Some ER physicians seeing pay reductions
Profit-driven business model blamed
As the nation cheers its emergency room physicians as warriors fighting a pandemic, the big-money firms who employ them are quietly slashing doctors’ income to make up for shortfalls in corporate revenue.
Across Houston’s largest hospital systems, some emergency room doctors are reporting their overall income has dropped as much as 25 percent either through direct pay cuts, reduced hours or both — even as the number of COVID-19 patients continues to climb in the region.
The Houston region has yet to hit its peak, officials said, and has reported more than 7,600 cases with 135 deaths as of Thursday.
As the virus spreads it has not only unleashed a public health crisis, it has also exposed the often unforgiving business model in today’s emergency
rooms — one that critics say is too driven by profit.
“It’s what happens when you turn medicine into a commodity,” said Dr. Cedric Dark, an assistant professor of emergency medicine at Houston’s Baylor College of Medicine.
In Texas and elsewhere, emergency physicians typically are not employed directly by the hospitals they work in, but rather by large national firms who forge contracts with local hospitals to supply staff and run the emergency rooms. The doctors usually are paid by those firms based on the hours worked and patients seen rather than a set salary.
The largest of the companies, Envision Healthcare and TeamHealth, are owned by multibillion-dollar private equity firms, Kohlberg Kravis Robert, or KKR, and Blackstone Group, respectively. Together they are estimated to control about a third of all emergency physician staffing in the country, according to a recent analysis by health policy experts.
Envision now manages and staffs the emergency rooms for HCA Houston Healthcare, a forprofit health system that operates 13 hospitals in the Houston area. TeamHealth runs the emergency rooms at all of Memorial Hermann Health System’s 13 hospitals, except those at the Texas Medical Center, which are staffed by UTHealth, a spokeswoman for the health system said. TeamHealth’s contract with Memorial Hermann will end June 30, the spokeswoman said.
A third, fast-growing firm, American Physician Partners, now runs the emergency department at Houston Methodist hospitals after acquiring a local physician group last year for an undisclosed price. Headquartered in Brentwood, Tenn., American Physician Partners, or APP, is backed by the private-equity division of Brown Brothers Harriman.
Envision confirmed Wednesday it received an undisclosed amount of federal bailout money from the first $30 billion allocation to health care providers under the CARES Act. TeamHealth and APP did not immediately respond to emailed questions about whether they received money and how much. Under the first phase of the federal rescue program, providers were given money based on 2019 Medicare reimbursement amounts.
Three emergency room doctors who work for Envision or APP told the Houston Chronicle that their income had been cut but requested anonymity because they were not authorized to speak publicly. In addition, the Chronicle obtained corporate emails sent to employees about shift and pay cuts and reviewed company financial records.
“It’s a huge paradox,” said one emergency room doctor who asked not to be identified because he fears retaliation. “We’re being shown on TV commercials and in the news as these frontline heroes who are risking our health and our family’s health to save others, but on the corporate side we are being treated like we are expendable.”
It seems counterintuitive that hospitals and the companies that staff them could be losing money during a nationwide medical crisis. Yet all three large staffing firms report facing massive financial hits in recent weeks as hospitals curtail elective procedures and even emergency rooms in some cities like Houston are experiencing patient volumes drop by as much as half as people stay away.
And that disrupts revenue streams.
Temporary cuts
On April 8, Jim Rechtin, Envision CEO, said in an email to employees that overall patient volumes had dropped by 40 percent in the weeks since the pandemic hit, with up to 75 percent drop in surgical and anesthesia services.
“We must make difficult decisions to reduce the cost associated with the 40 percent of our capacity that patients are understandably not using right now. This will require temporary furloughs and temporary pay cuts to a significant portion of our team,” the email, obtained by the Chronicle, said.
The company said in an emailed statement to the Chronicle on Tuesday that health care “has been fundamentally destabilized” but that its doctors continue to stand ready to treat patients.
At APP, leadership announced during an April 2 phone call to its employees at Houston Methodist that both shifts could be reduced plus there would be a 10 percent pay cut on a “deferral basis,” which means previous rates would be restored once the pandemic eases, according to the company and doctors who listened to the call.
