Envision Files for Chapter 11, Will Split Physician and Surgery Businesses

Envision Healthcare Corp. has filed for protection from its creditors as it looks to shed a large amount of debt and restructure itself in a way that will undo the late-2016 merger creating the company’s current structure.

In a statement announcing the Chapter 11 filing in the Southern District of Texas, officials with the Nashville-based company said both Envision Physician Services and AmSurg, which joined forces six and a half years ago in a deal with an enterprise value of about $15 billion, will operate as normal during the restructuring now underway and that their holding company has enough cash to fund operations and pay its salaries and other bills. Envision employs more than 21,000 clinicians in nearly 30 states and generates about $7 billion in revenues annually, down from more than $8.5 billion on a pro forma basis in 2016. It has been owned since 2018 by private-equity giant KKR & Co., which will see its $5 billion-plus investment wiped out.

“The Envision management team—all of whom were newly installed in 2020—have been confronted with a whiplash-inducing onslaught of obstacles and complications since assuming their roles,” newly appointed Chief Restructuring Officer Jason Keglevic, who has been an independent director of Envision since 2020, wrote in a court filing noting that Envision has $655 million in cash on hand. “The decision to file these chapter 11 cases now, while the debtors have ample cash on hand, will ensure that the company can continue to provide patients with the high-quality care they require.”

In a statement, the company said investors holding more than 60 percent of the company’s roughly $7.7 billion in debt have committed to support the Chapter 11 reorganization plan, which calls for $5.6 billion of Envision’s debt (except for a revolving credit facility) to be equitized or cancelled. The proposal also calls for AmSurg and Envision Physician Services to become owned by their respective lenders and for AmSurg to spend $300 million to buy a handful of surgery centers now owned by Envision Physician Services.

Word of Envision’s bankruptcy filing hasn’t come out of the blue: Last September, analysts at Moody’s Investors Service warned of severe cost pressures while downgrading the company’s rating after it had executed several debt exchanges Moody’s considered to be distressed. Among the other worrisome issues, analysts said at the time, was Envision’s long-running reimbursements dispute with UnitedHealth Group Inc., which Envision leaders said was a major factor in their Chapter 11 filing. Despite the company scoring a $91 million arbitration win in March, payments from United have dropped by $400 million in the last five years.

In addition to its battles with United, executives are pointing to the shortage of clinicians and what they call “the flawed implementation of the No Surprises Act” governing billing practices as additional factors contributing to the company’s woes. But the biggest financial hit, Keglevic detailed in his introductory filing, came from the COVID-19 pandemic, during which Envision employees treated about one of every 10 patients but lost two-thirds of its non-emergency medicine patient visits. The pandemic slashed nearly $1.5 billion from Envision’s top line in 2020 and 2021 and took $415 million in EBITDA off the table in 2020.

In his filing, Keglevic details that Envision leaders began in late 2021 to explore transactions to generate cash and/or lighten the company’s debt load while they also pushed through various cost-cutting plans and worked to improve revenue cycle management. But that work didn’t bear the desired fruit, leading to debt exchanges and new loans last spring and summer that generated about $1.4 billion but which Moody’s labeled as ‘distressed.’

The financing deals also weren’t enough to overcome the ongoing effects of COVID and the insurance and billing disputes Envision faces. The company’s board in January brought on Goldman Sachs to explore a sale of AmSurg—the investment bank remains in talks with two suitors for that $1.2 billion business—and in March began to lay out restructuring terms with KKR and various lenders.