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Category: The Business of Health Care

What Can We Learn from the Envision Bankruptcy?

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By JEFF GOLDSMITH

Envision, a $10 billion physician and ambulatory surgery firm owned by private equity giant Kohlberg Kravis Roberts, filed Chapter 11 bankruptcy on May 15.  It was the largest healthcare bankruptcy in US history.   Envision claimed to employ 25 thousand clinicians- emergency physicians, anesthesiologists, hospitalists, intensivists, and advanced practice nurses and contracted with 780 hospitals.  Envision’s ER physicians delivered 12 million visits in 2021, not quite 10% of the US total hospital ED visits.

The Envision bankruptcy eclipsed by nearly four-fold in current dollars the Allegheny Health Education and Research Foundation (AHERF) bankruptcy in the late 1990’s.   KKR has written off $3.5 billion in equity in Envision.   Envision’s most valuable asset, AmSurg and its 257 ambulatory surgical facilities, was separated from the company with a sustainable debt structure.  And at least $5.6 billion of the remaining Envision debt will be converted to equity at the barrel of a gun, at dimes on the dollar of face value. 

KKR took Envision private in 2018 when Envision generated $1 billion in profit, in luminous retrospect the peak of the company’s good fortune.   Envision’s core business was physician staffing of hospital emergency departments and operating suites.    In 2016, then publicly traded, Envision merged with then publicly traded ambulatory surgical operator AmSurg.  This merger seemed at the time to be a sensible diversification of Envision’s “hospital contractor” business risk.   

Indeed, Envision’s bonus acquisition of anesthesia staffing provider Sheridan, acquired by AMSURG in 2014,  helped broaden its portfolio away from the Medicaid intensive core emergency room staffing business (EmCare), which required extensive cost-shifting (and out of network billing) to cover losses from treating Medicaid and uninsured patients.   It is clear from hindsight that where you start, e.g. your core business, limits your capacity to spread or effectively manage your business risk, an issue to which we will return.

The COVID hospital cataclysm can certainly be seen as a proximate cause of Envision’s demise.

The interruptions of elective care and the flooding of emergency departments with elderly COVID patients, which kept non-COVID emergencies away, damaged Envision’s core business as well as nuking ambulatory surgery. By the spring of 2020, Envision was exploring a bankruptcy filing.  An estimated $275 million in CARES Act relief and draining a $300 million emergency credit line from troubled European banker Credit Suisse temporarily staunched the bleeding.  But the pan-healthcare post-COVID labor cost surge also raised nursing expenses and led to selective further shutdowns in elective care and further cash flow challenges.  

While one cannot fault KKR’s due diligence team for missing a global infectious disease pandemic, with hindsight’s radiant clarity, there were other issues simmering on the back burner by the time of the 2018 deal that should have raised concerns.  Two large struggling investor owned hospital chains,  Tenet and Community Health Systems, began divesting marginal properties in earnest in 2018, placing a lot of Envision’s contracts in the pivotal states of Florida and Texas at risk.

More importantly,  there were escalating contract issues with  UnitedHealth, one of Envision’s biggest payers,  as well as increasing political agitation about out-of-network billing, which provided Envision vital incremental cash flow.  These problems culminated in a United decision in January 2021 to terminate insurance coverage with Envision, making its entire vast physician group “out of network”. 

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Nils Bottler, Angelini Ventures

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I’ve been friends with Roberto Ascione for many years. Roberto is a keen Napoli fan who on the side runs the Healthware Group and also the Frontiers Health Conference that I’ve been going to for many years (and where Jess DaMassa is co-MC). Recently Healthware acquired the media company pharmaphorum and hired star reporter (and another friend) Jonah Comstock, ex MobiHealthNews and HIMSS Media. This is THCB’s second cross-posting with pharmaphorum.—Matthew Holt

Nils Bottler, who recently joined Angelini Ventures as Principal, is an avid skier, surfer, and digital health investor based in Berlin. In a new podcast, he spoke with Paul Tunnah, pharmaphorum founder, about his career, the German start-up landscape, and where Angelini Ventures aims to have an impact.

