TapestryHealth - Chapter 11 Case Summary

TapestryHealth filed for Chapter 11 following CMS's suspension of Medicare payments to several of its affiliated physician entities amid a DOJ False Claims Act investigation, pursuing an expedited going-concern sale backed by proposed DIP financing whose milestones require Medicare reimbursements to be restored.

Business Description

Tapestry Management Services, Inc. ("TapestryHealth"), together with its Debtor affiliates (collectively, the "Debtors"), is a physician-led provider of remote medical services to residents of skilled nursing facilities. Its services include chronic care management, behavioral health integration and remote physiologic monitoring. Most of the Debtors' work is non-face-to-face monitoring and care management. They also provide some traditional in-person and telehealth evaluation and management services to Medicare beneficiaries. The Debtors' patients are elderly and disabled residents of skilled nursing facilities. They live with chronic conditions, multiple comorbidities, cognitive impairment and functional limitations, and they depend on continuous monitoring and coordinated care.

Before Medicare payments to several of the Debtors were suspended in 2026, the Debtors served more than 140,000 residents across approximately 1,500 skilled nursing facilities nationwide. That included approximately 33,000 beneficiaries in roughly 690 facilities in rural or federally designated underserved areas, as well as approximately 115 facilities in the nation's most remote communities. More than 80,000 of the Debtors' patients were Medicare beneficiaries, and Medicare reimbursement makes up more than 63% of the Debtors' revenue.

The Debtors filed for Chapter 11 in the District of Delaware on November 6, 2026 (the "Petition Date"). They intend to keep operating while selling the business as a going concern.

Corporate History

TapestryHealth is a Delaware corporation and the sole member of Debtor Tapestry Pharmacy Consulting LLC, a Delaware limited liability company. The remaining nine Debtors are physician entities (the "Physician Entities"), each wholly owned by Dr. David Chess, as shown in the organizational chart attached to the Declaration. Each Physician Entity is separately organized and furnishes clinical services through its own licensed practitioners. TapestryHealth manages the Physician Entities under management services agreements, and the Physician Entities are co-borrowers with TapestryHealth under the Debtors' prepetition credit facilities.

TapestryHealth's equity has three classes:

Operations Overview

The Debtors deliver care through a facility-mediated model. The partner facility acts as the resident's caregiver and is the Debtors' primary point of contact. The Debtors' advanced practice providers work under physician-directed care plans and act as a remote extension of facility staff. Their work relies on two kinds of devices: passive, continuous monitoring devices that the Debtors deploy in patient rooms, and devices connected to the facility's electronic medical records that automatically collect vital signs more often. The platform integrates with partner facilities' medical records and produces daily patient risk reports and monthly risk assessments.

When TapestryHealth enters a facility, it is typically the facility's only provider of chronic care management, remote physiologic monitoring and behavioral health integration services. Under most of its facility agreements, it is also the facility's exclusive preferred provider. The Debtors provided their services through more than 1,395 physicians, nurse practitioners, nurses and clinical reviewers. The workforce is nearly entirely remote, and the vast majority of employees work from home or other fixed locations of their choosing.

Management Services Arrangements

The Physician Entity that furnished a service submits the claim in its own name. Substantially all of each Physician Entity's receipts are passed to TapestryHealth, which uses them to pay the personnel and operating expenses that support that entity's clinical operations. Each Physician Entity keeps its own government and commercial collection accounts.

Prepetition Obligations

As of the Petition Date, the Debtors' funded secured debt totaled approximately $11.7 million.

ABL Credit Agreement

The Debtors, as borrowers, are party to a Credit and Security Agreement dated August 15, 2025 (as amended, the "ABL Credit Agreement"). The other parties are the lenders and LAGO Evergreen Credit ("LAGO"), a Delaware statutory trust, as administrative agent; LAGO succeeded MidCap Funding IV Trust in that role. LAGO as agent and the lenders together are the "ABL Secured Party." The ABL Secured Party agreed to provide up to $25 million in aggregate funding. The agreement was amended by joinder amendments dated December 31, 2025 and July 24, 2026, and by a forbearance agreement and third amendment dated September 10, 2026.

The ABL Credit Agreement is secured by first-priority liens on substantially all of the Debtors' assets. These include:

Funds deposited into the Physician Entities' collection accounts are swept daily into TapestryHealth's concentration account and from there to the ABL Secured Party. The ABL Secured Party then makes funds available to TapestryHealth's operating account, which pays payroll and vendor obligations for all of the Debtors.

