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Physician staffing firm Envision Healthcare is struggling financially and these difficulties are reflected in the downgrade of Moody’s Investors Service’s credit rating.

According to Moody’s, Envision could become illiquid over the next 12 to 18 months and its $1.4 billion cash reserve could be depleted by the end of next year. Moody’s said bankruptcy or restructuring was likely, and the company’s Corporate Family Rating (CFR) was downgraded from C to Caa3.

The rating action follows a series of transactions including the restructuring of Envision’s senior secured credit facility, the issuance of a new revolving credit facility in July 2022, and the issuance of other debt at subsidiary Amsarg in April 2022 . Moody’s considered Envision’s transaction to be a distressed exchange because the loan was exchanged at a price below par. This is the default by Moody’s definition.

Envision’s capital structure is unsustainable, the rating agency said. Recovery rates for most of the company’s debt will be low. Moody’s expects performance to continue to deteriorate due to continued labor pressure within the industry and rising interest rates that have nearly doubled interest expense.

Although the refinancing did not significantly reduce the debt and extended the maturity, Envision is still at risk of not being able to service its debt.

what is the impact

There are several factors that mitigate some risks. According to Moody’s, Envision has a sizeable size and market position as one of the largest medical staffing outsourcers in the country. The company has strong product diversification within the physician staffing and ambulatory surgery center segments.

However, continued business pressures and rising interest expense will result in Envision’s free cash flow being significantly negative after 2022.

In assigning the new ratings, Moody’s considered the expected losses of the Envision bonds. This is what the rating agencies expect to be a significant amount. Moody’s said a portion of the proceeds to the Term Loan will be applied to Envision’s senior secured First Out Term Loan before any other debt, subject to asset recovery of the Envision business. However, significant losses are expected.

The outlook for Envision and AmSurg subsidiaries is stable. Moody’s expects the company’s continued difficulties, weak liquidity and increased risk of default given the risks surrounding the continued sustainability of its business.

the bigger trend

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

While unlikely in the short term, supporting the upgrade will require significant improvements to Envision’s liquidity position, including refinancing of existing debt. Envision also needs to improve its performance, according to Moody’s.

Earlier this month, Envision filed a lawsuit against UnitedHealthcare, resulting in a counterclaim from UHC. This alleges that Envision has fraudulently upcoded billing for services provided to his UHC members.

UHC removed Envision from its network last year, claiming that Envision’s costs did not reflect a fair market price. According to the Envision lawsuit, UHC dismissed approximately 18% of commercial claims filed. After Envision was removed from the UHC network, this figure ballooned to 48% of all claims. And for the sharpest claims, Envision accuses UHC of denying him 60% of those claims.

Meanwhile, a doctor at California’s Corona Regional Medical Center and Temecula Valley Hospital threatened to leave the hospital if for-profit owner Universal Health Services changed staffing firms to Envision, according to the hospital’s current said the doctor leading the emergency room. Staffing agency, Emergent Medical Associates (EMA).
Physicians opposed Envision, citing low wages and staffing concerns that lead to poor quality care.

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