Moody’s downgrades Envision Healthcare, says bankruptcy possible

Posted on by • Posted in Bankruptcy, Credit Downgrade, Credit Ratings, Financial Distress, Financial Pressure, Financial Viability, Financially Distressed, Physician Staffing, Physician Staffing - Private Equity Backed • Leave a comment

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Envision will see weak liquidity over the following 12 to 18 months, and its $1.4B cash reserve will likely run dry by the end of next year.

Physician staffing company Envision Healthcare is struggling financially, and these struggles are reflected in a Moody’s Investors Service credit rating downgrade, which took into account ongoing labor pressures and a decline in volumes linked to the COVID-19 pandemic.

According to Moody’s, Envision will see weak liquidity over the following 12 to 18 months, and its $1.4 billion cash reserve will likely run dry by the end of next year. Moody’s said bankruptcy or restructuring is likely in the cards, and its Corporate Family Rating (CFR) has been downgraded from C to Caa3.

The rating action follows a series of transactions including restructuring of Envision’s senior secured credit facilities, and issuing a new revolving credit facility in July 2022 and other debt in April 2022 at its subsidiary, AmSurg. Moody’s deemed Envision’s transactions to be a distressed exchange, as the loans were exchanged at a price below par. That’s a default under Moody’s definition.

Envision’s capital structure is unsustainable, the rating agency said. Recovery rates for much of the company’s debt will be low. Moody’s expects operating performance will continue to deteriorate due to ongoing labor pressures within the industry, as well as rising interest rates that will cause interest expense to nearly double. 

The refinancing has not materially reduced debt, and while the maturities have been extended, Envision remains at risk of being unable to service its debt.

WHAT’S THE IMPACT

There are some factors in play that mitigate some of the risks. Envision has considerable scale and market position as one of the largest physician staffing outsourcers in the country, said Moody’s. The company has strong product diversification within its physician staffing and ambulatory surgery center segments.

However, continuing business pressures and increased interest expense will cause Envision’s free cash flow to be significantly negative in 2022 and beyond. 

When assigning the new ratings, Moody’s considered the expected loss on the Envision debt, which the Rating Agency expects will be significant. Moody’s noted that to the extent that there is asset recovery on the Envision business, the share of proceeds to the term loans will be applied to the Envision senior secured first out term loan before the other debt. But it’s expected that there will be material losses.

The outlook is stable for both Envision and the AmSurg subsidiary. Moody’s expects the company to remain distressed and there is a heightened risk of default given the weak liquidity and risks surrounding the ongoing sustainability of the business.

THE LARGER TREND

Envision operates an extensive emergency department, hospital, anesthesiology, radiology and neonatology physician outsourcing segment. The company also operates more than 250 ambulatory surgery centers in 34 states, and is owned by private equity firm KKR. Revenues for the period ending June 30 were about $7 billion.

Although it’s unlikely in the near term, a substantial improvement in Envision’s liquidity position –  including refinancing of the existing debt – would be needed to support an upgrade. Envision would also need an improvement in its operating performance, Moody’s said.

Earlier this month, Envision filed a lawsuit against UnitedHealthcare over the insurer’s denied claims, sparking a countersuit from UHC, which claimed Envision fraudulently upcoded claims for services provided to UHC members.

UHC removed Envision from its network last year, claiming the firm’s costs did not reflect fair market rates. According to Envision’s lawsuit, UHC denied about 18% of submitted commercial claims – a number that swelled to 48% of all claims after Envision’s removal from UHC networks, the firm said. And for the highest-acuity claims, Envision is accusing UHC of denying 60% of those claims.

Meanwhile, in June, physicians at Corona Regional Medical Center and Temecula Valley Hospital in California threatened to leave the hospitals if for-profit owner Universal Health Services changes the staffing management firm to Envision, according to an emergency room doctor who heads the hospitals’ current staffing firm, Emergent Medical Associates (EMA).
Physicians objected to Envision citing concerns of lower pay and staffing levels leading to lower quality of care.