Term Loan Agreement

The Debtors, as borrowers, are also party to a Loan and Security Agreement dated August 15, 2025 (as amended, the "Term Loan Agreement"). The lenders are LAGO and LAGO Innovation Fund III, LLC, and LAGO also serves as administrative and collateral agent. The agreement was amended by joinder amendments on the same December 31, 2025 and July 24, 2026 dates as the ABL Credit Agreement.

The Term Loan Agreement is secured by first-priority liens on substantially all of the Debtors' personal property. This includes accounts (including health-care-insurance receivables), inventory, equipment, general intangibles, intellectual property, deposit accounts, investment property, books and records, and all proceeds. In addition, the Debtors' rights under the management services agreements are collaterally assigned to LAGO, as term agent, under a collateral assignment dated August 15, 2025.

Unsecured Obligations

Events Leading to Bankruptcy

The Debtors attribute their liquidity crisis mainly to the Centers for Medicare & Medicaid Services ("CMS") suspending, without prior notice, the Medicare reimbursements on which the Physician Entities depend. Medicare's share of revenue at each affected Physician Entity is:

Medicare Payment Suspensions

The suspensions began in January 2026, when CMS placed a 100% hold on Topaz Bay's Medicare payments. That hold is still in place. On April 10, 2026, the U.S. Attorney's Office for the Southern District of New York issued civil investigative demands ("CIDs") under the False Claims Act to TapestryHealth, Tapestry Telehealth, Chess Medicine and Chess Medical, each with a May 8, 2026 return date. For four months after the demands were issued, CMS kept paying the Medicare claims of Tapestry Telehealth, Chess Medicine, Emerald Fern, Chess Medical and Rosewood Hills.

CMS then suspended Medicare payments to Tapestry Telehealth on August 11, 2026 and to Chess Medicine on August 13. On or about August 14, TapestryHealth learned that Novitas Solutions, Inc. had stopped all Medicare payments to Tapestry Telehealth and reversed $507,920 of payments already sent to its account. Over the same period, other Medicare administrative contractors ("MACs") reversed approximately $417,402 more. The reversals totaled $925,322 and overdrew Tapestry Telehealth's account.

Approximately $595,916 of those reversals happened before Tapestry Telehealth was told of the suspension. On August 17, one of the MACs told Tapestry Telehealth's counsel by telephone that it had placed Tapestry Telehealth and Chess Medicine under a 100% payment suspension, and Tapestry Telehealth received its suspension notice on August 19. On August 28, the Department of Justice ("DOJ") issued a CID to Topaz Bay, more than seven months after CMS began withholding its Medicare payments. The same day, DOJ issued a CID to non-Debtor Tapestry Telehealth Solutions, Inc., TapestryHealth's majority Class A shareholder.

By October 6, 2026, CMS had also suspended 100% of Emerald Fern's Medicare payments. CMS suspended Chess Medical's payments effective October 8 but did not issue a notice until November 4, two days before the Petition Date. The Debtors believe CMS also suspended Rosewood Hills' payments on or about October 9, although Rosewood Hills has received no suspension notice. MACs also reversed payments already sent to Chess Medicine, Topaz Bay, Chess Medical, Emerald Fern and Rosewood Hills:

The Declaration characterizes the DOJ investigation as not explaining the suspensions. According to the Debtors, DOJ has not issued a separate CID to Emerald Fern or Rosewood Hills.

Rebuttals and Requests for Relief

The affected Debtors submitted written rebuttals to their suspension notices, with the following results:

The Declaration describes the responses CMS did issue as containing basic errors that reflect a cursory review. The responses included a reference to an incorrect CPT code (the standard code used to bill a medical procedure) for cardiology services and referred to the claims at issue as mental health services, which the Debtors neither provided nor sought reimbursement for.

On September 28, 2026, CMS advised that, in coordination with DOJ, the suspensions of Tapestry Telehealth and Chess Medicine would remain in place until DOJ concludes its investigation, and it directed all further inquiries to DOJ. DOJ, for its part, has indicated that the suspensions are a matter for the Debtors to challenge with CMS. Around the same time, CMS declined Tapestry Telehealth's request for a meeting and denied its request for financial hardship relief. CMS stated that its payment suspension guidance gives it no authority to consider hardship-based relief and that the decision cannot be appealed.

