What Happened to Envision Healthcare? A Look at the Largest Physician Staffing Firm’s Bankruptcy
What Happened to Envision Healthcare? A Look at the Largest Physician Staffing Firm’s Bankruptcy
Envision Healthcare, one of the largest providers of physicians and other healthcare professionals in the U.S., filed for Chapter 11 bankruptcy protection on May 15, 20231. The company, which was acquired by private equity firm KKR in 2018 for $10 billion2, cited several factors that contributed to its financial distress, including the COVID-19 pandemic, rising labor costs, disputes with insurers, and regulatory uncertainty13. In this article, we will explore the background, causes, and implications of Envision’s bankruptcy.
Background: Envision’s Growth and Challenges
Envision Healthcare was formed in 2016 by the merger of two major healthcare services companies: AmSurg, which operated ambulatory surgery centers and provided anesthesia services, and Envision Physician Services, which offered emergency medicine, hospitalist, radiology, and other specialty services4. The combined company had more than 25,000 clinicians serving over 1,800 facilities across 45 states and the District of Columbia5.
Envision’s strategy was to create a diversified and integrated platform that could offer a range of services to hospitals, health systems, and patients. The company also aimed to capitalize on the growing demand for outpatient care and value-based payment models. However, Envision faced several challenges in executing its vision, such as:
- Competition: Envision competed with other large physician staffing firms, such as TeamHealth and Mednax, as well as smaller regional and local providers. The company also faced pressure from hospitals and health systems that sought to employ or align with their own physicians6.
- Reimbursement: Envision relied heavily on fee-for-service payments from commercial insurers and government programs. The company was exposed to fluctuations in reimbursement rates, payer mix, and patient volumes. Envision also had to deal with the rising prevalence of high-deductible health plans, which increased the risk of bad debt and collection costs.
- Regulation: Envision was subject to various federal and state laws and regulations that affected its operations and profitability. For example, the company had to comply with the Medicare Access and CHIP Reauthorization Act (MACRA), which incentivized quality and value over volume in Medicare payments. Envision also had to navigate the No Surprises Act, which aimed to protect patients from unexpected bills for out-of-network care.
- Debt: Envision took on a significant amount of debt to fund its growth and acquisition by KKR. As of March 31, 2023, the company had total debt obligations of approximately $7.7 billion. The high leverage ratio limited the company’s financial flexibility and increased its interest expenses.
Causes: How Covid-19 and Other Factors Pushed Envision to Bankruptcy
The Covid-19 pandemic exacerbated Envision’s existing challenges and created new ones. The company experienced a sharp decline in patient volumes and revenues as elective procedures were postponed or canceled due to lockdowns and social distancing measures. According to its bankruptcy filing, Envision’s net revenues decreased by 18% from $16.9 billion in 2019 to $13.9 billion in 2020.
At the same time, Envision faced increased costs related to personal protective equipment (PPE), testing, staffing, and safety protocols. The company also had to contend with higher labor costs as it competed for scarce talent in the contract labor market. Moreover, Envision had to cope with lower reimbursement rates from insurers and government programs that implemented temporary rate cuts or payment deferrals due to the pandemic.
In addition to the pandemic-related factors, Envision also blamed its bankruptcy on two other major causes: disputes with insurers and regulatory uncertainty.
- Disputes with insurers: Envision claimed that it had been engaged in ongoing negotiations with its largest insurance payors, UnitedHealthcare (UHC) and Anthem, over their contracts and reimbursement rates. However, the company alleged that the insurers used “tactics and recalcitrance” to delay or avoid reaching agreements with Envision. As a result, Envision said it was unable to collect payments for services rendered or resolve claims disputes with the insurers.
- Regulatory uncertainty: Envision also cited the No Surprises Act as a source of confusion and risk for its business. The law, which took effect on January 1, 2023, prohibited providers from billing patients more than their in-network cost-sharing amounts for out-of-network emergency care or certain non-emergency care at in-network facilities. The law also established a process for resolving payment disputes between providers and insurers through arbitration or negotiation. However, Envision argued that the law was “flawed” and “poorly implemented”, and that it created uncertainty and instability in the market. Envision also claimed that the law reduced its bargaining power with insurers and lowered its reimbursement rates.
Implications: What Envision’s Bankruptcy Means for the Industry and Stakeholders
Envision’s bankruptcy is a significant event for the healthcare industry and its stakeholders, as it reflects the challenges and opportunities facing physician staffing firms in the post-pandemic era. Some of the potential implications are:
- Restructuring and separation: Envision has entered into a restructuring support agreement (RSA) with its lenders, under which it will cancel all of its debt except for a revolving credit facility for working capital, totaling around $5.6 billion. The RSA also provides for the separation of Envision’s two primary businesses, AMSURG and Envision Physician Services, which will be owned by their respective lenders. Envision expects to emerge from bankruptcy in the third quarter of 2023.
- Sale and consolidation: Envision has also indicated that it has received expressions of interest from potential buyers for AMSURG, which operates more than 250 ambulatory surgery centers across the U.S. According to Reuters, some of the interested parties include PE firms Bain Capital, Hellman & Friedman, and Leonard Green & Partners. The sale of AMSURG could trigger further consolidation in the outpatient care sector, which has seen increased demand and competition amid the pandemic.
- Impact on patients and providers: Envision has stated that it will continue to operate its business as usual during the bankruptcy process and that it will honor its commitments to its patients, clinicians, hospitals, vendors, and suppliers. However, some stakeholders may experience disruptions or changes in their relationships with Envision as a result of the bankruptcy. For example, patients may face higher out-of-pocket costs or limited access to care if Envision’s contracts with insurers are terminated or modified. Providers may also face challenges in recruiting or retaining physicians and other healthcare professionals if Envision’s compensation or benefits are reduced or altered.
Conclusion: Envision’s Bankruptcy is a Wake-Up Call for Physician Staffing Firms
Envision Healthcare’s bankruptcy is a wake-up call for physician staffing firms and other healthcare services providers that have been struggling to cope with the impact of the COVID-19 pandemic and other market forces. The bankruptcy highlights the need for these firms to adapt to the changing environment and pursue strategies that can enhance their resilience and competitiveness. Some of these strategies may include:
- Diversifying revenue streams: Physician staffing firms may seek to diversify their revenue sources by expanding into new markets, services, or payment models. For example, they may offer telehealth, home health, or post-acute care services, or participate in value-based contracts or alternative payment models that reward quality and efficiency over volume.
- Optimizing cost structure: Physician staffing firms may also look for ways to optimize their cost structure by improving their operational efficiency, productivity, and utilization. For example, they may leverage technology, data analytics, or automation to streamline their processes, reduce errors, or enhance decision-making. They may also renegotiate their contracts or rates with insurers, suppliers, or other partners to lower their expenses or increase their margins.
- Strengthening relationships: Physician staffing firms may also strive to strengthen their relationships with their key stakeholders, such as patients, clinicians, hospitals, health systems, insurers, regulators, and investors. For example, they may enhance their communication, collaboration, or alignment with these stakeholders to foster trust, loyalty, or satisfaction. They may also seek to resolve any disputes or issues that may arise with these stakeholders in a timely and constructive manner.
Envision Healthcare’s bankruptcy is not the end of the story for physician staffing firms. Rather, it is an opportunity for them to learn from Envision’s mistakes and successes, and to reinvent themselves for the future.
Bankrupt Envision Healthcare approved to split in two, cut debt
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