Politics. Bad facts make bad law, as the lawyers say. In health care there is no shortage of both. Pair private equity’s tendency to take rate lift a bit too far with insurers’ myopia. Dangle a dopamine fix from a little confirmation bias in front of Ivy League researchers and the Paper of Record. What you get is Envision Healthcare sliding toward Chapter 11 and perhaps – if my hunch is right – a rare walk-back in guidance at HCA.
And that is just to start.
The No Surprises Act broke the land speed record on its way to the president’s desk via a well-trod and not particularly savory path. UNH, with less than altruistic ambitions, supported research at Yale University by making some portion of its claims data available to researchers.
There was something for everyone when two papers on surprise billing were produced in 2016 and 2017. The researchers got hard-to-obtain and frequently expensive data. UNH got the imprimatur of Yale in telling their side of the story. The New York Times got the exclusive, more than a little editorial influence, and bragging rights about “impact.”. Yale’s Tobin Center got something to show donors for their largess.
If this nifty bit of collusion had ended with a couple of journal articles and a NYT headline, no harm would have been done. After all, American industry regularly supports research on self-serving topics like air quality on airplanes.
Instead, the public and with them, Congress, was led to believe Surprise Billing was a pervasive issue resulting from the greed of private equity investors rather than a labor dispute between a few big dogs with a lot of money.
(To Congress’ credit, they went to great lengths to balance the interests of the staffing and insurance industries. They just failed to factor in the insurance industry’s influence over the bureaucracy whose rules are now clearly tilted in favor of carriers.)
In attempting to shield patients who are often in no position to inquire about the network status of their ER doc, Congress – or more accurately, HHS – made the practice areas of anesthesiology, radiology, neonatology, pathology and emergency room medicine de facto in-network. These physicians are now price takers.
It is probably not the result Congress wanted. Worse, for what is potentially a bad outcome, Congress gave up valuable floor time that might have been used for more bona fide problems like Part D reform.
All is fair in love, war and, above all, politics but you would have thought everyone involved in ushering the No Surprises Act, excluding UNH, into the White House would not have been such easy marks. Naivety - or was it yearning? - never ceases to surprise.
Policy. Like it or not, roll-ups like Envision and TeamHealth – and maybe throw DVA in there – are nothing more than an effort to acquire and protect market power. Having and keeping market power is a pre-requisite to being in the market in the first place.
Also, like it or not, Envision’s EmCare, TeamHealth and a host of other regional super-practices, are critical to the function of the American health care system. It would not work well, or maybe at all, without a robust supply of physicians who, for a host of reasons, have chosen practice areas with regular schedules but not a ton of influence over patient choice.
It seems a bit far-fetched that private equity investors like KKR and BX would have made out-of-network billing a significant component of their models when they took Envision and TeamHealth private. Yes, there is no question both companies have, in the past, balanced billed. But the conflict appears to be mostly with large national insurers like UNH and AET whose lack of local market power left them with little leverage when compared to a state or regional Blues plan. The claims of frequent surprise bills never squared - and still don't - with Envision and Team Health's claims that they were in-network with largest plans in their markets.
More likely, KKR and BX were looking for a price negotiation and a lot of inorganic growth in the consolidation frenzy post-ACA.
Now they have neither.
Envision’s creditors are engaged in that end-of-life struggle for lien position but the outcome, barring the court’s intervention on the No Surprise Act rulemaking, is inevitable. Certain physician services have been repriced permanently.
Labor, even the high-priced kind, when faced with a sudden re-valuing of its services may choose not to work or to work less. Since it takes time to produce doctors, we might face a reduction in hospital throughput. The areas of the U.S. most likely to be affected by, say, fewer anesthesiologists, are those served by community hospitals which themselves lack market power.
Technological advances, particularly in radiology, could alleviate labor disruption but that too will take time. Use of lower price-point credential labor like CRNAs, NPs and PAs might also help. In the short-term, however, there is no getting around the fact that HHS’s distaste for private equity could make a difficult labor environment worse.
On the future of TeamHealth and Envision, we are speculating, of course, although the bond market is telling us we are more right than wrong.
And then there is HCA.
Power. Most people I know that listened to the HCA earnings 1Q call were struck not just by the unusual top-line change in guidance, but the starkly different tone as compared to 4Q. The company credited lower than expected acuity post-COVID and higher labor costs.
They did not lie but perhaps there is more to the story.
Few people on the 1Q call remember that HCA and Envision’s EmCare operate a joint venture or subsidiary – Envision called it a JV, HCA calls it a subsidiary - known as HCA-EmCare. If the terms of the two companies’ arrangement as reported are still in place, HCA would have been the beneficiary of half the profit derived from EmCare’s operations at HCA hospitals.
If insurer response is also as reported – all we have right now is one-sided and anecdotal evidence – beginning January 1 contract terms between HCA-EmCare and insurers may have begun to erode enough to necessitate a change in guidance for the rest of the year. With seven million ER to visits to HCA’s hospitals, a $500M reduction in topline guidance is not out of the question.
Knowing HCA as we do, there will not be another change to guidance this year. Also knowing HCA as we do, we suspect they will move to further reduce their risk by returning EmCare staff to employed status, as was the case prior to 2011.
Those doctors will just be less expensive now.
Have a great rest of your weekend.
Emily Evans
Managing Director – Health Policy
Twitter
LinkedIn
