Envision Healthcare filed for Chapter 11 bankruptcy.

Physician staffing firm Envision Healthcare filed for Chapter 11 bankruptcy this week, but will “continue operating its business as usual” so that the company can “provide patients with the high-quality care they require.”

Envision Healthcare files for Chapter 11 bankruptcy

On Monday, Envision Healthcare filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas. Following the filing, all of the company’s debt — except for a revolving credit facility for working capital — will be cancelled, totaling around $5.6 billion.

In a news release, Envision said several events have placed significant pressure on its finances since it was acquired by private equity (PE) firm KKR for $10 billion in 2018.

“The lingering impacts from COVID-19 on volume and labor costs, the delays resulting from tactics and recalcitrance by Envision’s largest insurance payors, and the ongoing regulatory uncertainty caused by the flawed implementation of the No Surprises Act have proven too much,” said Paul Keglevic, Envision’s chief restructuring officer.

Throughout the pandemic, healthcare staffing firms struggled to find enough workers to meet patient demand, especially in the highly competitive contract labor market, Modern Healthcare reports.

While Envision said it filed for bankruptcy because it is not generating enough revenue to cover its expenses and debt, it currently has $665 million of cash in the bank. According to the filing, the company expects those funds to help it exit bankruptcy faster.

“The decision to file these chapter 11 cases now, while the debtors have ample cash on hand, will ensure that the company can continue to provide patients with the high-quality care they require,” Keglevic said in the filings.

The company has entered a Restructuring Support Agreement (RSA), with plans to operate normally during the restructuring. Pending court approval, Envision said it will tap into cash collateral from ongoing operations to cover costs, “including supplier obligations and employee wages, salaries, and benefits during the restructuring process.”

“This will enable the company to continue operating its business as usual throughout the process and provide support to critical partners, including clinicians, hospitals, vendors and suppliers,” the company said.

Under the RSA, the company will divide its primary businesses, AMSURG and Envision Physician Services, which will be owned by their respective lenders. 

Does Envision’s bankruptcy spell trouble for other PE investments?

Envision isn’t like other medical group PE investments

As we discussed in a previous expert insight, PE investments in physician practices aren’t a monolith. Many different types of medical groups receive investments, and PE firms have a range of healthcare sector experience and business practices. 

Envision is an example of an outlier in all of these areas. First, their physician services are all hospital-based, with a heavy emphasis on emergency medicine — this contrasts with the predominant wave of physician practice investment in ambulatory practices. KKR only has one other physician practice investment, and their healthcare portfolio is rather limited.

Most importantly, Envision’s business model was reliant on exploiting questionable business practices and loopholes, which were heavily impacted by the No Surprises Act.

So, this bankruptcy isn’t an indictment of PE investment in physician groups. It just shows that healthcare organizations are not immune to being caught on their bad business practices — though PE, which is already struggling in the court of public opinion, won’t be helped by Envision’s demise.

What Envision’s bankruptcy means

Envision’s bankruptcy shines a light on trends we’ve been watching with hospital-based medicine that make financial solvency challenging: the strain of uninsured patients on revenue, workforce shortages driving up labor costs, and COVID-related volume impacts, to name a few.

What’s different with the average health system compared to Envision? While clearly rife with inefficiencies, health systems have mechanisms to self-correct.

Envision’s business model was not an innovation on care design or delivery.

It was a model taking advantage of pricing distortions and patients who are not in a position to shop for emergency care. That model inherently has limited running room.

On the physician practice front, Envision’s bankruptcy highlights the challenging business environment PE firms choose to enter when they invest in physician practices. Medical groups are a low-margin business, and the running room on cost savings has a low ceiling.

While many of the highest profile PE investments in physician groups come from firms with a long track record in the physician space, it remains to be seen whether the return on their investments will be high enough to satisfy investors.

The spotlight on large, heavily resourced healthcare organizations is not going away anytime soon. In fact, as consolidation continues, new investors enter the forefront, and organizations diversify the type of assets they acquire, that spotlight is only getting brighter.

