Zynex: Federal Payer Dispute Triggers Medical Device Maker's Chapter 11 Collapse
Zynex filed chapter 11 Dec. 15, 2025 (S.D. Tex. 25-90810) after TRICARE suspended payments representing 20-25% of revenue. Electrode billing increased 5,223% (2015-2022). DOJ, SEC investigations. $22.3M DIP from noteholders positions credit bid acquisition. $60M convertible notes.
When TRICARE—the federal health insurer serving military personnel and their families—temporarily suspended payments to Zynex Medical in March 2025, the 29-year-old medical device company faced a payment interruption. TRICARE represented 20-25% of Zynex's annual revenue, and electrode claims to TRICARE increased 5,223% between 2015 and 2022. By December 15, 2025, Zynex and six affiliated entities filed for chapter 11 protection in Houston, backed by a $22.3 million DIP facility from its convertible noteholders with a credit bid structure for DIP lenders.
Within nine months, Zynex moved from a securities class action to the TRICARE payment suspension, DOJ and SEC investigations, and a bankruptcy filing, leaving equity holders facing what the company explicitly warned would be "a significant loss on their investment." The case includes allegations about billing practices in the TENS device industry, including a 2018 False Claims Act settlement involving competitor Empi for similar conduct. The restructuring includes payer concentration issues, regulatory investigations, and a noteholder-led DIP financing process.
| Debtor(s) | Zynex, Inc. and 6 affiliated debtors (Zynex NeuroDiagnostics; Zynex Medical; Zynex Monitoring Solutions; others) |
| Ticker | ZYXI (NASDAQ, delisted December 24, 2025) |
| Court | U.S. Bankruptcy Court, Southern District of Texas. (Houston Division) |
| Case Number | 25-90810 |
| Judge | Hon. Alfredo R. Perez |
| Petition Date | December 15, 2025 |
| Total Funded Debt | ~$60 million convertible notes |
| Cash at Filing | ~$2.3 million |
| Employees | ~300 (estimated after 15% reduction) |
| Lead Counsel | Kirkland & Ellis LLP |
| Claims Agent | Epiq Corporate Restructuring, LLC |
| DIP Facility | $22.3 million (lenders: Ad Hoc Noteholder Group + CEO Steven Dyson) |
The TRICARE Crisis
Zynex relied on a single federal payer: TRICARE historically represented 20-25% of annual revenue—the military health insurance program covering active duty service members, retirees, and their dependents. The payment suspension removed that revenue stream while TRICARE reviewed claims. TRICARE characterized the suspension as temporary pending review, and Zynex appealed and met with officials, but the suspension continued in July 2025. The timing of any resumption remained uncertain during the review.
The Billing Controversy
The billing practices associated with the TRICARE review show a quantitative change:
| Year | Amount Billed to TRICARE for Electrodes |
|---|---|
| 2015 | $1.7 million |
| 2022 | $90.5 million |
| Change | 5,223% increase |
According to Capitol Forum reporting, TRICARE paid roughly 83% of these claims at reduced fees, totaling over $42 million in payments to Zynex over the period. The billed amounts increased from $1.7 million in 2015 to $90.5 million in 2022.
Capitol Forum reported that the billing patterns mirrored those of competitor Empi, which in 2018 reached a False Claims Act settlement with the Department of Justice. That settlement addressed allegations that Empi sent unnecessary supplies to TRICARE beneficiaries. Since TRICARE is a federal health program, overbilling allegations implicate the False Claims Act's treble damages and penalty provisions.
Payment Suspension Timeline
The progression from suspension to bankruptcy unfolded over nine months:
| Date | Event |
|---|---|
| March 2025 | TRICARE temporarily suspends payments pending claims review |
| April 2025 | Zynex appeals suspension, meets with TRICARE officials |
| April 2025 | Zynex presents data supporting lifting of suspension |
| July 2, 2025 | TRICARE decides to continue temporary payment suspension |
| Ongoing | Suspension continues pending final decision |
The July 2 decision continued the suspension while TRICARE conducted further review, extending the review period without a stated end date.
Impact on Operations
The financial impact of the TRICARE suspension appeared in reported results:
Revenue Decline: Q2 2025 revenue declined 55% year-over-year to $22.3 million from $49.9 million. Q3 2025 revenue fell 73% year-over-year to $13.4 million from $50.0 million.
