TeamHealth – US Physician Staffing Industry & Competitive Analysis – 29 June 2021

TeamHealth’s adjusted EBITDA ex the CARES [Coronavirus Aid, Relief and Economic Security] Act – the Fed stimulus – was down 42% YoY in Q1 2020, negative to approximately USD 58m in Q2 and down 40% and 34% YoY in Q3 and Q4 respectively. The company reported Q1 2021 at a 55% YoY increase in adjusted EBITDA, but against an incredibly easy and significantly depressed comp, whereas Q1 2021 adjusted EBITDA vs Q1 2019 is down about 11%. What are your thoughts on TeamHealth’s potential rebound in volumes, acuity mix and the possible implications?

You estimated a return to 80-90% pre-pandemic volume. If TeamHealth gets back to where it was on a 2019 run rate or a little better, how would that compare to expectations about pent-up demand? What if the bolus of catch-up elective procedures doesn’t materialise?

Although managed care organisations have consolidated and arguably have an oligopoly, what is often overlooked with physician staffing is the relationship with the healthcare system that brought them in. The surprise billing highlights that an in-network hospital can have an outsourced and out-of-network emergency department. Can you address the ongoing dispute with UnitedHealth and the longer-term implications between payers, providers and the physician practice and staffing industry? United ended high reimbursement in-network contracts with TeamHealth in 2019 and previously reduced TeamHealth’s reimbursement for certain out-of-network claims by about 50%, which prompted TeamHealth to sue United. What can you highlight about these evolving payer-provider relationships? How are you assessing the potential success, or lack thereof, in TeamHealth and other providers arguing that commercial payers should subsidise for underfunded and uncompensated care to Medicare, Medicaid and uninsured and other non-commercially insured patients?

TeamHealth argues that roughly 75% of the patients visiting its emergency departments reimburse for services below the cost. You alluded to a USD 175 cost per patient visit whereas TeamHealth cites USD 150 per patient on average for emergency department services. If we embrace that argument, TeamHealth’s profitability or survival depends on the 25% of patients who pay a margin and have commercial reimbursement that isn’t less than the cost. The company also claims that roughly 40% of revenue is via commercial payers. Combined with the United dispute, how does it navigate this challenging environment to generate the free cash flow it needs to de-lever? How might this situation implicate the hospital partners who have contracted providers in the emergency department and elsewhere who are out-of-network?

The No Surprises Act was passed in December 2020 and will take the patient out of the provider-payer dispute. This precludes providers from billing out-of-network patients for amounts over in-network rates, which will clearly impact companies with sizeable out-of-network revenue. One thing to realise is that TeamHealth has roughly 85% of care delivered in-network. How are you assessing the balance of power negotiations between payers and providers when out-of-network rates are capped or attached to a benchmark rate that payers seem to control?

TeamHealth provides care to roughly 29 million patients annually across the US, with more than 16,000 physicians and advanced practice clinicians providing care at approximately 3,100 acute and post-acute facilities and physician groups nationwide. Payers already had a stronger hand in the payer-provider relationship before the No Surprises Act and now have a strengthened negotiating position. Are we creating an extremely precarious operating environment that causes an industry-wide restructuring, as occurred in the ambulance industry and in radiation therapy? What does the industry and its lobbyists need to do to avoid a potential restructuring wave?

TeamHealth offers emergency medicine, urgent and critical care, hospital medicine, general and orthopaedic surgery, post-acute care and anaesthesiology, among other services. Which of those specialties do you believe have the greatest pricing upside and downside as we contemplate H2 2021 and 2022?

TeamHealth prides itself on its online optimisation solutions and intuitive analytics to support healthcare organisations’ efforts, to ensure that the right staff are at the right place at the right time. To what extent is TeamHealth’s analytical platform and capabilities appreciated by the hospital partners?

How should we assess the broader trend of volumes shifting out of the acute care hospital setting? What is the perceived impact on various practice specialties?

What are the considerations around reshaping multi-modality? If the whole idea is to get streamlined, more focused, to better understand data and be value-add by better understanding the risk, do you think M&A will involve more large-scale asset sales or divestitures of certain specialties such as Mednax by the more diversified staffing services?

If you were running the TeamHealth organisation, what would be your next move if breaking up the business and seeking M&A opportunities?

TeamHealth initiated cost-cutting plans and sought to reduce emergency medicine physician wages by roughly 4% to weather the pandemic. Senior leader salaries were also trimmed by 5%. Physicians and physician groups are notoriously difficult to manage, especially when compensation is being brought down. How do you expect this strategy to unfold?

Do you have any final thoughts to share about TeamHealth?