Only three years ago Care Level Management Group LLC was a media darling, touted as a real innovator when it came to keeping chronically ill seniors out of the hospital.

Its doctors made house calls and media from around the country reported how returning to the midcentury medical practice could save the Medicare system billions of dollars a year.

But with little public attention the Woodland Hills company filed for Chapter 11 bankruptcy protection earlier this month, and likely will be sold to an out-of-state competitor.

In December, Medicare officials pulled the plug one year early on a lucrative three-year demonstration project that tested Care Level Management’s ability to lower health care costs. That loss of funding forced the company, which once boasted annual revenues of more than $50 million and employed 360 people in five states, to lay off most of its remaining employees and file for Chapter 11 bankruptcy protection on May 7.

“It sounds like the company really went for broke and staked its entire future on this demonstration,” said Paul Ginsberg, president of the Washington D.C,-based Center for Studying Health System Change. “They still might have been in trouble if the contract had ended when planned. But the fact they were cancelled so quickly must have made it much harder.”

A spokesman for the Centers for Medicare and Medicaid Services said the contract was cancelled because the hoped-for cost savings had not been demonstrated and were unlikely even if the contract was carried through the full three years.

The model for Care Level Management was laid in the mid-1990s when Dr. Henry Becker, then medical director at Pasdena’s Huntington Provider Group, discovered he could limit repeat paramedic calls and hospital admissions by keeping a closer eye on his patients and treating them at home.

Becker formed Care Level Management in 2001 with Raouf Khalil, a former Wall Street banker who earlier had founded a home health care business. Khalil became chief executive, with Becker given the title of patient advocate.

The company grew to have operations in California, Texas, Pennsylvania, Arizona, Florida, and New York. Patient care is no longer taking place in California since the bankruptcy, but limited operations remain in most of the other states, a company representative said.

About 85 percent of its patients last year were funded by Medicare, with the rest covered by private insurers.

After the loss of the Medicare contract, the company drastically downsized and hired a consultant to explore strategic options. The Chapter 11 filing came after it was unable to attract interim funding that would have maintained operations until a buyer or merger partner was found.

Khalil himself provided $250,000 in financing to cover a payroll due the day the first of 13 bankruptcy petitions were filed covering Care Level Management Group LLC and related entities.

The petitions listed total assets of less then $10 million and debt more than $10 million. Accounts receivable are less than $700,000.

Currently, the company has a potential suitor in Brentwood, Tenn.-based Inspiris Inc., which provides provide acute, custodial and hospice-care programs for seniors in several markets.

Inspiris agreed to loan Care Level up to $725,000 and made a $3 million offer to buy the company’s assets. Under a “stalking horse bidder” arrangement, Inspiris will get some advantages over other potential bidders in bankruptcy court, but Care Level still has the opportunity to seek higher bids. An auction is tentatively scheduled for mid-June.