Net Loss: The company swung from net income of $1.2 million in Q2 2024 to a net loss of $20.0 million in Q2 2025, with losses of $42.9 million in Q3 2025.
Guidance Withdrawal: Zynex withheld full-year financial guidance due to uncertainty surrounding the TRICARE relationship.
Workforce Reduction: The company implemented a 15% workforce reduction to reduce costs.
DOJ and SEC Investigations
Beyond the TRICARE payment suspension, Zynex faces a Department of Justice investigation into its historical billing practices and potential False Claims Act issues. The company has engaged in negotiations with the DOJ, and the DIP Credit Agreement includes specific provisions for a potential DOJ settlement. Section 5.18 of the agreement addresses settlement parameters. However, the outcome and terms of any settlement remain uncertain.
The Securities and Exchange Commission has also opened an investigation into the company's practices. Public filings do not detail the scope. Court filings indicate the company has "resolved" certain investigations, though others remain ongoing.
The 2018 Empi settlement provides a point of comparison. According to Capitol Forum, the DOJ, in coordination with the Department of Defense Office of Inspector General, settled False Claims Act allegations that Empi sent unnecessary supplies to TRICARE beneficiaries. The statute permits treble damages plus penalties of up to $11,000 per false claim (adjusted for inflation).
Zynex's regulatory exposure extends beyond federal programs. Capitol Forum also reported that the company improperly billed Worker's Compensation funds for TENS devices, with practices "strikingly similar" to a competitor being sued by 28 Liberty Mutual insurers. This adds allegations involving worker's compensation billing outside federal programs.
Securities Class Action Litigation
The regulatory scrutiny led to shareholder litigation. Tuncel v. Zynex, Inc. (Case No. 25-cv-00913) was filed March 20, 2025, in the U.S. District Court for the District of Colorado. The class period runs from March 13, 2023, to March 11, 2025.
The securities class action alleges false and misleading statements regarding Zynex's revenue recognition practices. Specifically, plaintiffs contend the company engaged in "oversupplying" customers with products to inflate revenue figures and allege the practice inflated reported revenue without reflecting genuine commercial activity. Additional allegations include failure to disclose TRICARE billing irregularities and regulatory risks, material misrepresentations about financial health and sustainability, and inadequate disclosure of the practices that triggered the TRICARE suspension.
The stock fell 51% overnight following the March 2025 revelations, while RBC Capital cut its price target from $11.00 to $5.50. Nasdaq notified the company of delisting on December 17, 2025, with trading suspended December 24, 2025. The company does not plan to appeal and expects shares may trade on OTC Markets. Multiple plaintiffs' firms are pursuing claims, including Hagens Berman, Levi & Korsinsky LLP, The Gross Law Firm, and Johnson Fistel. The securities litigation materials note that persons with non-public information are encouraged to consider the SEC Whistleblower program, under which whistleblowers may receive up to 30% of any successful recovery.
The Path to Chapter 11
Quarterly results show a decline. Revenue declined 55% year-over-year in Q2 2025 to $22.3 million from $49.9 million, with the company swinging from net income of $1.2 million to a loss of $20.0 million. Q3 2025 revenue fell 73% year-over-year to $13.4 million, with losses reaching $42.9 million and EPS declining to $(1.42). Night Market Research cited deteriorating fundamentals and reimbursement pressure.
| Metric | Q2 2025 | Q2 2024 | Q3 2025 | Q3 2024 |
|---|---|---|---|---|
| Net Revenue | $22.3M | $49.9M | $13.4M | $50.0M |
| Net Income (Loss) | $(20.0)M | $1.2M | $(42.9)M | N/A |
| Change | (55.3%) | — | (73.2%) | — |
Zynex's capital structure included $60 million in Senior Convertible Notes maturing May 15, 2026. In May 2025, the company missed a $1.5 million interest payment, entering a 30-day grace period. Following the missed payment, Zynex engaged Province, LLC as financial advisor, formed a Special Committee of the board, and began formal negotiations with convertible noteholders regarding restructuring alternatives. The company later entered a Restructuring Support Agreement and DIP financing commitment with the noteholder group plus CEO participation, which set the framework for the chapter 11 filing.
By the petition date, Zynex reported about $2.3 million in cash. The DIP financing included a $10.15 million initial advance.