Debating the best way to Chase Commercial Market Share

Posted on by • Posted in Health System, Hospital, Hospital Industry, Leadership, Leadership Alignment, Leadership Vision, Market Share, Market Trends, Marketing, Strategy, Value Creation, Value Proposition, Value-Based Contracting, Value-Based Healthcare • Leave a comment

https://mailchi.mp/e60a8f8b8fee/the-weekly-gist-september-23-2022?e=d1e747d2d8

Cross-subsidy economics are increasingly challenged for America’s hospitals. Aging Baby Boomers are moving from commercial insurance to Medicare, decreasing the share of patients with lucrative private coverage, and insurers are increasingly reticent to provide the rate increases providers need to make up for the worsening mix.

At a recent executive retreat, one health system debated the best strategies to increase their capture of commercial volume. Most of the conversation focused on traditional market-based tactics to increase access and awareness in fast-growing, higher income areas of their service region.

For instance, the system’s chief marketing officer was pushing to increase advertising in the rapidly expanding suburbs, and advocated building ambulatory surgery centers in a wealthy area of town with a boom of new home construction. 
 
The chief strategy officer shared a different perspective, supporting an employer-focused strategy. His logic: “In most businesses, the CEO and the janitor have the same benefit plans. If we only focus on the wealthy parts of town, we’re missing a big portion of the workers with good insurance.” He advocated for a new round of direct-to-employer contracting outreach, hoping to steer workers to high-value primary and specialty care solutions.

In reality, any system looking to move commercial share will need to do both—but even the best playbook for building commercial volume is unlikely to close the growing cross-subsidy gap. To maintain profitability in the long term, health systems must reduce costs for managing Medicare patients by delivering lower-cost care in lower-cost settings, with lower-cost staff.    

Bear Market for recent Digital Health IPOs cautions investors

Posted on by • Posted in Bear Market, Digital Health, Inflation, Initial Public Offering (IPO), Innovation, Innovative Care Models, Investments, Recession, Stock Market, Value Proposition • Leave a comment

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COVID fueled a record year for digital healthcare venture funding in 2021, which included 85 digital health startups achieving “unicorn” status with $1B+ valuations. But 2022 has been marked by cooling expectations amid inflation concerns and recession fears. 

In the graphic above, we’ve tracked the stock market performances of six recent healthcare IPOs across their opening, peak, and latest months. While not all of them are pure digital health plays, each of these companies promotes its digital solutions or tech-enabled patient platforms as key parts of their value propositions. 

Since going public, each company has lost between 50 and 90 percent of its initial value, more than double the S&P 500’s roughly 20 percent drop from its January 2022 peak to today’s level. The bear market has influenced the venture funding world as well, as H1 2022 fundraising totals for digital health have dropped from last year’s record-setting pace, though they may still surpass 2020 levels by year end. 

After the initial fervor, this market correction among “healthtech” companies is not surprising, and acquisitions—like Amazon’s purchase of One Medical—are likely to continue, as long as these market trends hold. 

The questions every investor should now be asking: does this start-up have a viable path to profitability in the US healthcare market, and does it deliver meaningful value to consumers? 

Telehealth blurs the line between Prescription and Over-the-Counter Drugs

Posted on by • Posted in Abuse, Consumer Driven Health, Consumer Engagement, Consumer Marketing, Consumer Preferences, Consumer Segmentation, Consumerism, Market Trends, Prescription Drugs, Telemedicine • Leave a comment

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 A recent STAT News article highlights a concerning new trend in direct-to-consumer pharmaceutical marketing, enabled by access to virtual care. Pitched as a tool for patient empowerment, pharmaceutical companies are now offering consumers immediate treatment for a variety of health conditions at the click of a button that says, “Talk to a doctor now.”

Over 90 percent of eligible patients receive a prescription for the drug they “clicked” on, after connecting with a virtual care provider on a third-party telehealth platform. Not only does this practice give drug companies direct access to prospective patients, but it also delivers lucrative data on patient age, zip code, and medication history that can be used to target marketing efforts.

The Gist: Articles like this remind us why the US is one of only two countries in the world that allows direct-to-consumer marketing of prescription drugs (the other, interestingly, is New Zealand). 

