Envision Healthcare’s recent decision to file for Chapter 11 bankruptcy protection is causing some industry observers to question whether other third-party staffing companies are in financial trouble. Are not.
The doctor staffing company, which has both employees and independent contractors, said on Monday it is entering into a restructuring support agreement with about $7.7 billion in debt. It cited multiple reasons for the bankruptcy, including high labor costs, declining patient numbers, lack of payer reimbursements and government regulation.
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Those challenges are not unique to Envision. The business model of Envision and its competitors has allowed the companies to thrive during the peak of the pandemic, but recently their fortunes have shifted due to shifting demand and revenue cycles. change when the market corrects.
“Sure [in] size and scale, [Envision] are different, but I think some of the problems they face are likely shared by other organizations,” said David Francis, executive director of the Center for Healthcare Innovation and Excellence at BDO said. “If you look at the other staffing agencies, the anesthesia agency, the emergency department, the radiology department, I think they’re all dealing with some sort of problem. [these] cash crunch problem.”
compression margin
The success of staffing agencies is tied to suppliers and most of them are reducing the use of contract labor to reduce costs.
Staffing company Cross Country Healthcare sees demand for commuting jobs dwindling. During an earnings call earlier this month, CEO John Martins said the market may be overcorrecting due to the unusually high growth it has experienced recently. Martins also said he expects the average bill rate to fall between 8% and 9% in the second quarter.
Cross Country is projecting its second-quarter revenue to come in between $530 million and $540 million, down from $623 million in the first quarter.
Another competitor, AMN Healthcare, has seen hospitals reduce spending in recent months. Chief Financial Officer Jeff Knudson said in a May earnings call that the third quarter is likely to be AMN’s lowest-grossing quarter of 2023 for the nurse and allied specialist segment, which includes roles roles as physical therapists and laboratory technicians.
Cross Country’s net income plummeted 53% year-over-year in the first quarter, while AMN’s earnings fell 42%.
Agencies that provide healthcare staffing typically suffer from high levels of debt and tend to have less cash reserves. That business model is riskier for companies that work with temporary suppliers, says Francis, as they can experience greater fluctuations in cash flow.
The No Surprise Act, signed into law at the end of 2020, also deals a blow to the financial performance of some staffing agencies when it goes into effect in 2022, prohibiting multiple bills. out of the network unexpectedly helps increase profits for the staffing agency. In the past, a patient who visited the emergency department of a network health system, for example, could be billed at an out-of-network rate if the agency whose network staffed their department was located within the network. out of network.
Brian Tanquilut, a healthcare analyst at Jefferies & Co.
The law has been hailed as a way to protect patients from aggressive billing tactics.
Companies like Envision take a different view. Envision said in a press release announcing the Chapter 11 filings, the No Surprises Act “deviates from the intent of the law and allows health insurers to significantly delay and unilaterally reduce or refuse payments. The company said it lost hundreds of millions of dollars due to alleged underpayments and extended wait times for reimbursement.
Francis said appeals disputing actions by insurers can take months or longer. Envision has been battling UnitedHealth Group in court since the insurer removed Envision from its network in 2021—a costly dispute that also contributed to Envision’s financial difficulties.
Envision and UnitedHealth filed a lawsuit last year in the United States District Court for the Central District of Tennessee. UnitedHealth said it overpaid Envision, while Envision argued that the insurer withheld the payments. In March, the US District Court for the Southern District of Florida ruled in a separate lawsuit that UnitedHealth breached its contract with Envision and ordered the insurer to pay $91.2 million.
Staffing agencies that try to lessen the impact of the law on their profits may cut clinicians’ salaries or positions or seek more hospital benefits, but such changes do not is not always an option, especially with staff shortages and limited resources during the COVID-19 pandemic, Tanquilut said.
Reset the market
Market challenges do not necessarily mean bankruptcy is coming for other staffing agencies. Ash Shehata, national regional leader for healthcare and life sciences at KPMG, said the entire market is in the process of resetting.
Some are investing in technology to give customers more efficiency and flexibility in staffing healthcare, despite the ongoing challenges.
AMN’s Passport app, launching in 2020, helps traveling nurses and other caregivers find and manage tasks faster. The agency updated its digital platforms to include predictive analytics and began integrating some capabilities with its client’s HR systems.
Martins said last year Cross Country launched a proprietary supplier management system called Intellify and is looking to land new contracts.
Francis of the BDO said staffing agencies will continue to play an important role in providing care, given the ongoing shortage of clinicians and an aging population. However, he said healthcare organizations, including staffing agencies, should treat Envision’s bankruptcy as a wake-up call.
“Large as [healthcare] is coming up with solutions to deliver care… it’s not always looking at how it works as a business and I think that’s an opportunity for any healthcare organization to take a hard look. two,” said Francis.
Correction: An earlier version of this story falsely stated that UnitedHealth was ordered to pay Envision $91.2 billion.
