Envision Healthcare to be acquired by KKR

(Updated at 3:45 p.m.)

Private equity firm KKR on Monday said it would buy physician staffing company Envision Healthcare for $9.9 billion in cash and assumed debt.

The companies expect the deal to close in the fourth quarter of 2018.

The announcement comes after Nashville-based Envision announced a strategic review to enhance shareholder value late last year. Envision's board of directors reached out to 25 potential buyers to purchase all or parts of the company, and concluded that KKR's proposal offered the best value, according to the announcement. The deal was approved unanimously by Envision's board.

Last month, Reuters reported that Nashville-based Hospital Corporation of America was in talks to buy Envision in a joint bid with KKR, but HCA did not end up participating in the deal.

"Envision's leadership team, including both the board and management, have been singularly focused on driving value for our shareholders and have taken decisive action in furtherance of that goal, including the implementation of a comprehensive operational improvement plan and a robust review of strategic alternatives," Envision CEO Christopher Holden said. "Today's announcement reflects the extensive efforts by our team to explore all opportunities to deliver value for our shareholders."

Envision officials were not immediately available on Monday for an interview.

Envision, with annual revenue of $7.8 billion, is the nation's largest physician staffing firm with 25,000 physicians and other medical practitioners who staff hospital departments, including the emergency room, radiology, anesthesiology and neonatology. The company is the product of a 2016 merger with Nashville-based staffing company and ambulatory surgery center operator Amsurg. Envision reported a net loss of $232.5 million in 2017.

Envision's national footprint makes it an attractive asset for a private equity firm. Physician services firms are usually not capital intensive and they generate cash flow, analysts said. Envision also owns more than 250 outpatient surgery centers. Many companies are looking to invest in ambulatory care as health insurers encourage patients to seek care away from expensive inpatient settings.

Envision and KKR also have a history. The staffing firm last year sold its ambulance business to a subsidiary of KKR for $2.4 billion to focus on physician staffing and ambulatory surgery centers.

Envision in recent months has come under fire for sending patients big out-of-network ER bills. The company was the focus of a July 2017 study by researchers at Yale University that found that hospitals outsourcing emergency department operations to Envision's EmCare unit between 2011 and 2015 saw increases in the rates of out-of-network doctor's bills, tests ordered and patients admitted to the ED. That prompted scrutiny from Sen. Claire McCaskill (D-Mo.) and led to investor lawsuits.

Envision contends that the Yale study focused on a small number of hospitals and isn't representative of its business. It said it has also made changes to its business model since 2015—the last year of the Yale study period.

Analysts said the KKR-Envision deal is unlikely to impact patients, despite some speculation that Envision becoming a private company would reduce ER billing transparency.

"I would not think there would be a big impact (on patients) whether it's a publicly traded or private company," said Richard Close, Nashville-based equity analyst with firm Canaccord Genuity. "The physicians are still physicians. They are service-minded."

Envision has been trying to crawl out from under its tarnished reputation. It is working to secure in-network contracts for most of its physicians. The company in May said it had moved nearly $500 million of out-of-network revenue to in-network status in 2017, and planned to convert another $250 million in revenue to in-network status in 2018. The company said it expected less than 5% of its revenue to be out-of-network by the end of this year.

Envision has also been locked in a dispute with insurer UnitedHealth over ED billing issues. The company UnitedHealth in March for allegedly violating a contract by refusing to add Envision doctors to its network and lowering payment rates despite Envision's objections. UnitedHealth then created a website to describe how Envision's "outrageous billing practices" drive up costs for hospitals and patients.

A judge in April dismissed Envision's lawsuit, saying the companies must work out their dispute through arbitration. The same month, UnitedHealth said it would end its contract with Envision no later than Jan. 1, 2019.