Envision Healthcare’s recent decision to file for Chapter 11 bankruptcy protection has led some industry observers to question whether other third-party staffing firms will be in financial trouble.
) The physician staffing company, which has employees and independent contractors, said Monday it is entering into a restructuring support agreement for about $7.7 billion in debt. It cited multiple reasons for the bankruptcy, including high labor costs, declining patient numbers, underreimbursement by payers and government regulation.
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These challenges are not unique to Envision. The business models of Envision and its competitors allowed these companies to thrive at the height of the pandemic, but recently their fortunes have changed as markets readjust, demand shifts, and revenue cycles shift.
) “Of course [Envision] is different [in] size and scale, but I do think some of the issues they have are probably shared by other organizations,” BDO Medical Health Center managing director David Francis said excellence and innovation. “If you look at other staffing agencies, anesthesia agencies, emergency departments, radiology departments, I think they’re all dealing with some [these] cash crunch issues.”
Squeeze margins Rate
The success of staffing agencies is closely tied to their suppliers, and most of them are reducing the use of contract labor to control costs.
Staffing firm Cross Country Healthcare is seeing weak travel demand. On an earnings call earlier this month, CEO John Martins said the market may have overcorrected for the unusually high growth it has experienced recently. Martins also said he expects the average bill rate to fall by 8% to 9% in the second quarter.
Cross Country expects its second-quarter revenue to be between $530 million and $540 million, down from $623 million in the first quarter.
Hospitals at another competitor, AMN Healthcare, have cut spending in recent months. Chief Financial Officer Jeff Knudson said on an earnings call in May that the third quarter will likely be AMN’s lowest-paying quarter in 2023 for its nurses and allied professionals segment, which includes positions like physical therapists and lab technicians.
Cross Country’s first-quarter net income plunged 53% year-over-year, while AMN’s revenue fell 42%.
Healthcare staffing agencies often carry high levels of burden debt and tend to hold low cash reserves. This business model is riskier for companies working with temporary suppliers because they may experience greater fluctuations in cash flow, Francis said.
The No Surprises Act signed into law in late 2020 also involved a major hit to the financial performance of some staffing agencies when it went into effect in 2022, banning many boosted staffing agencies Unexpected out-of-network bills for institutional profits. Previously, for example, a patient going to an emergency room of an in-network health system might be billed at an out-of-network rate if, for example, the facility whose department the system staffs was not in-network.
“As a result, it squeezed margins quite a bit,” said Brian Tanquilut, a healthcare analyst at Jefferies & Co. Billing Strategy.
Companies like Envision see things differently. In a press release announcing the Chapter 11 filing, Envision said the No Surprises Act “deviates from the intent of the legislation, enabling health insurers to significantly delay and unilaterally reduce or deny payments.” The company said it has lost hundreds of millions of dollars due to alleged underpayments and extended wait times for reimbursement.
Francis said appeals challenging the insurer’s actions could take months or longer. Envision has been fighting UnitedHealth Group in court since the insurer removed it from its network in 2021 — a costly dispute that has also led to Envision’s financial woes.
Envision and UnitedHealth were in the US District Court for the Middle District of Tennessee last year. UnitedHealth said it overpaid Envision, while Envision argued that the insurer refused to pay. In March, the US District Court for the Southern District of Florida ruled in a separate lawsuit that UnitedHealth had breached its contract with Envision and ordered the insurer to pay $91.2 million.
Human resources agencies trying to reduce the law’s impact on their bottom line may cut clinician salaries or positions, or seek more hospital subsidies, Tanquilut said, but such changes are not always is an option, especially with staff shortages and limited resources during the COVID-19 pandemic.
MARKET RESET
Market challenges don’t necessarily mean other HR agencies are about to go out of business. Ash Shehata, country head of healthcare and life sciences at KPMG, said the entire market was in a reset.
Some companies are investing in technology in the belief that customers will be better positioned in healthcare staffing despite ongoing challenges.
Launched in 2020, AMN’s Passport app helps traveling nurses and other caregivers find and manage assignments faster. The agency updated its digital platform to include predictive analytics and began integrating certain functions with the client’s HR system.
Last year, Cross Country rolled out a proprietary supplier management system called Intellify, and Martins said on an earnings call in May that it wanted new contracts. Aging population. Still, he said health care organizations, including staffing agencies, should take Envision’s bankruptcy as a wake-up call.
“While [healthcare] does a great job of coming up with solutions to deliver care…it doesn’t always focus on how it works as a business, I It’s ugly to think that these are opportunities for good action by any healthcare organization,” Francis said.
Correction: An earlier version of this story incorrectly stated that UnitedHealth was ordered to pay Envision $91.2B.
