Physician staffing firm Envision Healthcare has filed for Chapter 11 bankruptcy, citing its $7.7 billion in debt obligations, declining patient volumes, “flawed” implementation of the No Surprises Act and exclusionary health insurers as reasons for its financial decline in a restructuring announcement on Monday.
The bankruptcy wipes out private equity firm KKR’s investment in Envision. In 2018, the PE firm shelled out over $5 billion in 2018 to take Envision private, in a deal valued at $9.9 billion including debt. Last week, The Wall Street Journal reported that an Envision bankruptcy filing would be one of the steepest losses in KKR’s history.
The physician staffing firm suffered from declining profits amid hurdles from the COVID-19 pandemic and prolonged legal battles with health insurer UnitedHealthcare over payment to Envision clinicians, which caused Envision to lose its in-network status with the insurer in early 2021.
In the bankruptcy announcement, Envision again sparred with health insurers without naming UnitedHealthcare specifically, saying that Envision has “been proactive and negotiated in good faith on in-network agreements with health insurers” but that its clinicians “do not always get paid for their services when insurers exclude them from their networks.”
UnitedHealthcare sued the staffing firm in September, alleging that it overpaid Envision after it exaggerated the complexity of care provided by its clinicians. In April, Envision announced that it was awarded $91 million from an arbitration panel for payment disputes in 2017 and 2018. At the time, Envision CEO Jim Rechtin said it had three outstanding lawsuits against UnitedHealthcare that would take “several more years” to resolve.
Envision also targeted recent regulatory efforts to stop surprise out-of-network bills for patients in its bankruptcy announcement, saying that implementation of the No Surprises Act caused the company to lose “hundreds of millions of dollars” in delayed or reduced payments from insurers.
The No Surprises Act, passed in early 2022, is meant to protect consumers from unexpected medical bills, but the arbitration process settling payment disputes between providers and insurers has been the subject of several recent regulatory changes.
Envision’s bankruptcy doesn’t come as a surprise. Late last year, Moody’s Investors Service downgraded Envision’s credit rating to the lowest notch on its scale, reflecting a high probability of bankruptcy or major restructuring, due to the staffing firm’s weak liquidity and declines in profit.
Under terms of the restructuring, Envision and its ambulatory unit will be owned separately by lenders. Its ambulatory unit will purchase Envision’s surgery centers for $300 million, plus a waiver of intercompany loans held by the unit. All of Envision’s debt, with the exception of a revolving credit facility for working capital, will be equitized or canceled, deleveraging about $5.6 billion, according to the company.
Envision’s clinical operations will continue in the meantime without interruption, the company added.
