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The arrival of the No Surprises Act led to the unraveling of Envision's "secret sauce" business model, according to a prominent healthcare economist, and ultimately to the medical group's bankruptcy earlier this year.

After Envision, a physician staffing service and ambulatory surgery center operator, was acquired by private equity firm Kohlberg Kravis Roberts (KKR) in 2018, KKR put in place a business model that included aggressive billing tactics and was driven by pressure to pay back enormous amounts of debt taken on during the acquisition period, explained economist Eileen Appelbaum, PhD, during the on Thursday.

"The secret sauce was basically having doctors out-of-network, and then delivering surprise medical bills to families who had shown up at an emergency room, loading them up with medical debt," said Appelbaum, the co-director of the Center for Economic and Policy Research (CEPR), a Washington, D.C-based think tank.

But political and grassroots efforts to introduce the No Surprises Act started to put cracks in Envision's lucrative model, she said.

Appelbaum was a co-author on that was influential in Congress's decision to pass the No Surprises Act, which officially took effect in 2022.

"There was so much anger about those surprise medical bills," Appelbaum said. "They were so far out of sight that Congress eventually acted."

But even before the law passed, when Congress began seriously looking at the issue, "creditors could see that the ability of Envision to pay its debts was coming to an end," she said.

Envision attempted to push back against these efforts by arguing that the bad actors were the insurance companies who refused to pay doctors fairly, said Appelbaum.

"They bargained for six times what Medicare will pay. The insurance companies were willing to pay two times what Medicare would pay, even three times what Medicare would pay, but six times what Medicare would pay was really out of sight," she said.

"I'm pretty sure that there are no doctors in this room who were receiving six times what Medicare would have paid," she added. "That money was lining the pockets of the private equity company, was allowing it to pay off its debts, was allowing it to pay off Envision staff, and was allowing it to show 'Hey, we generate tons of revenue, somebody come buy us.'"

Appelbaum noted that with mounting debt issues, the pandemic handed Envision a cash-infused lifeline that staved off bankruptcy for a while until the money ran out. "They got a tremendous amount of Cares Act money that was supposed to go to you providers to enable us to survive the pandemic, but instead went to Envision, which kept it mostly for itself," she said.

With Envision struggling to repay its debts, KKR attempted to split the company in two -- EmCare, a struggling physician staffing business; AmSurg, a very profitable ambulatory surgical center business -- keeping the more profitable part for itself and out of the hands of the creditors, Appelbaum said. She noted that this strategy would have left Envision, saddled only with EmCare, loaded with all of the debt and little of the profit.

Shortly after the split, Envision started missing debt payments and other financial obligations.

Eventually, creditors led by Pacific Investment Management Company forced the restructuring in which they were able to convert their debt in Envision into equity in AmSurg, Appelbaum said. This is when the consequences started to pile up for Envision, and KKR was forced out of EmCare and AmSurg almost entirely. She added that KKR and its limited partners had put $3.5 billion into the acquisition of Envision and left with just $300 million.

"They made lots of money in the meantime, right, with all those surprise medical bills," Appelbaum said. "Obviously they pay down some of the debt. They paid themselves very handsomely. They pocketed a lot of the money along the way, but the idea that they were going to sell this and make a lot more money, that got washed out."

Now, EmCare is in the hands of trustees appointed by the bankruptcy court, but it is still generating revenue and paying bills. Appelbaum noted that the hope is a company that is big enough will buy EmCare, so the physicians and other healthcare professionals will be able to keep their jobs and continue serving patients. She added that it will likely be an insurance company.

"There's every reason to think that a buyer will be found because the debt is mostly wiped out and the company can operate profitably," Appelbaum said. "It will never be as profitable as it was for KKR, but it can be a company that stands on its own two feet."

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