[Editor's Note: Since there's been so much recent news about student loans, we wanted to update you on our recent PSLF loophole post. Borrowers pursuing Public Service Loan Forgiveness in California and Texas who work at nonprofit hospitals but are employed by a contractor are NOW ELIGIBLE to certify their employment. To qualify, they must input employer information from their qualifying employer on the form. Here's what else you need to know.]
By Dr. Jim Dahle, WCI Founder
Envision Healthcare filed for Chapter 11 bankruptcy on May 15, 2023. This is kind of a big deal, and there are some lessons to learn from it.
Envision Healthcare, via its subsidiary Envision Physician Services, is a multi-specialty provider group that works at more than 900 facilities in 48 states, and it employs or contracts with more than 25,000 doctors and other providers. Its doctors include anesthesiologists, emergency physicians, hospitalists, radiologists, surgeons, OB/GYNs, and pediatricians. Via its subsidiary AMSURG, it manages more than 250 surgical centers.
Envision originally grew out of a company called EmCare that had a less-than-stellar reputation among emergency physicians. Derided by the American Academy of Emergency Medicine (AAEM), both directly and indirectly in The Rape of Emergency Medicine, EmCare was an early “kitchen scheduler,” founded way back in 1992. By 2005, it had 300 EM contracts in 39 states. It was purchased in 2011 by private equity, which made a billion dollars flipping it to the public markets in 2013 and renaming it Envision Healthcare. By 2017, it was getting a lot of flack in the press for balance billing. In 2018, it was taken private by private equity firm Kravis, Kohlberg, and Roberts (KKR) and was considering bankruptcy as early as 2020. Moody's gave a warning about bankruptcy in September 2022, and by May 2023, the warning had proved prophetic.
What Happened to Envision Healthcare?
If you ask Envision, it blames everybody else for its problems. It said fewer patients came to the hospital due to the pandemic (certainly true in most emergency departments in 2020). It said health insurers (primarily UnitedHealthcare) excluded it from its networks and wouldn't pay Envision as much as they should. It said the No Surprises Act was being implemented in a flawed way. It said there is a physician shortage, and it can't find doctors to work for the company. It said its costs have gone up due to inflation.
All of those things are probably true to a certain extent. But they're also true for every other group of emergency physicians in the country. Yet they haven't all declared bankruptcy. What's different about Envision? The same thing that always leads to bankruptcy: debt.
Private Equity, Leverage, and Business Risk
KKR bought Envision in 2018 for $10 billion. Did KKR have $10 billion? No, it didn't. It had $5 billion. In fact, as part of the bankruptcy, the company is having $5.6 billion in debt canceled. The company was highly leveraged. On average, S&P companies have a debt-to-capitalization ratio of 15%. Not 56%. This isn't unusual for private equity, though; it's how those companies play the game. They use borrowed money to buy companies, try to make them a little more profitable through various practices (some of which are probably good, many of which are not so good), and then sell them. They're in the company-flipping business.
The typical debt-to-equity ratio in the private equity business is 70%. But it doesn't take much going wrong for things to go bad when you owe that much money. Envision Healthcare filed bankruptcy not because it was out of money (it had $665 million in cash in the bank) but simply because it could no longer service its debt. Bankruptcy either eliminated the debt or turned it into equity. In essence, the lenders now own the assets of the company, and KKR lost $5 billion.
More information here:
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More Than Just Leverage
Advisory Board blames more than just leverage, though. It says Envision is different from other private equity firms in the healthcare space. Envision is more heavily focused on emergency medicine, and . . .
“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 . . .
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.”
AAEM Still Hates Envision
In 2021, AAEM sued Envision for breaking laws against the corporate practice of medicine in California. While Envision made a motion to dismiss it, a judge upheld the lawsuit and allowed it to proceed. AAEM is certainly not backing down just because Envision is bankrupt, because the lawsuit really isn't about money. Here's what the AAEM said:
“We are suing for a declaration that the Envision model of practice is illegal under California Corporate Practice of Medicine laws. To be clear, we are not suing for monetary damages.
The members of our Academy work in a difficult profession in consistently high-stress situations. They are charged with treating vulnerable patients in need of emergency care. Patients that put complete trust in the physicians treating them.
It is our view that Contract Management Groups (CMGs) compromise the care of those patients and the well-being of our doctors by exploiting the process. Doctors are pressured to put dollars ahead of medicine. They are required to work longer hours and handle higher patient volumes. Some are pushed to upsell services. Doctors burn out under these conditions. Consequently, they eventually leave the emergency room. As a result, we lose the best doctors where we arguably need them most.
This, of course, leads to an even more adverse effect on our patients. Board-certified physicians are replaced by some less qualified. Decisions can be made more in the interest of the corporation than the patient. Treatment is compromised. The quality of healthcare suffers.
