contracts. If the agreements from May 2022, when Geneva signed its agreement with YesCare, remain in effect, Geneva would have received at least $10.5 million for overseeing financial operations and staffing YesCare's nonmedical personnel, based on a minimum monthly fee of $500,000. Corizon sent an additional $3 million to Geneva for vaguely defined "corporate restructuring" within days of the company's purchase in December 2021.
The unsealed documents don't detail exactly how much YesCare has paid to CHS or PharmaCorr altogether, but they do estimate staffing and pharmacy costs for the coming years. According to the May 2022 financial presentation, the company was set to spend $217.6 million on staffing and related expenses in 2023 and $20.6 million on pharmacy expenses.
Alabama Department of Corrections
Most or all of those pharmacy costs may have gone to PharmaCorr. YesCare's Alabama bid document says that PharmaCorr "will dispense and deliver all pharmaceuticals and prescription medications," including over-the-counter meds and "related supplies."
YesCare CEO Jeff Sholey did not respond to a request for comment. Geneva Consulting doesn't have a website; its business registration documents don't include an email or phone number.
Steven Weiss, a spokesperson for Gefner, who is listed as Geneva's CEO and is listed on CHS Employee Group incorporation records, did not respond to a request for comment.
'They can't do anything without asking'
YesCare's relationship with Geneva is spelled out in a management services agreement, filed as an exhibit in Tehum's bankruptcy docket. It lays out the vast control Geneva had over YesCare's daily operations and strategic decision making: Geneva had access to YesCare's bank accounts, maintained veto power over new contracts that YesCare may seek to sign, and could sign any "notes, checks, drafts, bank notes, money orders, insurance payments and any other instruments received as gross revenue."
In the agreement, YesCare gives Geneva the right to collect revenues, specifying that "all payments" due to YesCare "shall be remitted directly to" Geneva. It also gives Geneva power of attorney over critical YesCare affairs, including the ability to "negotiate and execute all business agreements and leases" and initiate legal action.
It is not unusual for public sector management services agreements to assign out some rights of a government contractor, said Atkinson, the University of West Florida professor. What makes the Geneva agreement so unusual, he said, is the degree to which YesCare gives up control over its finances and decision-making.
"I would argue that this is not a management services contract because they cannot engage in the work of the contract without seeking out the approval on even basic things," Atkinson said. "They can't do anything without asking, other than buy pencils."
The agreement, for example, bars YesCare from taking any money out of its bank accounts if doing so might "impair" Geneva's ability to fulfill its obligations. Geneva, on the other hand, can withdraw money unilaterally from YesCare's account to cover expenses, taxes, and Geneva's own management fee.
US Bankruptcy Court for the Western District of Missouri
That fee is $15 a month for each inmate YesCare is contractually obligated to care for, with a monthly minimum set at $500,000, according to one of the MSA's exhibits. That would be at least $6 million going to Geneva each year that could go toward patient care. That number could be as high as $10.6 million if the agreement remains in effect and YesCare's contract with Alabama pushed the number of prisoners in its care closer to 59,000.
Notably, that fee could be increased without YesCare's written approval.
The agreement imposes other limits on YesCare. The company must seek approval from Geneva before buying equipment for more than $2,500 — a low ceiling for medical equipment — or signing any new contract worth more than $1,000 a year.
"Anybody looking at that is not going to be very impressed" with YesCare's "level of operational capacity and decision making," Atkinson said. "Decisions don't get made without this other entity knowing about it."
Sara Tirschwell, the former CEO of YesCare and one of the architects of Corizon's Texas Two-Step, signed the documents giving Geneva these extensive powers, while Perigrove's chief legal officer, Zalman Shapiro, signed on behalf of Geneva.
Outsourcing key personnel
Before the Texas Two-Step, Corizon Health directly employed much of its medical personnel, the former Corizon executive said, a structure that gave it direct control over the quality of care.
The documents BI obtained indicate YesCare, by contrast, leased staff to administer care at the prisons and jails where it has contracts. CHS Employee Group appears to have provided YesCare with its medical personnel and Geneva had an exclusive agreement to provide medical support staff, such as medical technicians. Geneva set wages and benefits for those employees unilaterally; YesCare could offer only nonbinding "recommendations."
An interim agreement from May 2022 shows that this structure emerged when Tirschwell divided Corizon into two companies. Corizon immediately leased its old employees to YesCare, which inherited Corizon's active contracts. Later, the agreement said, CHS Employee Group would take over the staffing contract and make "employment offers to the leased employees."
The former Corizon executive said that outsourcing was not uncommon in the corrections space. But two corrections experts told BI that while it's common for a prison healthcare company to assume the employees of a former contractor upon winning the contract, they hadn't heard of an arrangement in which employees were moved over to a subcontractor and leased back.
"In my experience, most correctional healthcare companies, the majority, have their own employees who are hired and retained by the company," said Michael Farrier, a corrections consultant who spent 25 years at Florida's Hillsborough County Sheriff's Office. "If I were the agency that was contracting with YesCare and they were doing that I would think that was rather unusual. I would be concerned as an agency if a medical company I just contracted with outsourced all its employees."
CHS Employee Group doesn't have a website; BI did not receive a response to a request for comment left with a phone number on its business registration documents.
The Corizon bankruptcy
As a critical hearing on the Corizon bankruptcy reaches its final day, YesCare's assets remain a point of contention.
In court, YesCare has insisted on its "corporate separateness" from its bankrupt counterpart, Tehum. Jeffrey Sholey, YesCare's CEO, said in a January 2023 affidavit — he was then CFO — that taking any assets from YesCare or its subsidiaries would "prevent them from performing their obligations" to incarcerated individuals.
Yet creditors have suggested to Judge Lopez that consolidating YesCare's assets with Tehum's would make more money available for a settlement. Attorneys representing the hundreds of current and former prisoners who allege medical neglect said their clients would prefer that "YesCare not be permitted to shield their profits" — especially since the proposed settlement would release YesCare from liability in the prisoner negligence claims.
Meanwhile, the new documents show, YesCare had already agreed to send millions of dollars to insider companies.
from All Content from Business Insider https://www.businessinsider.com/prison-health-company-yescare-ceded-financial-control-to-insider-entities-2024-3
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