Interview with Ogi Kavazovic, CEO of House Rx

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Ogi Kavazovic, CEO of House Rx joined Matthew Holt to explain how his company is trying to ungum the specialty pharmacy market. Its a huge market with a few huge oligopolies in charge of it, and Ogi thinks there is room to work directly with the clinics responsible for most patients using injectables and provide them a better and cheaper experience. Last year they raised $30m in a round led by Bessemer, but as Ogi says there’s along way to go!

Last in Line: Hospitals Brace for a Chilly 2023

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BY JEFF GOLDSMITH

As they emerge from the COVID pandemic, US hospitals have a terrible case of Long COVID.  They experienced the worst financial performance in 2022 in this analyst’s 47 year memory.  As the nation recovers from the worst inflation in forty years, hospitals will find themselves locked in conflict with health insurers over contract renewals that would reset their rates to the actual delivered cost of care.  “Last in line” in the US battle with inflation, hospitals will be exposed to public criticism when they attempt to recover from pandemic-induced financial losses. 

Hospital payment rates for commercial payers are backward looking. Commercial insurance contracts between hospitals and health insurers were multi-year contracts negotiated before the pandemic.  They continued in force during the pandemic, despite explosive rises in people and materials costs.    As a consequence, health costs were conspicuously missing from the main drivers of the 2021-22 inflation surge– food, housing, energy, durable goods, etc.    

Hospitals’ operating costs blew up during COVID due to a shortage of clinicians, the predations of temporary staff agencies, shortages of supplies and drugs and crippling cyberattacks that disabled their IT systems.   Hospital losses worsened during 2022 because they are unable to place patients who are no longer acutely ill but who cannot be placed in long term, psychiatric or home-based care (a problem shared by Britain’s disintegrating National Health Service).   Thousands of patients are stuck in limbo in hospital “observation” units, for which government and commercial payers do not compensate them adequately or at all.   

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Matthew’s health care tidbits: Medicare Advantage is now a provider fracking contest

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Each time I send out the THCB Reader, our newsletter that summarizes the best of THCB (Sign up here!) I include a brief tidbits section. Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt

Yes it’s time to talk Medicare Advantage (MA). It’s been a huge couple of weeks for the world of MA. On the commercial side, CVS bought the biggest pure play MA provider, Oak Street Health for $10bn. This pissed me off as if they paid $2 a share more I’d have made a profit on the stock I foolishly bought “on a dip” in 2021.

But this amazed many of us on THCB Gang, as they paid a huge premium and it works out to some $60k per patient. Now health care organizations have been overpaying for patient “lives” as long as I can remember–going at least as far back as Aetna nearly going out of business when it bought US Healthcare in 1996. So why is today’s incarnation of Aetna buying providers?

Well that’s to do with the regulatory side of MA. I have been on record since the very first post of THCB that Medicare FFS is an inefficient and expensive program–even if 80% of American hospitals say they lose money on it and have to charge commercial insurers more to make up for it. But while it’s possible to agree with George Halvorson that MA delivers better care at a lower cost than FFS Medicare, it is simultaneously possible to believe that MA costs more than it should. That’s because of aggressive RAF upcoding that’s been built both into home visits from companies like Signify and also into the EMRs doctors have been using to code MA members’ health status.

There are lots of proposals on how to fix this–including this one from Chenmed on how to change MA from paying for inputs (i.e how sick people are when they join MA) to outputs (how much better they got while in MA). But it’s clear that CMS is now officially coming after upcoding including full cross plan audits back to 2018. Even if not back to 2011. The MA plans will grumble about those past audits and tie CMS up in court but they know going forward the game is up

To make more money in MA they need to get hold and shake loose or frack some of the 85% of the premium that goes to provider organizations. Hence they are all getting into bed with them or buying them outright. UHG, Humana & now Aetna/CVS have been buying physician groups that serve MA populations at a quickening rate, and their goal is to put more of the 50% of seniors already into MA into those groups.