The Credit Bid Structure
DIP Financing Terms
The DIP financing agreement allows the convertible noteholders to acquire Zynex through a credit bid:
| Term | Detail |
|---|---|
| DIP Facility | $22.3 million senior secured term loan |
| DIP Lenders | Ad Hoc Group of Convertible Noteholders + CEO Steven Dyson |
| DIP Agent | Wilmington Savings Fund Society, FSB |
| Initial Advance | $10.15 million |
| Interest Rate | 10.0% per annum (PIK, capitalized) |
| Upfront Fee | 3% |
| Exit Fee | 3% |
| Back-Stop Fee | $5 million |
| Minimum Return Payment (MOIC) | 2.00x aggregate original principal |
The 2.00x minimum return payment (MOIC) sets a minimum payment equal to double original principal. Combined with the credit bid right, the structure allows the DIP lenders to bid their claims.
Stalking Horse Credit Bid Structure
The credit bid terms set the minimum bid amount:
| Component | Amount |
|---|---|
| DIP Loan Principal | $22.3 million |
| Back-Stop Fee | $5 million |
| Minimum Return Payment | ~$22.3 million (2.00x MOIC) |
| Minimum Credit Bid | ~$49.6 million |
The credit bid allows the DIP lenders to bid the amounts owed to them rather than paying cash. This means the noteholder group can acquire Zynex by converting their DIP claims into ownership.
Dual-Track Sale Process
The sale process offers two potential outcomes:
- Plan Sponsor Selection: DIP lenders positioned as stalking horse with credit bid
- Alternative Bids: The company seeks higher and better offers through marketing process
The minimum alternative bid requirement sets the threshold for third parties:
| Requirement | Detail |
|---|---|
| Minimum Bid | $49,850,000 |
| Form | Cash or committed financing |
| Contingencies | None permitted |
Any alternative bidder must provide $49.85 million in cash or committed financing with no conditions.
Key Milestones
| Date | Event |
|---|---|
| December 15, 2025 | Chapter 11 petitions filed |
| December 16, 2025 | First Day Hearing; interim orders granted |
| December 17, 2025 | KERP/KEIP Motion filed |
| December 17, 2025 | Bidding Procedures Motion filed |
| January 12, 2026 | Extension deadline for Schedules and SOFAs |
| January 13, 2026 | Second Day Hearing (Final Relief) |
| February 9, 2026 | Bid Deadline for Plan Sponsor Selection |
| ~March 30, 2026 | Target for Sale/Plan Effective Date (105 days from petition) |
First Day Relief
The bankruptcy court granted first day relief for joint administration of seven debtor entities; complex case designation; extension for Schedules/SOFAs (until January 12, 2026); stock transfer procedures (tax attribute protection); claims agent retention (Epiq); cash management authorization; employee wage and benefit payments; critical/foreign vendor payments; prepetition taxes and fees; insurance continuation; and utility adequate assurance.
| Payment Category | Interim Cap |
|---|---|
| Critical Vendors | $689,000 |
| Foreign Vendors | $640,000 |
| 503(b)(9) Claimants | $110,000 |
| Lien Claimants | $9,000 |
| Prepetition Taxes/Fees | ~$597,000 |
| Total Authorized | ~$2,045,000 |
The company also sought approval of retention and incentive programs for key employees: a Key Employee Retention Plan (KERP) with maximum payout of $662,500 and a Key Employee Incentive Plan (KEIP) with maximum payout of $690,000. On December 23, 2025, Zynex filed a motion to reject three unexpired nonresidential real property leases, with abandonment of personal property at those locations.
Company Background
Zynex was founded in 1996 and headquartered in Englewood, Colorado. The company designs, manufactures, markets, and sells medical devices for pain management and rehabilitation. The company focuses on electrotherapy devices using electrical stimulation for therapeutic purposes. The company operates through three subsidiaries: Zynex Medical, Inc. (primary operating subsidiary for pain management), Zynex NeuroDiagnostics, Inc. (neurodiagnostic equipment), and Zynex Monitoring Solutions, Inc. (hospital monitoring systems including fluid monitoring, sepsis detection, and laser-based pulse oximetry).
Zynex's flagship product, the NexWave, incorporates three proven modalities in one device: IFC (Interferential Current) for deep tissue stimulation, TENS (Transcutaneous Electrical Nerve Stimulation) for non-invasive pain management, and NMES (Neuromuscular Electrical Stimulation) for muscle rehabilitation. These technologies have been used clinically for over 30 years, positioning Zynex within an established therapeutic category rather than an unproven emerging technology.