This is a consequence we simply cannot tolerate. This is why we must continue our pursuit of this action regardless of Envision’s impending bankruptcy filing.”
Note that I have plenty of conflicts of interest in this story. Not only has Envision paid me to speak to their physicians, but I have also been a member of AAEM.
More information here:
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Lessons Learned from the Envision Healthcare Bankruptcy Filing
What takeaways should you take from this bankruptcy? I think there are a number of lessons for both individual white coat investors and for companies and society as a whole.
#1 Be Careful with Debt
Nobody ever declared bankruptcy without debt. While leverage works, it works both ways. When projected income doesn't show up, it becomes very hard to service debt, and real money can be lost. I don't know that $5 billion is the biggest loss KKR has ever had, but it's got to hurt. That applies to your financial life just as much as it does to KKR's business.
#2 Cheaters Don't Win in the Long Run
When your business is built on exploitation, eventually it's going to be hurt. Insurers, patients, and doctors all felt exploited by Envision. In my experience, saying what you are going to do and then doing it is the key to business success. The most successful business people, especially in the long run, tend to be honest, upstanding citizens delivering value and treating employees, customers, and even competitors fairly.
#3 Your Job Is Not as Secure as You Might Think
While I don't know of any massive layoffs associated with this bankruptcy (Envision claims none of its employees/contractors/patients will be affected at all), it's generally hard to get a raise and build a career at a company in financial trouble. With fewer and fewer physicians owning their practices every year, docs need to be prepared to change jobs and to weather periods of unemployment. Building an emergency fund, maintaining contacts and networks, and minimizing fixed expenses all go a long way in these situations.
#4 The Pendulum Swings?
While private equity has been buying up practices en masse the last decade, perhaps the pendulum is beginning to swing back the other way as investors realize healthcare—as a low-margin, high-risk business—maybe cannot provide the returns they seek. Jeff Goldsmith speculates:
“Envision’s demise strongly suggests that the power balance—both political and economic—has tipped decisively in the direction of payers like [health insurance company] United. Rising interest rates, the increasing scarcity of clinicians as workaholic baby boom vintage docs, and deepening financial challenges for the ultimate customers of many of these companies—namely hospitals—suggest that we may have reached an inflection point in the viability of many private equity physician care models, with their 4-7 year holding periods and a succession of owners. Current owners might find it increasingly difficult to exit their positions . . . Envision is United's first major scalp. There will be many others.”
Perhaps in a decade or two, doctors will have more control over how healthcare is delivered and how businesses are run. One can hope. Or perhaps health insurance companies will be bossing us all (hospitals, doctors, staffing groups, patients) around. Maybe I should be careful what I wish for. William Sullivan, DO, JD was almost sympathetic to Envision in a column for Emergency Physicians Monthly:
“The issues underlying Envision’s bankruptcy petition remain a significant longer term concern. If healthcare insurer activism can help drive a large national staffing company into bankruptcy, how well will smaller groups and hospitals fare against those same insurers? Although Envision claims that hospital labor expenses increased by 25% compared to 2019, I don’t know many physicians whose pay increased by 25% during that time frame. If anything, there is a trend toward paying emergency physicians less and decreasing staffing in larger emergency departments.
The No Surprises Act has been a morass from its inception. Insurance companies shaped the narrative leading up to this law as one of greedy physicians demanding outrageous payments for their services. The issue was never one of ‘surprise medical bills.' Instead, it has always been a ‘surprise denial of insurance coverage.' Our professional organizations did little to counter that narrative. By the way, while Envision is filing for bankruptcy protection, UnitedHealth’s profits increased from $17 billion in 2021 to more than $20 billion in 2022. Speaking about ‘No Surprises,' if our government is so concerned with surprise medical bills, why weren’t hospitals, labs, and pharmaceutical companies subject to the terms of the No Surprises Act?”
#5 Bankruptcy Law Is a Good Thing
While bankruptcy sounds terrible and none of us want it for ourselves or our companies, bankruptcy law is actually a good thing. Imagine the economic disruption without it. All of a sudden, the jobs of 25,000 providers and the healthcare of millions could disappear overnight. Far better to wipe out the equity holders, punish the debt holders, and see if it can all be worked out. Our economy and personal lives are a lot better with current bankruptcy laws than they would be if debtor's prisons still existed.
More information here:
Physicians, Bankruptcy, and What to Do If You’re Stuck There
There are lots of lessons to learn from the Envision Healthcare bankruptcy. Incorporate them into your life and practice.
What do you think of the bankruptcy? What are your thoughts on Envision, United Health, AAEM, or KKR? Comment below!
