Physician staffing firm Envision Healthcare’s Chapter 11 bankruptcy filing should not result in any “material disruption” of HCA Healthcare’s consolidation of Valesco Physician Services, a controversial multi-year joint venture between the two companies, HCA Chief Financial Officer Bill Rutherford said Tuesday morning.
In 2011, HCA entered into a 50-50 joint venture with physician practice management services firm EmCare, which was later purchased and rolled into Envision’s multispecialty physician group and healthcare management team, Envision Physician Services. The health system recently closed on a transaction to increase its ownership interest in the Valesco Physician Services joint venture.
Over the years HCA has leaned on the Valesco joint venture to help fill ER and other hospital-based physician roles. The arrangement has caught some flak from labor groups and lawmakers (PDF) over the years. These critics have pointed to Envision's previous federal settlement over alleged practices that encouraged out-of-network billing, as well as broader allegations that HCA has profited over the years from “systematic, unnecessary inpatient admissions” while understaffing its locations.
Last month HCA closed a transaction that gave the for-profit system 90% ownership of the Valesco joint venture, executives shared alongside Q1 earnings. Executives said the company would begin assimilating the venture during Q2 and eventually see an additional $1 billion in annual revenues, though no material impact on adjusted EBITDA.
During a January earnings call held shortly after news of the then-pending deal was released, HCA CEO Sam Hazen had said his company enjoyed “a wonderful relationship with Envision over the years” and viewed the deal as a chance to achieve stronger clinical integration, improve quality, support graduate medical education and increase efficiency across HCA’s emergency rooms and med-surg floors.
Since then, Envision Healthcare announced that it has submitted the voluntary filings under Chapter 11 and had entered into a Restructuring Support Agreement backed by more than 60% of its $7.7 billion of debt. The venture capital-owned firm has faced labor challenges, a costly legal battle with insurance giant UnitedHealthcare and reportedly saw major hits to its business due to surprise medical billing reforms.
A day after the bankruptcy filing rumors were made official, Rutherford, HCA’s CFO, told attendees of the 2023 RBC Capital Markets Global Health Conference that the system has an eye on its 12-year business partner’s restructuring.
He reiterated the company’s characterization of the partnership as a “win-win for both organizations” and said that HCA is still on course to consolidate the joint venture and “get a little more governance and oversight of those programs” despite the turmoil hitting Envision.
“Yes, we know they have filed further restructuring,” Rutherford said during the Tuesday morning conference session. “I think our joint venture efforts [were] a key step in stabilizing those programs, and so we’re not anticipating any material disruption.”
Though prompted, Rutherford did not specifically address any other potential contracts the system may have in place with Envision.
In April, HCA reported strong Q1 numbers that prompted the 180-hospital system to raise its 2023 guidance. Specifically, leadership said that strong volume recovery had fueled a 4.1% year-over-year revenue increase and an above-expectations $4.85 per diluted share net income.
Rutherford, on Tuesday, said the company is “very pleased” with the demand for care services as well as the slightly above-trend contract rates it's managed to negotiate with payers. The company is hopeful that it can continue to trim the portion of contract labor that makes up its salaries, wages and benefits expense line, he said, noting that the health system is coming out of the pandemic with clear opportunities for continued growth.
“We saw strong population growth during COVID, people moved to Florida and Texas and the like,” he said. “Our capital programs continue to be an important part of it. Markets are still wide open, we still believe we see very favorable economic indicators—low unemployment, which tends to have a strong correlation to demand. … We think we’re positioned better coming out of COVID than we were going into COVID.”