Envision Healthcare’s recent decision to file for Chapter 11 bankruptcy protection is leading some industry watchers to question whether other third-party staffing firms are headed for financial trouble.
The physician staffing company, which has both employees and independent contractors, on Monday said it was entering into a restructuring support agreement for approximately $7.7 billion in debt. It cited multiple reasons for the bankruptcy, including high labor costs, declining patient volumes, lack of payer reimbursements and government regulation.
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Those challenges aren't unique to Envision. The business model for Envision and its competitors allowed the companies to thrive during the height of the pandemic but more recently, their fortunes changed amid shifts in demand and changes to revenue cycles as the market recalibrates.
"Certainly [in] size and scale, [Envision] is different, but I do think some of the issues that they’ve encountered are likely being shared by other organizations,” said David Francis, managing director of the BDO Center for Healthcare Excellence and Innovation. “If you look at other staffing agencies, anesthesia agencies, emergency departments, radiology, across the board, I think they’re all dealing with some of [these] cash crunch issues."
Staffing agencies’ success is tied to providers, and most of them are reducing the use of contract labor to contain costs.
Staffing firm Cross Country Healthcare sees softening demand for travel assignments. On an earnings call earlier this month, CEO John Martins said the market may be overcorrecting from the unusually high growth it recently experienced. Martins also said he expects the average bill rate to decline 8% to 9% in the second quarter.
Cross Country is projecting its second-quarter revenue to land between $530 million and $540 million, down from $623 million in the first quarter.
Another competitor, AMN Healthcare, has seen hospitals reduce their spending in recent months. Chief Financial Officer Jeff Knudson said on a May earnings call that the third quarter is likely to be AMN’s lowest revenue quarter in 2023 for its nurse and allied professionals segment, which includes roles such as physical therapists and lab technologists.
Cross Country’s net income plummeted by 53% year-over-year in its first quarter, while AMN’s income fell 42%.
Healthcare staffing agencies are often saddled with high levels of debt and tend to hold less in cash reserves. That business model is riskier for companies working with transient providers, as they may experience greater fluctuations in cash flow, Francis said.
The No Surprises Act, signed into law in late 2020, also dealt a significant blow to some staffing agencies’ financial performance when it took effect in 2022, prohibiting many of the unexpected out-of-network bills that bolstered staffing agency profits. Previously, a patient who went to an in-network health system’s emergency department, for example, could be billed at out-of-network rates if the agency through which the system staffed its department was out of network.
“It compressed margins significantly as a result,” said Brian Tanquilut, a healthcare analyst at Jefferies & Co.
The legislation was hailed as a way to protect patients from aggressive billing tactics.
Companies like Envision have a different view. The No Surprises Act “deviates from the legislation’s intent and enables health insurers to significantly delay and unilaterally reduce or deny payments,” Envision said in a news release announcing the Chapter 11 filing. The company said it had lost hundreds of millions of dollars due to alleged underpayments and extended waiting periods for reimbursements.
Appeals that dispute insurers’ actions can take months or longer, Francis said. 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 woes.
Envision and UnitedHealth filed dueling lawsuits last year in the U.S. District Court for the Middle District of Tennessee. UnitedHealth says it overpaid Envision, while Envision argues the insurer withheld payments. In March, the U.S. District Court for the Southern District of Florida ruled in a separate lawsuit that UnitedHealth violated its contract with Envision and ordered the insurer to pay $91.2 million.
Staffing agencies trying to lessen the law's effect on their bottom line could cut clinician pay or positions or seek more hospital subsidies, but such changes aren’t always an option, especially with the staff shortages and limited resources during the COVID-19 pandemic, Tanquilut said.
A market reset
Market challenges don’t necessarily mean a bankruptcy is coming to other staffing agencies. Ash Shehata, national sector leader of healthcare and life sciences at KPMG, said the overall market is in the midst of a reset.
Some are investing in technology to offer clients more efficiency and flexibility in healthcare staffing, despite the ongoing challenges.
AMN’s Passport app, launched in 2020, helps travel nurses and other caregivers more quickly find and manage assignments. The agency has updated its digital platforms, including predictive analytics, and begun integrating some capabilities with clients’ human resources systems.
Last year, Cross Country launched a proprietary vendor management system called Intellify and is looking to strike new contracts, Martins said on the May earnings call.
BDO’s Francis said staffing agencies will continue to play an important role in care delivery, given the ongoing shortage of clinicians and an increasingly aging population. Nevertheless, he said healthcare organizations, including staffing agencies, should treat Envision’s bankruptcy as a wake-up call.
“As great as [healthcare] is in coming up with solutions to deliver care … it doesn’t always look at how it functions as a business, and I think those are opportunities for any healthcare organization to take a good hard look,” Francis said.
Correction: An earlier version of this story incorrectly said UnitedHealth was ordered to pay Envision $91.2 billion.