Envision Healthcare – Company Analysis & Q4 2022 Market Outlook

Considering Moody’s downgrade of Envision Healthcare’s CFR [corporate family rating] in September 2022 and other events I just summarised, how did the company arrive at where we are now?

In general, are you thinking it’s still quite precarious given everything Envision is trying to do to get its capital structure in place? What can the company do to avoid a future restructuring?

Envision is one of the largest US owners and operators of ASCs [ambulatory surgery centres], which seems to be its crown jewel. Depending on how the ASC is run, it will be challenging, especially with physician ownership concerns. I’m not aware of anything going on or how that’s working with AmSurg, but it does have 250 ASCs under its belt across 34 US states, and is benefiting from a very strong tailwind – the continued migration of highly profitable procedures from the inpatient to the outpatient. How does this trend help AmSurg and Envision recover from current financial challenges overall?

Moody’s referenced ongoing volume declines as weakening earnings and liquidity – presumably the volume declines were due to the pandemic and patients delaying elective surgeries or hip and knee surgeries. Do you think this is a situation where, as we’re seeing a very strong rebound in elective surgeries, Moody’s was a bit backward- instead of forward-looking as it relates to volume declines? Or has it seen something else in the business that we should be more concerned about, maybe driven by outside of the ASCs or inadequate staffing levels and the tight labour market, so it’s coming down to an inability to service the demand? What are your thoughts here?

Do you think as we more than likely enter a recession – if we’re not already in one – that the reliance on contract labour will go down? Will we eventually see relief on labour?

You’re not at Envision anymore, but what’s your sense of morale at the firm in terms of staffing? Are there issues of staff being increasingly overworked? Are you hearing anything anecdotal about abnormal attrition levels, or is a common trend across all providers?

I made a comment around a growing concern that reimbursement levels may not keep up with the inflationary pressures that providers, whether commercial or government, are facing. We may have to suffer through 2023 before we see a reprieve. Do you agree or disagree with this? What are you hearing or what do you think is most likely?

What are your thoughts about Medicare’s looming insolvency and how that might impact reimbursement levels for firms such as Envision? Is this flagged by the investment community as a concern or is it vied as inconsequential, because the view is it will never happen?

Considering the difficult situation – and we saw a wave of NFP [not-for-profit] hospitals go under and get bought out during the global financial crisis – do you see a shake-out on the general acute care hospital side, especially in rural areas where they can’t specialise in high-end, high-acute surgeries? Could it somehow be a positive outcome in terms of servicing some of the more profitable volume for players in the ASC business, such as Envision?

Could you comment on pricing as it relates to payer mix, specifically how can Envision shift its payer mix away from CMS [Centers for Medicare and Medicaid Services] and towards commercial? What is the company doing to effect that change?

The ongoing, very public contract dispute between UnitedHealth and Envision is a juicy topic. The two companies are negotiating and have basically been battling an in-network, out-of-network relationship since 2019. Over two years later, the two parties again find themselves at odds and without a contract. Moody’s doesn’t anticipate that Envision will resolve its contract disputes with United and will likely remain out-of-network, so that’s what the rating agency believes. How will Envision’s out-of-network status with United continue to challenge the organisation? How do you see this being resolved?

Envision has experienced significant negative publicity relating to patients receiving surprise medical bills when treated by out-of-network physicians but receiving care inside an in-network facility. This goes back to the NSA [No Surprises Act] that was implemented in January 2022, which tried to put a stop to this. Envision has come a long way in navigating and resolving this situation. Is this no longer a huge issue for the company? How is it adapting to the law? How has that legislation impacted your outlook for Envision?

What variable cost levers could Envision still pull to make the business more operationally lean in light of all the challenges? Presumably it hasn’t reached for all the levers already.

You mentioned looking at Envision overall in assessing whether any parts could be spun off or divested to allow leaner operations, greater leadership focus or to free up cash flow. What are your thoughts on what might make sense?

Envision generated about USD 7.3bn of revenue in 2021, including grants – I think 85% of that was derived from physician services and about 15% from the ambulatory services. Would you say the company is too big to fail? If you were the CEO, what would you see as the greatest challenges and how would you try to address them?

If you picture yourself as the CEO – hypothetically, this would be more like a publicly traded CEO – having to go out on stage, in this case with Envision, to be closer to the powerful lending group and make a case for the company, what would you do to put a positive spin on the situation without embarrassing yourself by ignoring all the challenges? What would you do to acknowledge any challenges but convey what we should be excited about for the company’s future?