A key driver of the AmSurg and Envision Healthcare merger announced Wednesday is the trend among hospitals to find a single vendor for outsourced physician staffing in multiple departments rather than contract the services a la carte, Envision CEO William Sanger said in a conference call Thursday.
He added that Envision has passed on bidding some of those comprehensive jobs because it could cover the emergency departments and hospitalists, but not some of the other specialties such as anesthesia, radiology and neonatology.
AmSurg, on the other hand, is strong in those areas, Sanger said. As a combined company, the new Envision Healthcare will be in a position to bid those jobs and other services that hospitals require, such as ambulance and outpatient surgery, he said.
AmSurg today owns more than 250 ambulatory surgery centers nationally and Envision is one of the largest providers of hospital ambulance services.
“We'll hit the road running,” Sanger said of the combined company.
The merger is an all-stock deal valued at about $10 billion. When it closes, current Envision shareholders will hold 53% of the shares of the new company. AmSurg shareholders will have 47%.
The two sides decided to go that route, with no cash trading hands, to preserve capital for additional acquisitions and maintain a combined debt level at about five times EBITDA, said AmSurg CEO Chris Holden.
In the new company, Sanger will be executive chairman, while Holden is slated as CEO.
The companies combined have annualized revenue of about $8.5 billion and a market value of $10 billion. Merger and consulting fees are expected to be between $175 million and $200 million.
Holden said the merger would yield synergies of $100 million over the next three years.
He added that the deal's all-stock structure keeps the company's powder dry for additional acquisitions, especially for physician practices struggling with management duties and the need for quality data under new risk-based reimbursement.
Holden noted in a presentation deck (PDF) accompanying the conference call that though the two companies combined handle nearly 30 million patient encounters annually, the entire physician outsourcing industry gets less than a 10% slice of $180 billion in revenue from those hospital services.
Most of that $180 billion is provided by hospital-owned doctors or private-practice groups.
That leaves huge opportunities for the new company to cross-sell AmSurg's anesthesiologists, radiologists and neonatologists into hospitals that use Envision's emergency doctors and hospitals, he said. Those same opportunities exist for Envision doctors to win new business in hospitals already using AmSurg hospitalists, he said.
Sanger said a not-for-profit hospital system recently wanted one vendor to handle physician staffing for five departments instead of contracting the work to multiple vendors. The departments were emergency, hospitalist, anesthesiology, neonatology and surgery.
Envision wanted the job, but didn't have capabilities in every one of those disciplines, Sanger said.
Envision missed out on the job as a result, he said, though the system eventually couldn't find any vendor to provide that comprehensive suite of services and ended slicing it up anyway.
Sanger said under the new Envision, no job will be too big.
He said: “If we were to respond to that RFP today, this company would be squarely in the center of that in terms of being able to win that contract.”