You’re exactly right. Envision kept flipping between public and private. Who made out with each transition? The doctors doing the work? Even the doctors in leadership like Dighton? No. The lawyers who took over the company (who were allowed to take over the company) and just kept levering it more.
COVID and the NSA just brought the abscess to a head.
I take issue with any hint that Envision is better or. worse than any academic medical center. I’ve been in leadership at both and dug deeply into billing and coding. Academics take advantage of Physicians to an extreme degree and certainly do not hold back when coding charts and billing patients. Despite demonstrated increased performance and millions of increased revenue in one large academic dept, staff practically had to beg for a COLA. And after years of waiting, got a pusillanimous few percent with a take it or leave it. Sorry people – many/most academic centers making money treat their docs horribly. At least Envision has a consistently good wage and cares about developing strong leaders.
The AAEM people are in denial if they think their house is in any way in better order.
(Despite the negativity or realism I still think we are absolutely lucky to do what we do and generally get paid well; I just think people who present one side being better than the other have never dug into the weeds and generally have no idea what’s going on)
I agree about your comments on academic medicine. My friends in Academic medicine get paid less for the work they do compared to private practice, have less autonomy and have a Byzantine bureaucracy above them that seems to care little for their well being.
I second the academic medicine comments. As an EMP that has worked in the community, with a wife in academics, the pay variation and workload that we’ve witnessed in academia are unconscionable
While I shed no tears for Envision as I believe these types of management contract agreements do amount to corporate ownership of medicine and thus are illegal and ethically compromised, It’s hard for me to see much of a silver lining. Physician reimbursement has been declining for decades. On an inflation adjusted basis we make something like 20% less than we did two decades ago. What other highly in demand profession has seen such an erosion in pay? And while I do not support corporate ownership of physician practices, they at least had the weight and influence to try to fight insurance companies and the government. I predict we will continue to see physician pay decline while profits for insurance
companies continues to soar. At some point, and maybe we are already seeing this, it will make zero financial sense for an MD to pursue a career in primary medicine outside of a cash only concierge setting. NPs will fill the void but I don’t think physicians will find much refugee in subspecialties for long. The writing is on the wall. The government and insurance companies want to continue to put downward pressure on physician income. Individuals physicians don’t stand a chance.
I’m curious about your data source for the decrease in physician income. I’m just not seeing it in the salary surveys. I hear people throw that sort of data out all the time, but nobody ever cites a source. Yes, some specialties have taken big hits (cards, CT surgery, rads to name a few), but overall I don’t think we’re 20% down, even considering inflation. I think we’re probably up.
There’s a chart here:
https://marginalrevolution.com/marginalrevolution/2019/05/physician-and-nurse-incomes-have-increased-tremendously.html
That shows inflation adjusted employee doctor incomes from 1960 to 2015. It shows that physician income has increased by over 3X in real terms since 1960. It certainly shows an increase from 2000-2015, i.e. the last 20 years. What am I missing?
“ From 2001 to 2021, Medicare physician pay fell 22% (JPG) after adjusting for inflation in practice costs. Meanwhile, the Medicare physician payment system lacks an adequate annual physician payment update, unlike those that apply to other Medicare provider payments (PDF). “
That is directly from the AMA. And as private insurance usually reimburses some multiple of Medicare rates, I’m making the assumption private insurance reimbursement has also declined on a real basis, though, i don’t have the numbers for that. That probably varies significantly but my hunch is the trend is downward.
I think the difference is reimbursement for RVU vs salary. While reimbursement has gone down, productivity has increased significantly to help keep salaries afloat. But at what cost to the physician’s well being? I’m an early career radiologist. I know I am much more productive than your average radiologist from 20 years ago, and I make much less than they did. It may be fair to say my predecessors were paid too much for what they did. That may be true. It doesn’t change the reality that reimbursement has gone down. And with government and insurance companies essentially controlling reimbursement, I don’t see that trend reversing.
https://www.ama-assn.org/practice-management/medicare-medicaid/medicare-physician-pay-cuts-underscore-need-fix-broken-system
My insurance contracts have nothing to do with medicare rates. Why would you negotiate that way?
Almost all of our insurance contracts are tied to Medicare rates. Every private insurer we work with pays a certain percent above Medicare rates. This is in the Midwest.
Maybe it’s time to find someone else to do the negotiating. Why in the world would you allow Medicare that sort of control over your income?
I am making the same money now as I was in 2008 when I became a partner in my group. And I do more hours per month than back then. Care to talk about inflation over those 15 years???
To say physicians are rolling in dough in 2023 is ridiculous. Where I live there are job ads for family practice docs for 250k, which is what they were paying 20 years ago. Nurse Anesthetists jobs at my local hospital start at 300k.
Wow. Really 250k for family?