Will this save any money?  Well probably not, at least not yet. Humana has been reporting on the costs in its full risk capitated MA groups versus its FFS ones for a couple of years, and the difference is a rounding error. But the point is that the next war in Medicare Advantage is going to be what happens inside these plan-owned medical groups. So expect a lot more scrutiny of both costs, outcomes and patient experience within MA focused medical groups starting about now. 

What is Health Care’s LEGO?

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BY KIM BELLARD

Last week the esteemed Jane Sarasohn-Kahn celebrated that it was the 65th anniversary of the famous LEGO brick, linking to Jay Ong’s blog article about it (to be more accurate, it was the 65th anniversary of the patent for the LEGO brick). That led me to read Jens Andersen’s excellent history of the company: The LEGO Story: How a Little Toy Sparked the World’s Imagination.  

But I didn’t think about writing about LEGO’s until I read Ben’s Cohen’s Wall Street Journal profile of  University of Oxford economist Bent Flyvbjerg, who studies why projects succeed or fail.  His advice: “That’s the question every project leader should ask: What is the small thing we can assemble in large numbers into a big thing? What’s our Lego?”

So I had to wonder: OK, healthcare – what’s your LEGO?

Professor Flyvbjerg specializes in “megaprojects” — large, complex, and expensive projects.  His new book, co-authored with Dan Gardner, is How Big Things Get Done. Not to spoil the surprise (which would only be a surprise to anyone who hasn’t been part of one), their finding is that such projects usually get done poorly.  Professor Flyvbjerg’s “Iron Rule of Megaprojects” is that they are “over budget, over time, under benefits, over and over again.”

In fact, by his calculations, 99.5% of such projects miss the mark: only 0.5% are delivered on budget, on time, and with the expected benefits.  Only 8.5% are even delivered on budget and on time; 48% are at least delivered on budget, but not on time or with expected benefits.  

As Professor Flyvbjerg says: “You shouldn’t expect that they will go bad. You should expect that quite a large percentage will go disastrously bad.” 

He has two key pieces of advice.  First, take your time in the planning process: “think slow, act fast.”  As Dr. Flyvbjerg and Mr. Gardner wrote in a Harvard Business Review article recently, “When projects are launched without detailed and rigorous plans, issues are left unresolved that will resurface during delivery, causing delays, cost overruns, and breakdowns….Eventually, a project that started at a sprint becomes a long slog through quicksand.” 

Second, and this is where we get to the LEGOs, is to make the project modular; as Mr. Cohen puts it, “Find the Lego that simplifies your work and makes it modular.”

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Elia Stupka, Angelini Ventures

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I’ve been friends with Roberto Ascione for many years. Roberto is a keen Napoli fan who on the side runs the Healthware Group and also the Frontiers Health Conference that I’ve been going to for many years (and where Jess DaMassa is co-MC). Recently Healthware acquired the media company pharmaphorum and hired star reporter (and another friend) Jonah Comstock, ex MobiHealthNews and HIMSS Media. THCB will be doing some occasional cross-posting with pharmaphorum starting with this interview of the boss of a new and well heeled Italian health tech VC fund!–Matthew Holt

Elia Stupka, Managing Director at Angelini Ventures, talks to Paul Tunnah, pharmaphorum founder, about his career, life passions and the exciting launch of Angelini Ventures – a €300 million fund paving the way for healthcare transformation across digital health and life sciences

With access to my records, I took my business elsewhere

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By EPATIENT DAVE DEBRONKART

Not our usual headshot but it is Dave!

