National physician staffing firm Envision Healthcare is considering filing for bankruptcy, according a report from Bloomberg. Sources say the company, backed by private equity (PE) firm KKR, which acquired Envision for $9.9B in June 2018, has hired restructuring advisors and is working with an investment bank. The abrupt halt to elective surgeries and reduction in emergency room volumes due to COVID-19 has caused Envision’s business to shrink by 65 to 75 percent in just two weeks at its 168 open ambulatory surgery centers (ASCs), compared to the same time period last year.
The Nashville-based company, which employs over 25,000 physicians and advanced practitioners, has already been reducing pay for providers and executives, in addition to implementing temporary furloughs. Envision is also struggling with a debt load of more than $7B, resulting from its 2018 leveraged buyout, and has been unable to convince its bondholders to approve a debt swap.
It remains to be seen whether Envision will be a bellwether for how other PE-backed physician groups will weather the ongoing COVID crisis. While Envision’s composition of mainly hospital- and ASC-based providers, coupled with its huge debt load, leave it on especially shaky financial footing, many PE-backed physician groups will struggle this year to achieve anything close to the 20 percent annual rate of return often promised to investors.
If high-profile PE-backed groups like Envision end up declaring bankruptcy, it will likely impact the calculus of the many independent practices which may have previously looked to PE firms for acquisition, and temper the enthusiasm of investors, who might see physician staffing and practice roll-ups as less attractive as volumes continue to fluctuate.
Envision Healthcare, a Nashville, Tenn.-based physician staffing company owned by private equity firm KKR, is struggling to manage its $7 billion debt load and recently hired lawyers and an investment bank to advise on its restructuring options, sources told Bloomberg.
The company is looking at restructuring options, including a potential Chapter 11 bankruptcy filing, as it faces financial pressure from the COVID-19 pandemic, according to Bloomberg. Envision has seen a significant decline in patient volume across its practices and specialties during the pandemic.
No decision has been made on a course of action for Envision, and the company is still seeking to ease its debt burden by swapping $1.2 billion of unsecured notes for a new term loan. Creditors have until the end of the month to decide whether to participate in the deal.
The company is exploring its restructuring options after taking several steps to improve its financial position, including holding back pay for physicians, reducing salaries of senior leadership and furloughing nonclinical staff. The company said clinical pay will be reduced in services with low patient volumes, and performance-based bonuses and clinician profit-sharing will be delayed until the fall. Additionally, Envision temporarily suspended retirement contributions, merit increases and promotions for all employees.
About a week after Envision implemented many of the changes, U.S. Sen. Elizabeth Warren of Massachusetts and U.S. Rep. Katie Porter of California sent a letter to Envision and other healthcare staffing companies backed by private equity regarding pay and benefits.
The letter, which Ms. Porter posted on Twitter, said Envision is cutting its physicians’ pay and benefits, “all while our doctors face new financial strains of their own” amid the COVID-19 pandemic.
In response, Envision cited challenges healthcare organizations are facing.
“The nation’s healthcare system has experienced a drastic drop in patient volume since the beginning of the COVID-19 crisis,” wrote Envision, which has more than 40,000 team members, 27,000 of whom are physicians and clinicians. “Even as COVID-19 fills emergency departments in hot spots around the country, Envision’s overall emergency volume is actually down 45 percent.”
Hospital and physician groups are trying to secure funds from the Coronavirus Aid, Relief and Economic Security Act and get additional aid. Though the private equity industry is lobbying Washington to gain access to the funds, it remains unclear whether private equity-backed companies like Envision will receive the emergency government funds.
The U.S. Department of Justice is probing Providence St. Joseph Health’s Swedish Health Services in a civil investigation, the not-for-profit integrated health system revealed in its recent quarterly earnings report.
The DOJ requested documents from Seattle-based Swedish related to certain arrangements, joint ventures and physician organizations, according to the report. Providence St. Joseph said that the investigation will not have a “material adverse effect” on its financials.
“Like all large institutions, Swedish is subject periodically to investigations and lawsuits,” Swedish said in a statement. “Per our policy, we are not able to discuss the specifics of any investigation. However, Swedish fully cooperates with all investigations.”
The DOJ said in a statement that it does not confirm, deny or comment on investigations.
In 2014, HHS’ Office of Inspector General audited Swedish Health’s Swedish Medical Center–First Hill, an acute-care hospital in Seattle. It found that about two-thirds of 257 inpatient and outpatient claims from 2010 to 2012 did not fully comply with Medicare billing requirements, resulting in net overpayments of nearly $937,500.
Also, Swedish Health was accused in 2017 of asking neurosurgeons to increase patient volume and perform unnecessary surgeries.
The recent investigation involving Swedish may relate to a delicate balance providers must strike with their affiliates.
Health systems have been carefully navigating around the Stark law, which aims to curb Medicare and Medicaid spending by prohibiting physicians and hospitals from making referrals based on their financial self-interest. But the 1989 statutes conflict with outcome-oriented care, providers argue as the law dissuades them from incentive-based arrangements.
The Stark law offers little, if any, room for error and carries significant financial penalties, experts said. Maintaining compliance and abiding audits can drain resources.
Through six months of Providence St. Joseph Health’s 2019 fiscal year, it reported an operating income of $250 million on operating revenue of $12.6 billion, up from $30 million of operating income on $12 billion of operating revenue over the same period prior. The health system reported $41 million in restructuring costs, as it aims to streamline operations and boost productivity.
For 2018, the organization drew just $3 million in operating income last year on $24.4 billion in total operating revenue. Excluding asset impairment, severance and consulting costs related to restructuring, the system said its 2018 operating income would have been $165 million. The restructuring costs are being spread across 2018 and 2019.
As it restructures, Providence St. Joseph has been expanding its non-acute portfolio, forming a for-profit population health management company, launching its second, $150 million venture fund and buying a revenue-cycle management company based on blockchain technology.