CMS Releases 2023 MPFS Proposed Rule

On July 7, 2022, the Centers for Medicare & Medicaid Services (CMS) released the 2023 Medicare Physician Fee Schedule (MPFS) proposed rule, which includes payment provisions and policy changes to the Quality Payment Program (QPP) and Alternative Payment Model (APM) participation options and requirements for 2023.

MPFS Key Proposals and Additional Potential Medicare Reductions:

For 2023, CMS proposes a Conversion Factor (CF) of $33.0775 which is a decrease of $1.53 or -4.42% from the 2022 conversion factor of 34.6062.

  • This significant reduction in the CF accounts for the expiration of the 3.00% increase in PFS payments for CY 2022 as required by the Protecting Medicare and American Farmers from Sequester Cuts Act, in addition to the statutorily required budget neutrality adjustment to account for changes in Relative Value Units.
  • The separately calculated Anesthesia CF is proposed at 20.7191, a -3.91% decrease from the 2022 conversion factor of $21.5623.

Key Takeaways:
CMS estimates an impact to allowed charges from policy changes in the rule as outlined below. These impacts are due in part due changes in the RVUs and the second year of the transition to clinical labor pricing updates.

(Please note: These estimates do not include the impact on payments from the expiration of the congressionally mandated 3.00% boost to the 2022 CF.)

  • Anesthesiology: -1%
  • Diagnostic Radiology: -3%
  • Interventional Radiology: -4%
  • Emergency Medicine: +1%
  • Critical Care: +1%
  • Nuclear Medicine: -3%
  • Pathology: -1%
  • Radiation Oncology/Therapy Centers: -1%
  • Internal Medicine: +3%
  • Independent Laboratory -1%

Additional Potential Medicare Reductions:

  • In addition to the proposed cut to the CF, the second of two sequestration cuts was implemented on July 1, 2022, at -1%, bringing the total sequestration cut to -2% which will continue without Congressional intervention. 
  • Also, the lack of full funding of the American Rescue Plan meant that the Medicare program would contribute 4% under the “PAYGO” (Pay as You Go) rules and that cut will come back into the Medicare fee schedule in 2023. In total, hospital-based physicians face in the approximate range of -10% in 2023 without Congressional intervention.  

Appropriate Use Criteria (AUC):
CMS did not address the appropriate use criteria (AUC)/clinical decision support (CDS) mandate for
advanced diagnostic imaging services in this rule. CMS posted an update on its website indicating that
the current educational and operations testing period will continue beyond January 1, 2023, even if the
COVID-19 public health emergency (PHE) ends in 2022. The notice states that the agency is unable to
forecast when the payment penalty phase of the program will begin. Read more at CMS.gov.

Additional highlights of the MPFS Proposed Rule include:
Evaluations and Management (E/M) Services:

As part of the ongoing updates to E/M visits and the related coding guidelines that are intended to
reduce administrative burden, the AMA CPT Editorial Panel approved revised coding and updated
guidelines for Other E/M visits, effective January 1, 2023.

Like the approach CMS finalized in the CY 2021 MPFS final rule for office/outpatient E/M visit coding and
documentation, CMS is proposing to adopt most changes in coding and documentation for Other E/M
visits including: hospital inpatient, hospital observation, emergency department, nursing facility, home
or residence services, and cognitive impairment assessment, effective January 1, 2023. This revised
coding and documentation framework would include CPT code definition changes (revisions to the
Other E/M code descriptors), and for the first time would mean that AMA CPT and CMS would follow
the same coding guidelines, including:

• New descriptor times (where relevant).
• Revised interpretive guidelines for levels of medical decision making.
• Choice of medical decision making or time to select code level (except for services such as
emergency department visits (time has never been a component of ED E/M services except
critical care) and cognitive impairment assessment, which are not timed services).
• Eliminated use of history and exam to determine code level (instead there would be a
requirement for a medically appropriate history and exam).

