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KKR’s Envision Healthcare Files for Bankruptcy, Enters Restructuring Agreement with Lenders

May 15, 2023, 07:59 AM
Filed Under: Bankruptcy

Envision Healthcare announced it and certain of its wholly owned subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Envision has entered into a Restructuring Support Agreement (RSA) with its key stakeholders supported by more than 60 percent of the company’s approximately $7.7 billion in debt obligations and expects that support will continue to grow in the coming days. The terms of the RSA establish the framework for a consensual and comprehensive restructuring that will position Envision and AMSURG for future growth as two separate businesses. Envision will continue to operate as usual throughout the restructuring process, maintaining its commitment to providing high-quality patient care.

Envision is one of the nation’s leading medical groups, delivering physician and advanced practice provider care in settings where patients have the most acute and life-changing needs – emergency departments, surgical suites, intensive care units and birthing suites – through Envision Physician Services. Additionally, its AMSURG unit partners with physicians to operate more than 250 ambulatory surgery centers nationwide specializing in gastroenterology, ophthalmology and orthopedic care. Together, the two teams of more than 21,000 clinicians are helping improve the health of communities across the U.S. through nearly 30 million patient encounters a year.

“Envision’s teams play a critical role in the functioning of the U.S. healthcare system,” said Jim Rechtin, Chief Executive Officer of Envision Healthcare, who joined Envision in February 2020. “We are grateful to the Envision clinicians, physician partners and clinical support teammates for their continued commitment to caring for patients when they need it most.”

Restructuring Support Agreement

Envision currently has more than ample cash to continue providing quality care and services and funding ongoing clinical operations without interruption. The Chapter 11 filing will enable Envision to effect the transactions encompassed in the RSA and facilitate opportunities for long-term growth by reducing its debt and strengthening its capital structure.

Under the terms of the RSA, the AMSURG and Envision Physician Services businesses will be separately owned by certain of their respective lenders. AMSURG will purchase the surgery centers held by Envision for $300 million plus a waiver of intercompany loans held by AMSURG LLC. All of Envision’s debt, with the exception of a revolving credit facility for working capital, will be equitized or cancelled, deleveraging approximately $5.6 billion.

Pending court approval, Envision will use cash collateral generated by ongoing operations to fund operating expenses, including supplier obligations and employee wages, salaries and benefits during the restructuring process.

This will enable the company to continue operating its business as usual throughout the process and provide support to critical partners, including clinicians, hospitals, vendors and suppliers. Envision remains dedicated to delivering outstanding patient care and advancing operational excellence.

History of Financial Pressures

Since the 2018 acquisition by KKR & Co., Inc., a series of events has put significant pressure on the company’s finances. These include:

Patient volumes sharply declined at the outset of the COVID-19 pandemic. As the country navigated the uncertainties of the COVID-19 pandemic, Envision clinicians risked their health to care for America. Emergency medicine and anesthesiology clinicians experienced sharp and localized surges of COVID-19 patients while in other areas of care, Envision lost 65 to 70 percent of patient visits for several months during the shelter-in-place policies, leading to financial instability. As part of its COVID-19 response, Envision focused resources on investing in its teams and communities by enhancing its clinician wellness program and rapidly deploying teams to care for hard-hit communities.

Health insurers excluding Envision clinicians from their networks and not providing appropriate reimbursement for care provided. For more than five years, Envision has been proactive and negotiated in good faith on in-network agreements with health insurers. Envision clinicians provide high-quality, lifesaving care to all patients but do not always get paid for their services when insurers exclude them from their networks. Increased claims denials for emergency care from Envision’s largest health insurance payer have resulted in denied or delayed payments. Envision and another health insurer recently completed a national multiyear agreement that provides patients with in-network healthcare.

Health insurer activism and the flawed implementation of the No Surprises Act (NSA). Envision fully supports the patient protections under the NSA and had a policy prohibiting the practice of balance billing before the legislation was passed. The implementation of the NSA deviates from the legislation’s intent and enables health insurers to significantly delay and unilaterally reduce or deny payments. Of the eligible claims Envision has submitted through the independent dispute resolution process, only a small fraction has been resolved, and of those that were resolved, many remain unpaid by health insurers. For Envision, the flawed implementation has resulted in hundreds of millions of dollars in underpayments and delayed payments from all health insurance plans.

The national clinician shortage and rising inflation. Like all healthcare providers, Envision is navigating a nationwide physician shortage. Envision has continued to work with its hospital partners to ensure patients receive high-quality care and has increased clinician wages to a competitive level in line with the post-COVID-19 “new normal.” With the simultaneous shortage and spike in inflation, Envision’s labor and other costs have increased by hundreds of millions of dollars since 2019. While overall inflationary pressures have eased somewhat, the market for clinician services continues to be extremely competitive.
During the last five years, Envision has recruited a new senior management team, with nine of the 10 executive leaders hired between March 2020 and July 2021. The management team has undertaken wide-ranging and proactive efforts to help Envision weather financial pressures while investing in its clinical teams and quality programs. Envision clinicians continue to exceed national quality benchmarks.

“We are grateful to have had the support of the board and KKR who have always maintained a clear focus on our mission of providing quality care,” Rechtin added.

Envision filed its voluntary petitions in the U.S. Bankruptcy Court for the Southern District of Texas.

The organization’s investment banker is PJT Partners LP, its financial advisor is Alvarez & Marsal LLC, and its legal advisor is Kirkland & Ellis LLP.

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