KKR-Backed Envision Withholds Doctor Pay as Routine Care Slows

(Bloomberg) -- Envision Healthcare Corp., one of the biggest medical providers backed by private equity, is withholding some pay for doctors and contemplating salary cuts amid the coronavirus pandemic.

The medical staffing company backed by KKR & Co. faces steep losses across its care units as patients avoid visiting doctors offices even for mandatory care during the outbreak, said people familiar with the plans who asked not to be identified because they were afraid of losing their jobs.

The cuts range anywhere from $4 million to $5 million per practice for a group of about 16 to 30 doctors, the people said. That equates to roughly a third of the annual compensation for each physician, they said.

With the coronavirus pandemic threatening to keep businesses shut around the world, health care is facing its own losses. In just two weeks, Envision’s business shrank by 65% to 75% at its 168 open ambulatory surgical centers, compared to the same period last year, Bloomberg reported. About 90 centers are closed.

Physicians across the country have deferred nonessential care or seen wary patients cancel appointments in staggering volumes. Some providers, including Envision, have quarantined staff because of potential exposure. Others have been rushing to switch as many appointments as possible to virtual visits.

The postponements of elective surgeries and other procedures are consistent with federal guidelines, Envision said in an emailed statement.

‘Unprecedented’ Crisis

“We are on the front lines caring for patients during this unprecedented public health and economic crisis,” the Nashville, Tennessee-based company said. “Envision Healthcare is 100 percent focused on saving lives and sustaining the nation’s fragile health-care system. The safety net we provide for millions of patients must remain fully intact for when we get to the other side of this national crisis.”

KKR said it didn’t have an additional comment.

Envision carries more than $7 billion of debt amassed through what was, according to data compiled by Bloomberg, the third-largest health-care leveraged buyout ever. The company told physician groups on a call that it would withhold pay for care provided in 2019, the people said. Those payments would have been distributed around the first week of April.

The company’s contracts with physicians stipulate both a base salary and performance-related payment for services provided in hospitals and other facilities. The performance-related pay will be withheld indefinitely as Envision grapples with losses stemming from the coronavirus pandemic, management said on the call.

Envision said it intends to pay the amounts owed at a later date, when there is more certainty on the future health of the company, the people said. The company is also contemplating making additional 20% cuts to doctors’ base salaries if conditions worsen, they said. Envision’s senior leadership team has already reduced its salary by 50%, one person said.

Some of the physician-staffing groups are prepared to litigate the matter, and plan to contact lawyers, the people with knowledge of the plans said. The potential legal battle could be costly for Envision.

With the pandemic expected to test the limits of the U.S. health-care system, hospitals saddled with billions of dollars in debt are the most susceptible to further losses, according to analysts at JPMorgan Chase & Co. Publicly traded Community Health Systems Inc. and Tenet Healthcare Corp. also carry high levels of debt and face significant strains on liquidity.

Surgery Partners Inc., backed by Bain Capital, has drawn on its credit and taken cost-cutting measures, according to the company’s filings.

Envision, which fully drew down its two credit lines to provide financial flexibility in recent weeks, spends about $1.5 billion on compensation for physicians quarterly, a person familiar with that matter has said.

Operating Loss

The company has about $140 million to $150 million in debt payments due in the next two weeks, according to Mike Holland of Bloomberg Intelligence. It has $650 million of cash on its balance sheet, $175 million of which is restricted and not for corporate use.

Envision’s managers told investors they may need additional financing to support liquidity if conditions worsen. They expect the business to operate at a loss for the time being and for volumes to shrink further if the pandemic worsens.

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Envision and other health-care companies are evaluating all options and looking at potential relief from the federal government’s CARES Act, which sets aside $100 billion in emergency funds for facilities and providers. It’s unclear how companies such as Envision will benefit. The firm is evaluating the law to determine whether it will qualify for relief, management told investors.

Envision was built through a series of acquisitions, culminating in a merger with AmSurg, a large surgery center and physician staffing group in 2016. KKR bought the combined company in 2018 for $9.5 billion, including debt.

©2020 Bloomberg L.P.