As the number of Americans with a primary care provider continues to decline, this kind of Amazon-style, easy-button drug shopping experience will be increasingly appealing to many consumers. But wherever innovation outpaces regulation, situations in which for-profit companies prioritize profits over providing the best care for patients are sure to occur.

While we support the idea of greater consumer empowerment in healthcare, we worry that this highly fragmented approach to consumer-driven health can result in abuse and patient harm.

Health Panel recommends Regular Anxiety Screenings for Adults

Posted on by • Posted in Adult Anxiety Screenings, Behavioral Health, Dept of Health and Human Services (HHS), Innovative Care Models, Mental Health, Population Health, US Preventative Services Task Force • Leave a comment

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The US Preventative Services Task Force, which is appointed by an arm of the Department of Health and Human Services, issued draft guidance this week recommending that all adults under age 65 be screened for symptoms of anxiety disorders.

The panel made a similar recommendation for children and teenagers earlier this year. COVID accelerated an already widespread mental health crisis, with the prevalence of anxiety and depression increasing by 25 percent globally during the first year of the pandemic. The panel’s recommendations are not mandatory, but carry strong influence over primary care physician practices. Draft guidance will be finalized in the coming months after a review of public comments.

The Gist: Policymakers and providers are right to respond to the population-wide increase in anxiety and depression brought on by COVID, and regular screenings will surely help quantify the scope of a problem we’re now facing.

However, given our nation’s undersupply of behavioral health practitioners, widespread screenings are likely to unleash a flood of demand that traditional providers will struggle to meet. Given virtual care’s staying power in the behavioral health space, we hope that the inevitable wave of mental health diagnoses will be matched with innovative care models designed to treat this growing issue at scale.

Judge allows United Healthcare Group (UHG’s) Acquisition of Change Healthcare to move forward

Posted on by • Posted in Antitrust, Dept of Justice (DOJ), District Court, Health Insurance Industry, Market Consolidation, Market Power, Market Share, Market Trends, Mergers & Acquisitions, Vertical Consolidation, Vertical Merger • Leave a comment

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On Monday, a federal judge denied the Department of Justice (DOJ)’s attempt to block UHG’s $13B purchase of Change Healthcare, a technology firm specializing in claims processing and data analytics.

The DOJ sought to block the purchase on antitrust grounds, arguing that UHG would have access to technologies that its rivals use to compete, but the judge, writing in a sealed ruling, found the DOJ’s case inadequate. It is unclear at this point whether the DOJ will appeal.

Change will now join UHG’s OptumInsight division, though in response to anticompetitive concerns, the ruling ordered UHG to sell part of Change’s claims payment and editing business, as it had already planned to do. 

The Gist: Antitrust regulators have had much greater success at challenging horizontal healthcare mergers but have struggled to find solid footing to fight vertical deals. 

The UHG-Change case was closely watched in part because of the precedent it would have set in terms of holding “platform” aggregators in check. As UHG and other healthcare titans continue to acquire assets up and down the value chain (physician practices, ambulatory surgery centers, clinics, telehealth capabilities, risk products), it’s increasingly clear that the government will face an uphill climb to question the competitive effects of these vertical M&A activities.

CFOs need to prep for healthcare’s lagging inflation

Posted on by • Posted in Affordability, CFO, Employee Benefits, Health Insurance Premiums, Health Insurance Self Funded, Inflation, Retention, Talent Imperative, Talent Management • Leave a comment
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Healthcare costs are expected to jump 6.0% next year. CFOs must prepare accordingly, advises WTW’s Tim Stawicki.

CFOs need to be prepared for a “higher tail” of medical inflation — even if general inflation eases in the near future, Tim Stawicki, chief actuary, North America health & benefits of Willis Towers Watson (WTW) told CFO Dive.

With the Consumer Price Index (CPI)  rising to 8.5% in July and the recent rise in the core Producer Price Index (PPI), the Federal Reserve will probably look to hike interest rates even farther. 

“CFOS need to be prepared for the case that if general inflation eases, there may be two or three more years where they need to think about how they are managing the costs of health care plans,” he said in an interview. 