I had a skin cancer diagnosed in November. It’s my third, and I researched the last one heavily, so I knew what I wanted (Mohs on the nose). But the hospital that did the diagnosis insisted I wait and have a consult visit in January, and *then* they’d let me schedule the procedure, probably in March.

I said I know what treatment I want – can’t I schedule the surgery now? They said, “That’s not how we do it.”

So I went home and called around. Beth Israel Deaconess Medical Center said if I could get them the information they would book me for January, right then and there.

How long did it take me to get them the data? 15 minutes. I went back to the first place’s portal and downloaded my visit note and pathology report and emailed it all to BIDMC. An hour after I dialed the phone I had the appointment I wanted.

Patient power. I took my records – and my business – elsewhere.

This is of course a nightmare for providers who think they can lock us in. And it’s a dream come true for providers who have been longing to win us away by providing better service.

(I would have had the surgery before now, within January, but COVID struck so we postponed.)

Medical record access is empowering! Thank you to those who worked so long and hard to create these policies!

It’s also great news for providers who are trying hard to be #patientcentric: now we can easily reward them with our business!

It’ll be even better in the coming years because data #interoperability via FHIR will let apps and hospitals go GET the data … or, even better, let consumers already have their data in their own app, to do anything they want with it. True patient autonomy.

Dave deBronkart is a patient activist, speaker and author. This was originally published on his LinkedIn page

13 Year Old McAllen

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BY IAN MORRISON

As a Scot, obviously I am a whisky fan, and although I prefer the smoky malts of Islay (where my grandfather was from and where I visit my friends there frequently), I am also a huge fan of McCallan 18-year-old whisky, the sticky toffee pudding of single malts.

But as all policy wonks know, McAllen Texas is not famous for whisky but for Atul Gawande’s “Cost Conundrum” article in the New Yorker, in 2009 which is still required reading in medical school and MPH classes and was arguably the cornerstone of Obama health policy and the ACO movement.

Dr. Atul Gawande described overutilization and high cost of Medicare revealed by Dartmouth Atlas nationally and zeroed in on McAllen Texas.  Compared to El Paso (a seemingly like comparison) McAllen was the most expensive place in America for healthcare based on Medicare claims data.  Gawande highlighted the entrepreneurial, doctor-owned, Doctor Hospital at Renaissance DHR in Edinburg, TX as having fancy, modern technology while the community as a whole seemed underserved.  

I have always had unease with just using Medicare data to judge costs, because there was no recognition of what I was observing on my travels, namely an enormous variation in commercial prices (not simply utilization) in hospital costs in terms of paid claims by self insured employers.  Poignantly, sources at the time claimed McAllen, Texas had among the lowest commercial insurance premium places in the country.  Interesting.

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MedEd in an AI Era

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BY KIM BELLARD

I’ve been thinking a lot about medical education lately, for two unrelated reasons.  The first is the kerfuffle between US News and World Report and some of the nation’s top – or, at least, best known – medical schools over the USN&WR medical school rankings.  The second is an announcement by the University of Texas at Austin that it is planning to offer an online Masters program in Artificial Intelligence.

As the old mathematician joke goes, the connection is obvious, right?  OK, it may need a little explaining.

USN&WR has made an industry out of its rankings, including for colleges, hospitals, business schools, and, of course, medical schools. The rankings have never been without controversy, as the organizations being ranked don’t always agree with the methodology, and some worry that their competitors may fudge the data.   Last year it was law schools protesting; this year it is medical schools.

Harvard Medical School started the most recent push against the medical school rankings, based on:

…the principled belief that rankings cannot meaningfully reflect the high aspirations for educational excellence, graduate preparedness, and compassionate and equitable patient care that we strive to foster in our medical education programs…Ultimately, the suitability of any particular medical school for any given student is too complex, nuanced, and individualized to be served by a rigid ranked list, no matter the methodology.

Several other leading medical schools have now also announced their withdrawals, including Columbia, Mt. Sinai, Stanford, and the University of Pennsylvania.  

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