According to the Debtors, neither CMS nor any MAC has taken any of the following steps against any Debtor:

The Debtors describe themselves as having lost substantially all of their Medicare revenue without any adjudicated finding against them.

Service Curtailment and Workforce Reductions

On August 28, 2026, TapestryHealth stopped performing clinical reviews for certain affected patients. Between August and October 2026, it discontinued services for approximately 50,000 Medicare patients. The Debtors attribute this curtailment to the loss of Medicare revenue.

The Debtors also cut their workforce by approximately 79%. Before the suspensions, they had approximately 500 full-time employees. TapestryHealth carried out four reductions in force:

The Debtors now employ approximately 108 full-time employees. Over the same period, their independent contractor workforce fell from 1,354 to approximately 889.

Forbearance, Acceleration and Cash Dominion

On September 10, 2026, in connection with the ABL forbearance agreement, TapestryHealth obtained an emergency advance under the ABL Credit Agreement. On September 14 and 15, it obtained $2 million more in funding from AMP (an existing equity investor and the Debtors' subordinated lender) and other investors. According to the Debtors, that financing came on terms that reflected TapestryHealth's distress. It neither replaced the withheld Medicare payments nor restored committed borrowing availability.

On October 1, the ABL Secured Party began sweeping all receipts under cash dominion, taking control of the Debtors' collections. On October 8, the Debtors retained HGPS, LLC, formerly known as Getzler Henrich & Associates LLC ("Getzler Henrich"), as financial advisor. On October 9, the ABL Secured Party took three steps:

On October 14, the ABL Secured Party advanced approximately $3.3 million to cover accrued payroll, taxes and other critical expenses. The prepetition secured parties then made further discretionary advances on October 16, October 23, October 28 and November 5 to fund operating, payroll and other corporate needs. Since the forbearance period ended, the Debtors have depended on these discretionary advances to pay payroll and other critical expenses.

Chapter 11 Filing

If the requested first-day relief is granted, the Debtors intend to preserve their going-concern value while running an expedited sale process. Operations would be funded by debtor-in-possession financing (the "DIP Facility") and the use of cash collateral. The DIP Facility includes milestones that require Medicare reimbursements to be restored. The Declaration describes the facility as providing the liquidity the Debtors need to operate in Chapter 11 until those reimbursements are restored.

Special Committee and Chief Restructuring Officer

On October 30, 2026, TapestryHealth's board of directors (the "Board") established a special committee (the "Special Committee"). The Board gave the Special Committee authority over, among other things:

The same day, the Board appointed Louis Robichaux as a director, designating Robichaux an independent member of the Board. Robichaux is the Special Committee's sole member and chair. David R. Campbell, a Managing Director of Getzler Henrich (the Debtors' proposed financial advisor), was also appointed Chief Restructuring Officer that day and will give the Special Committee weekly written reports on liquidity and the status of the restructuring.

Unbilled Medicare Services

As of November 1, 2026, the Debtors estimate that they had furnished, but not yet billed, Medicare services with estimated Medicare payment amounts of approximately $16.8 million. None of these claims was submitted before the Petition Date, and each will be billed and paid only postpetition. According to the Debtors, CMS has never reviewed, adjudicated or questioned the claims, and the claims remain within Medicare's twelve-month timely filing period.

Liquidity and DIP Financing

The Debtors seek the DIP Facility and the use of cash collateral to keep their businesses running, including care for patients. The funding would also maintain relationships with payors, vendors and suppliers, make payroll, and pay for administering the cases. All spending would follow a budget the Debtors prepared with Getzler Henrich. That budget reflects the Debtors' judgment of how much liquidity they need to keep operating and to have time to complete the proposed sale processes.

Alongside the petitions, the Debtors filed a complaint starting an adversary proceeding. According to the Debtors, without the relief requested in that complaint and in the first-day motions, they cannot fund payroll, pay critical vendors and suppliers, or continue serving patients. The Debtors also cite the burden on facilities if services stop. Facilities would need to contract with replacement providers, integrate systems, replace the monitoring and vital-sign equipment TapestryHealth supplies, enroll residents and set up new clinical workflows. Alternative providers may be limited or unavailable in rural and underserved communities.