- Moody's Investors Service cut Envision Healthcare's credit rating to C, the lowest notch on its scale, reflecting a high probability of bankruptcy or a major restructuring at the physician staffing firm and ambulatory surgery center operator, the rating agency said.
- Envision's capital structure is unsustainable due to the company's ongoing volume and profit declines, weak liquidity, and high financial leverage, Moody's warned. The agency expects the operating performance will continue to deteriorate amid industry-wide labor pressures and rising interest rates that it predicts will cause Envision's interest expense to nearly double.
- Envision, which is owned by private equity firm KKR, also faces challenges stemming from its out-of-network status with UnitedHealthcare and from the No Surprises Act, which protects consumers from some unexpected medical bills, Moody's said.
The credit downgrade comes after Envision restructured its debt, replacing some loans at a price below par, which Moody's defines as a default. Envision risks being unable to service its debt, Moody's said, even though the maturities have been extended, and the firm faces refinancing risk on a credit facility that will expire in October 2023.
The rating agency expects Envision's liquidity will remain weak over the next 12 to 18 months, and the company will deplete its cash by the end of 2023, as increased interest expense and continuing pressures on its business take a toll. Envision had about $1.4 billion in cash as of June 30.
Adding to its woes, the staffing firm has been the subject of negative publicity over contract disputes with UnitedHealthcare and accusations of surprise bills to patients treated by its out-of-network physicians, Moody's said.
Envision, one of the nation's largest physician staffing businesses, and UnitedHealthcare, one of the largest private payers, are embroiled in a new legal dispute over payment for emergency room care provided by Envision's clinicians.
Envision filed a lawsuit earlier this month in a Tennessee federal court accusing the insurer of routinely denying claims for emergency room services. UnitedHealthcare also sued, alleging Envision upcoded its claims to be reimbursed for more extensive treatment than provided, causing the insurer to overpay millions of dollars.
The two companies have been feuding for years over contract terms. Last year, UnitedHealthcare cut Envision’s 25,000 clinicians from its network, claiming the staffing firm sought payment rates that far exceeded industry medians.
Moody's said it expects Envision will resolve its contract disputes with UnitedHealthcare and will likely remain out of network. The ratings agency said Envision's aggressive financial strategy characterized by high leverage and the pursuit of acquisitive growth is largely due to its private-equity ownership by KKR since its leveraged buyout in 2018.
Envision's significant scale, market position and strong product diversification are factors mitigating its financial risks, Moody's said.