Coronavirus Caused Two Big Healthcare Buyouts To Sour


KKR and Blackstone have seen the value of Envision and Team Health Plummet due to Health Care changes caused by Covid-19

Two big healthcare buyouts are turning out to be among the worst performing private equity investments due to the coronavirus pandemic, according to The Wall Street Journal.

Envision Healthcare Corp., a physician staffing company, and TeamHealth Holdings Inc., a national physician services firm, were purchased by KKR & Co. and Blackstone Group Inc. in 2018 and 2017 for respectively $6 billion and $3 billion.

The private equity firms made the buyouts in hopes of being connected to an array of medical professionals, and funded the deals with ample debts, which could accelerate their returns if things went well.

However, contract conflicts with insurance company UnitedHealth Group Inc. and costly lobbying in Washington over the surprise medical bills already led to financial underperformance. The coronavirus pandemic pushed the companies further into the problems.

Due to the global pandemic crisis, visits to emergency rooms have harshly fallen as the noncoronavirus patients are afraid to come. Envision closed many surgery centers when elective procedures were postponed.

Envision and TeamHealth saw net losses of $55 million and $40 million in the first quarter, and are predicted to do worse in this quarter, according to people familiar with the companies.

Envision’s bonds, which are due in 2026, reached their lows after the company asked bondshares to accept less than face value payment, while trading at 36 cents on a dollar.

Jim Momtazee, a KKR partner who led the deal, left the firm last summer. Pete Stavros, who was brought in to help save the company, said, “Like every medical group in the country, Envision is facing several formidable challenges simultaneously.We are doing everything we possibly can to address these issues and get operations back on track.”

TeamHealth faces a slightly better situation as it does not own surgery centers, but its bonds due 2025 trade at just 55 cents.

“The lights on the dashboard should have been blinking red for anyone who came within a thousand feet of these companies,” said Zack Cooper, a Yale University health economist. “I wouldn’t invest in a company whose entire business model would go away because of a single rule change.”

The Journal interpreted that, while there are ameliorating solutions such as “enacting a rate-setting measure that would cut doctor salaries during a pandemic,” the Congress might still pass anti-surprise-billing legislation this year, making the future of the two companies dimmer.

See the full report here.


Economics, Finance and Investing