Before the TRICARE suspension, Zynex reported product and sales activity. In September 2024, the company received FDA clearance for its TensWave device for pain management. Q3 2024 saw a 13% increase in Pain Management orders compared to the prior year, with revenue per sales representative reaching approximately $530,000. The TensWave device was designed specifically to meet insurance reimbursement criteria.
The TENS Device Industry
The global TENS market was valued at $321.1 million in 2023 and is projected to reach $419.5 million by 2030, representing a CAGR of 3.9%. The TENS segment dominates the broader electrotherapy market, expected to reach $1.65 billion by 2030.
TENS device companies operate within a regulated medical device and reimbursement environment. Devices require FDA clearance before marketing, with 510(k) submissions the typical pathway based on substantial equivalence to predicate devices. Commercial viability depends on coverage and reimbursement from Medicare, Medicaid, TRICARE, and private insurers. Billing federal programs implicates the False Claims Act, with overbilling, upcoding, or billing for unnecessary supplies potentially resulting in civil or criminal liability with substantial penalties. Separate frameworks govern worker's compensation claims, with insurers monitoring for inappropriate billing.
Frequently Asked Questions
Why did Zynex file for chapter 11 bankruptcy?
TRICARE suspended payments representing 20-25% of revenue pending review of billing practices. By the petition date, the company reported about $2.3 million in cash. The company also had $60 million in convertible notes maturing May 2026 and ongoing DOJ and SEC investigations.
What is the TRICARE payment suspension?
TRICARE, the federal military health insurer, temporarily stopped paying Zynex claims in March 2025 pending review of historical billing practices. The suspension followed a 5,223% increase in electrode billing to TRICARE between 2015 and 2022. Despite Zynex's appeals and presentations, TRICARE continued the suspension in July 2025, pending final determination.
What are the DOJ and SEC investigating?
The DOJ is investigating historical billing practices and potential False Claims Act violations related to overbilling federal programs. The SEC is investigating company practices and disclosures. The DIP agreement includes provisions for a potential DOJ settlement during bankruptcy.
Who is acquiring Zynex?
The Ad Hoc Group of Convertible Noteholders, along with CEO Steven Dyson, provided DIP financing with credit bid rights. The minimum credit bid totals approximately $49.6 million based on DIP principal, back-stop fee, and 2.00x MOIC. Alternative bidders must exceed $49.85 million in cash with no contingencies.
What is the securities class action lawsuit?
Tuncel v. Zynex, Inc. was filed March 20, 2025, in Colorado federal court. The case alleges false statements about revenue recognition practices and failure to disclose billing irregularities. The class period runs from March 13, 2023, to March 11, 2025. Zynex's stock fell 51% following the initial revelations.
What happened to Zynex stock?
The stock fell 51% overnight in March 2025 following disclosure of the TRICARE suspension and billing concerns. Nasdaq issued a delisting notice December 17, 2025, with trading suspended December 24, 2025. The company does not plan to appeal and expects shares may trade on OTC Markets. The company explicitly warned equity holders face significant loss.
What is the DIP financing structure?
The $22.3 million senior secured DIP term loan carries 10% PIK interest, 3% upfront and exit fees, a $5 million back-stop fee, and a 2.00x minimum return payment. DIP lenders include the noteholder group and CEO Steven Dyson. The structure includes credit bid rights for the DIP lenders.
Will there be recovery for equity holders?
The company explicitly warned that equity holders face significant risk of losing their entire investment. The credit bid structure allows noteholders to credit bid, and alternative bidders would need to exceed $49.85 million cash to displace the credit bid.
What is the timeline for the bankruptcy case?
Filing occurred December 15, 2025. The second day hearing for final relief is January 13, 2026. The bid deadline is February 9, 2026. The target effective date is approximately March 30, 2026—105 days from petition.
What happened to competitor Empi?
Empi reached a False Claims Act settlement with DOJ in 2018 addressing allegations that it sent unnecessary supplies to TRICARE beneficiaries. Capitol Forum reported that Zynex's billing patterns mirrored the Empi conduct.
For more analysis of chapter 11 cases and restructuring developments, explore the ElevenFlo bankruptcy blog.