Midwest must pay much better then out west. Many don’t make anything near this. I had an er offer IC 100/hr and by the time I paid travel and everything else it was like 20/hr plus it was 24 hr shift.,
“Or perhaps health insurance companies will be bossing us all”
Unfortunately, this is where we may be and where it may remain for my years of practice.
Healthcare in the US is not about health or care. It is about $$$. The $2.5 trillion pasture is run by wolves who are vying for every corner of it. LOL, the wolves then fatten up our index funds, the music plays on…
Majority of doctors come out of med school with the idealism of perpetuating health and care but prove very innocent when it comes to business. Then they meet the wolves with MBAs who have been waiting for the sheep to come out to graze.
Of course, choices can be made. One choice is to give up the addictive enticements, often $$$, and focus on the health and care. Certainly, there are variety of other options but often these come with unhappiness.
The opacity of the billing system makes patients feel as of they’re in the receiving end of a particularly bitter joke. The unfettered ability of insurers to deny anything they deem unreasonable burns both physicians and patients alike. Disintermediation of the provision of healthcare from an outside party (insurer) is the only reasonable conclusion here. If you’re a primary care doc, I strongly encourage you to move to direct primary care. You all control the purse strings from a referral or imaging standpoint but are also the main connection between the patient and healthcare system. There is no perfect solution, but removing as many administrative obstacles as possible from our interactions with patients is the only way to begin to care well for them.
The 2023 Medscape Physician compensation report claims EM docs are down 6% from last year. Is that because people are working less or just getting paid less?
I can tell you that our CMG announced that due to the 2023 change in coding and “fiscal challenges” they are lowering our pay. By how much? They said, around $2/hr but when they showed us their model including RVU modifications, it looked like our pay was being cut by a lot more than $2/hr. You never know until months later as the RVU calculations are always delayed.
Despite their anticipated decrease in revenue due to the 2023 change in coding guidelines, revenue *increased*.
So revenue is unexpectedly up, and pay is still being cut.
Maybe it’s different for other markets.
Thgt data isn’t nuanced enough to answer your question. Still a concerning finding though.
As a datapoint, in our group our pay has been cut about 20%. It is hidden by lowering our hours but increasing our workload so that we work past our hours. Our 10 hour shifts were cut to 8 hours, but, we are staying 2 hours late into our shift and then another additional hour for documenting.
I have Hospitalist friends who also feel the cuts in pay or the increase demand in productivity forcing them to work overtime with no increase in reimbursement.
I talk to friends all over the country who have similar stories. Either pay goes down or productivity increases. This has been a trend for years that has been exacerbated since COVID.
Agree 100 percent
One datapoint is just thqt. Funny thing about salary surveys, Medscape last year showed a 6% drop for EM and Doximity showed a 6% increase. Garbage in, garbage out.
I encountered a group of private equity partners at a cocktail party just prior to the passage of the ACA. They were talking about taking over medical practices with one goal: to profit from physicians’ productivity. Doctors have been profoundly betrayed by the naive AMA and their professional associations. No one has stood up for them. No one has challenged insurance company and CMS bureaucrats for denying much needed care to enhance profits. Some insurance company employees are rewarded for how many claims they have denied. And by the way, the goal of large insurance companies like United Healthcare is to employ physicians. To make it impossible to survive independently. They announced this plan at an ACC meeting where they called themselves “health care providers.”
One of the things that is not discussed here, that is unfortunate in bankruptcy, is participants in nonqualified deferred compensation plans are subject to the claims of general creditors. My company, My Financial Coach is one of WCI recommended financial planning advisors, but I have personally spent 30 plus years designing these arrangements for large publicly traded and private companies.
After the adoption of IRS Code 409A there really isn’t too many things you can do to protect your deferred compensation balances. It’s my understanding that the physicians were in a plan at Envision.
Knowing the risk, there were better options for accumulating deferred tax dollars without the risk to general creditors. We work with similar organizations who use independent contractors, and they can set plans up with ERISA protection.
Your comment about there being no layoffs and Envision saying their employees won’t be affected is not true. Envision lied to everyone, including the employees. They have laid off hundreds of employees in multiple departments since the bankruptcy. In fact, after telling us our jobs were secure and to “hang in there with them till this passes”, they laid off me and my entire department yesterday. Costing us all job opportunities as many of us stayed loyal to our managers and the company and did not quit. I had two job offers come through LinkedIn via recruiters that paid more money, during the time of the rumors that we were all going to lose our jobs. I’m sure other employees experienced the same thing. Then they pulled the rug out from underneath us. I doubt they will ever recover from their witless choices and will most likely be dismantled and sold off piece by piece till they are no longer in business. Serves them right for doing their clients AND their employees so dirty!
Ugh, I’m really sorry to hear about that, Amanda. That’s terrible.