Split (or Shared) Visits (Where services are performed by advance practice clinicians.)
CMS had previously finalized in the 2022 MPFS final rule a new January 1, 2023 billing policy for
instances in which a physician delivers an E/M service along with an advanced practice clinician (APC).
Recall that E/M services billed under an APC reimburse at 85% of the MPFS unless there is a
documented shared service by the supervising physician.

• The key determinant for deciding if there was a shared service is if the physician provided key
elements of the history, exam, or medical decision making ─ OR half of the total time spent
treating the patient.
• There were significant concerns that in hospital-based settings, the rule (set for implementation
on January 1, 2023) would have required only time as the determinative element, and that the
majority of APC services would then be reimbursed at 85% of the fee schedule. After significant
advocacy by multiple stakeholders, CMS has delayed the policy that would have based the
determination of the billing practitioner solely on time. This policy is proposed for delay until
January 1, 2024 while CMS collects additional input.

Expand Telehealth Coverage:
• CMS is proposing making several services that are temporarily available as telehealth services
for the PHE available through CY 2023 on a Category III basis, which will allow more time for
collection of data that could support their eventual inclusion as permanent additions to the
Medicare telehealth services list.
• CMS is also proposing to extend the duration of time that services are temporarily included on
the telehealth services list during the PHE, but are not included on a Category I, II, or III basis for
a period of 151 days following the end of the PHE, in alignment with the Consolidated
Appropriations Act, 2022 (CAA, 2022).

Highlights of the Quality Payment Program (QPP):
CMS stated they are limiting proposals for traditional MIPS and focusing on further refining
implementation of MIPS Value Pathways (MVPs).
2023 Proposed Performance Threshold and Performance Category Weights:
The performance threshold for the 2023 performance year is proposed to be 75 points, same as 2022.
• Beginning with 2023, CMS will no longer offer an exceptional performance adjustment.
• The category weights for the 2023 performance year are proposed to remain the same as the
2022 weights:
o Quality – 30%,
o Cost – 30%
o Promoting interoperability – 25%
o Improvement Activities – 15%

Data Completeness Requirements:
• For 2023, CMS is proposing quality measure submissions should continue to account for at least
70% of total exam volume – same as 2022.

• CMS proposed to increase this threshold to 75% beginning with the 2024 and 2025 performance

Quality Category – Measure Scoring System
• Beginning with 2023 CMS will change the scoring range for benchmarked measures to 1 to 10
points, doing away with the 3-point floor.
• Score existing non-benchmarked measures at 0 points even if data completeness is met
• New measures will continue to be scored at a minimum of 7 points for their first year and a
minimum of 5 points in their second year.
• CMS is maintaining the small practice bonus of 6 points that is included in the Quality
• performance category score.
• CMS also continues to award small practices 3 points for submitted quality measures that do not
meet case minimum requirements or do not have a benchmark.

MIPS Value Pathways (MVPs)
CMS is proposing 5 new MVPs and revising the 7 previously established MVPs that would be available
beginning with the 2023 performance year.
• Advancing Cancer Care
• Optimal Care for Kidney Health
• Optimal Care for Patients with Episodic Neurological Conditions
• Supportive Care for Neurodegenerative Conditions
• Promoting Wellness

Advanced Alternative Payment Models
For payment years 2019 through 2024, Qualifying APM Participants (QPs) receive a 5 percent APM
Incentive Payment. After performance year 2022, which correlates with payment year 2024, there is no
further statutory authority for a 5 percent APM Incentive Payment for eligible clinicians who become
QPs for a year.

CMS is concerned that the statutory incentive structure under the QPP beginning in the 2023
performance year. corresponding 2025 payment year, could lead to a drop in Advanced APM
participation, and a corresponding increase in MIPS participation. As a result, CMS concluded that it
would forego action for the 2023 performance period and 2025 payment year. They instead are seeking
public input in identifying potential options for the 2024 performance period and 2026 payment year of
the QPP.