It is lonely work being a prophet.
As a rule, prophets bring a message of some coming unpleasant future – famine, pestilence, God’s wrath. Not a lot of prophets forecast everyone will see crisp Benjamins falling from the sky tomorrow.
Further, most are warning of something that may still be a way off. Many aren’t even still around when the future arrives to get to say, ‘See, I told you.’
Thus, not a lot of postings on Indeed for open prophet jobs.
But one, and he even has a little curmudgeon feel that works for the folks in central casting, is at least getting to have a satisfactory wry smile of being right, even if he didn’t get to pocket the proceeds.
This week, Moody’s downgraded the credit rating of Envision Healthcare – the massive physician staffing company – from C to Caa3. How bad is a Caa3 rating? That is also where Moody’s puts El Salvador’s debt. Ouch.
Envision is expected to see ‘weak liquidity’ over the next 12-18 months. Decoder ring says that means they are going to be burning cash. The $1.4 billion they have on hand will likely be gone next year and the company is carrying a LOT of debt.
Envision staffs a lot of departments for hospital systems – emergency, anesthesiology, radiology, neonatal – and is facing huge battles on three fronts.
First, they and TeamHealth (same idea, different owner) are the center of the bullseye in the surprise billing debate in Congress.
Second, toss in a major legal fight with UnitedHealthcare. ‘You denied too many of our claims.’ ‘Well, you fraudulently upcoded those claims.’
Third, understaffing, onerous productivity demands, and contract renewals are creating unrest in the ranks of their physicians.
No wonder Moody’s stuck a massive ‘Buyer Beware’ sign in their front yard.
That news took me back to the morning in the early summer of 2018 when famous short-seller Jim Chanos was on CNBC laying out the case for why Envision – and similar physician roll-ups – was a house of cards destined to fail. Kynikos, the investment firm he manages, had taken a large short position in Envision, so he wasn’t just pontificating…he had put his money where his mouth was going.
The short play did not payoff because Envision sold for almost $10 billion to KKR, who took the company private. But now – four years later – Chanos can at least read Moody’s warning on the risks of the Envision debt and feel the prophet’s sense of validation.
I am neither apologist nor critic of private equity buying physician practices per se. I am ‘pro physician,’ particularly the sub-set that are not employed by a health system. For some, partnering with equity makes sense. But Chanos’ warning to investors in 2018 also serves as a note of caution to physicians contemplating this move. Not all PE strategies for physician practices are the same. Some create real value; some are just accounting and finance sheninigans that eventually run out of gas. Seller beware.