Inflation, which can more immediately impact consumer prices, works somewhat differently when it comes to costs of medical care. “Employers are paying healthcare costs based on contracts that their insurer has with providers, which are multiple years in length. So if a deal with the hospital or contract does not come up until 2023, then that provider has the opportunity to renegotiate higher prices for three years,” said Stawicki. 

The recent Best Practices in Healthcare Survey by WTW consisting of 455 U.S. employers found that employers project their healthcare costs will jump 6.0% next year compared with an average 5.0% increase expected by the end of this year.

Further, employers see little relief in sight — seven in 10 (71%) expect moderate to significant increases in costs over the next three years. Additionally, over half of respondents (54%) expect their costs will be over budget this year.

Balancing talent retention and healthcare costs

Talent retention has also remained an entrenched challenge for CFOs over recent months and continues to be top of mind. 

Given inflationary pressures and a potential looming recession, employers are having trouble finding the workers they need to run their businesses. A rise in healthcare benefit costs will make this all the more challenging, said Stawicki. “Employers are looking around and saying ‘I need to find talent to help me run my business and I can’t do that if I have an ineffective program in healthcare benefits,’” he said. 

There is a direct link between business outcomes and in particular employee productivity and employees’ ability to manage their health and financial environment, according to WTW’s Global Benefits Attitude Survey. “Losing the ability to offer programs and benefits that meet employee needs is impacting business,” said Stawicki.

It comes down to finding the balance between cost management in an environment where talent is hard to come by, he said. In order for CFOs to be successful in financing benefit programs they need to look at finding ways to partner with their counterparts in human resources, said Stawicki. 

Sixty-seven percent of employers said that managing company costs was a top priority in the company’s August Best Practices in Healthcare Survey, versus the 42% who said that achieving affordability for employees was a top priority. In the near future, CFOs need to establish a relationship with HR counterparts that can facilitate “ways to manage company costs without shifting it to employees,” said Stawicki. 

Ultimately, company costs remain paramount for employers but running a successful business will also require keeping employee affordability top of mind.

CFOs continue talent retention battle

Posted on by • Posted in Career Development, Career Growth, CFO, High-Value Activity, Meaningful Work, Recognition, Recruiting, Retention, Talent Competition, Talent Imperative, Talent Management, Work Environment Flexibility • Leave a comment
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Dive Brief:

  • CFOs looking to attract and retain the right kind of talent amidst inflationary pressures, rising interest rates and other economic tensions need to “double down on recognition and meaningful work for employees,” said Jessica Bier, managing director of Deloitte Consulting, in an interview. 
  • In order to attract and retain viable talent to keep business afloat, 71% of CFOs indicated that a flexible workplace environment was their approach, 63% said clarity around career development and growth opportunities and 62% pointed to increased salaries, per the second wave of data in the Q3 CFO Signals report.
  • The report also revealed that CFOs who took steps to alter, reduce or streamline the type of work their finance organizations performed saw several benefits throughout the enterprise — 78% said one benefit was more time spent on higher-value activities and 71% indicated greater use of technology was another. Contrastingly, only 20% saw talent retention as a benefit, and even less (10%) saw higher quality talent as one.

Dive Insight:

The managers and workforce of financial departments are looking for five main things, said Bier, per the report — those being work environment flexibility, career growth and development, salaries, meaningful work and recognition, she said.

“As we think about the workforce experience, every CFO is also the chief talent officer,” Bier said. “Your HR business partner can support you but at the end of the day the way your managers work and the way you connect people to the work that they’re doing — that’s the CFO’s job to set that tone.”

In today’s macroeconomic environment, with inflation at its highest point in nearly four decades, meeting the expectations and needs of finance employees is all the more expensive, and important. 

One misconception, Bier said, is that a recession means workers will be happy just to have a job. “The people in the workforce who are the ones you want to keep, are the ones who are always going to have options,” she said. 

Talent retention continues to be a multifaceted challenge for CFOs and remains top of mind. Over half of CFOs (54%) cited hiring and retaining staff as the most difficult task over the next 12 months, according to a July Gartner study.