“Like all fiscally responsible organizations we are adjusting staffing levels to match patient volumes, and this step also helps reduce COVID-19 exposure for our providers and conserve the reduced supply of personal protective equipment,” a spokeswoman for APP said in an email to the Chronicle, adding that preserving frontline jobs was a top priority.
TeamHealth said in its emailed statement that it was unable to comment on its specific cost-cutting measures at Memorial Hermann hospitals but that the company had experienced a 40 percent drop in patient volume.
“While we have had to pare back staffing in select markets to reflect the real-time volume environment, overall we’re deploying significant capacity above current volumes to anticipate a COVID-19 surge,” the company statement said.
Executives at all three staffing firms have also taken pay cuts, the companies said.
Profiteering alleged
When private equity powerhouse KRR bought Envision Healthcare for $9.9 billion in 2018, the Nashville-based staffing and management firm was already one of the largest of its kind in the nation.
Envision had spent years acquiring smaller physician groups and affiliated medical companies, making it a sweet target for private equity’s growing influence in the nation’s health care industry, health policy experts say.
The acquisition of Envision came on the heels of a similar deal by Blackstone Group the year prior to acquire rival TeamHealth, based in Knoxville, Tenn., for $6.1 billion. Both companies are now privately held.
TeamHealth, with its 16,000 doctors and clinicians, and Envision with its 27,000 wield enormous influence in local markets, said Rosemary Batt, the Alice Hanson Professor of Women and Work at Cornell University who specializes in private equity’s role in health care.
But they are also remain laden with billions of dollars of debt from their previous buying sprees, creating pressure to produce revenue either by seeing more patients or billing at higher charges, Batt said.
Last year both companies came under congressional scrutiny for alleged patterns of intentionally remaining outside insurance networks so they could bill at two to three times higher rates to boost profits. It is a practice known as balance billing, where unsuspecting patients — typically in emergency rooms — are saddled with thousands of dollars in surprise medical bills because the physician who treated them was out-of-network and their insurer did not pay the higher billed charge.
Critics call the business model predatory profiteering. The companies, though, counter they are not to blame for billing problems,
Six-digit student loans
Houston doctors working for Envision and APP acknowledge they make a good living — better than most hit by the economic collapse — often about $200 an hour. Still, the physicians interviewed said the cuts hurt as they juggle mortgages, bills and six-figure student loan debt. One doctor, speaking anonymously, said his income has dropped 25 percent in recent weeks.
But what worries him more than the money is that the city’s hospital emergency rooms could be left understaffed by cutbacks amid the pandemic.
He said he recently completed a busy eight-hour shift at an HCA Houston Healthcare hospital emergency room as the only doctor with just three nurses. He used to have eight nurses and a physician assistant to help care for patients.
And while the number of patients is indeed down, they are often arriving much sicker and require more treatment, he said.
“You do what you can,” he said, “and hope it’s enough.” pointing instead to the insurance industry for not adequately covering billed charges and offering too little in reimbursements. Both companies have lobbied against any congressional action that would limit their of out-of-network charges based on a benchmark of median prices for the area.
Regardless, the heavily leveraged companies have long relied on a steady stream of patients to stay profitable.
Then the virus hit.
“This story is not new,” said Batt, about what is happening during the coronavirus crisis. “In the 2008 financial crisis, many overleveraged private equity companies went south or entered bankruptcy because the high debt makes them so vulnerable to economic downturns.”
On April 6, Moody’s Investor Services downgraded TeamHealth’s credit rating and lowered its outlook from stable to negative, in part because of its heavy debt load and projected loss of revenue due to reduced patient volumes. Then, earlier this week, Bloomberg reported Envision had hired restructuring advisers as a possible precursor to a bankruptcy filing. Envision continues to struggle to manage its $7 billion in debt in the face of reduced patient volumes, the news service reported.
Envision declined to comment on bankruptcy speculation. TeamHealth said the Moody’s action was due to uncertainties surrounding the pandemic and continuing tension with the insurance industry.