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Will Corizon Prison Creditors Be Paid Via Complex Bankruptcy Plan?

More than 100 people argue the medical care they received from Corizon Health Inc. while incarcerated was negligent, or worse, and are now dealing with the fallout of the company’s complicated bankruptcy. Attorneys last month announced they had reached a tentative settlement in the bankruptcy and are expected to bring it to court next week. Until then, the people who sued Corizon are left to wonder what compensation they’ll receive, if any, because Corizon, a company that provided health care in prisons and jails across the country, moved most of its debts to a new company called Tehum Care Services that then declared bankruptcy. It's a controversial corporate restructuring known as a “Texas Two-Step.” Corizon executives created another company to do business under a new name, YesCare, a move critics say could allow Corizon to minimize its liability. Tehum, the bankrupt new company, owes more than $82 million to over 1,000 creditors, including former patients who were injured or neglected, former employees who were hurt on the job, hospitals, doctors’ offices, cities, and states, The Marshall Project reports. Almost all of Corizon’s assets, worth more than $170 million, went to YesCare, which continues to provide health care at prisons and jails.

Despite once being the nation’s largest for-profit provider of correctional health care, the company lost more than 25 contracts in recent years amid lawsuits alleging subpar care. “Years of mounting costs, including litigation expenses relating to claims asserted by incarcerated individuals, threatened Corizon Health’s ability to continue as a going concern,” YesCare wrote in a court filing. The company said that the Texas Two-Step (known in the business world as a “divisional merger”) was “the fairest, most value-maximizing path forward” for Corizon’s creditors. The divisional merger, created by Texas lawmakers decades ago, allows a company to split into two or more companies. It allows the company to distribute most of its assets into one company and most of its debts to the other. The indebted company declares bankruptcy while the solvent company continues to do business. Without the maneuver, liquidating the company would have led to them receiving “pennies on the dollar” in some cases or nothing at all, YesCare said. Much of Corizon’s debt appears to be the result of not paying its bills. There are hundreds of claims worth tens of millions of dollars from hospitals, dentists, radiologists, and others to whom Corizon sent prisoners who needed specialty care. If the deal between Tehum and the committee representing its creditors goes through, Tehum will provide around $30 million to cover all of its outstanding claims.


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