This week, The Wall Street Journal broke the news that the notorious surprise billing mill Envision Healthcare would file for Chapter 11 bankruptcy protection as soon as this weekend. The company, which has been on the brink of bankruptcy for more than three years, was heretofore owned by KKR, the monstrous private equity firm that health inspectors have frequently cited for imposing such cruel austerity upon its large chain of group homes that they are regularly found operating without a single staffer to care for patients.
When KKR in 2018 paid $5.5 billion to become the fourth major private equity firm to own Envision, the company was seen as a money-printing machine—albeit one whose quarter-billion dollars in annual interest payments wiped out all the operating profit the company generated in 2017. But when the federal No Surprises Act reined in the profit margins emergency rooms were allowed to rake in on surprise bills, KKR took measures to bail itself out by dubiously ring-fencing the company’s still-lucrative ambulatory surgery business and turning the core ER business into what is colloquially known as a “ShitCo,” whose bonds last week traded at pennies on the dollar.
Before being relegated to the ShitCo heap, Envision, formerly known as EmCare, was one of the defining companies of 21st-century American medicine. Perhaps more than any other institution, EmCare invented the modern American emergency room in all its dilapidated, understaffed, price-gouging misery. And if nothing else, its outlandish billing practices and dire working conditions radicalized a whole generation of doctors against the tyranny of the profit motive.
EmCare was founded by Leonard Riggs, then the medical director of the emergency room at Baylor University’s Dallas hospital, in 1974. At the time, emergency medicine was not yet a formally recognized specialty, and most hospital ERs were still staffed, as one of the specialty’s first practitioners Bill O’Riordan put it in 1979, by “alcoholics, drug addicts, foreign physicians without adequate training, and specialists who were good in their own field but couldn’t always handle an emergency outside of their area.”
M*A*S*H, a sitcom about a group of Army trauma surgeons during the Korean War, was one of the most popular shows on television at the time, and hundreds of field surgeons who did stints in wartime returned home with a burning desire to expand upon what O’Riordan called “the only positive thing to come from the Vietnam conflict”: a massive reduction in the mortality rate of soldiers who died or were permanently injured in battle. Robert McNamara, who currently chairs the emergency medicine department at Temple University and belonged to one of the first classes of board-certified emergency physicians in 1982, says the specialty tended in those days to attract ambitious first-generation med students attracted to the “social justice” element of the profession. (It still does; 31 percent of currently practicing emergency physicians are still paying off their student loans, which tied with pediatrics and physical medicine as the highest proportion of any specialty.)
Riggs, the son of a Texas landscape architect and former Navy surgeon who was an early member of the American College of Emergency Physicians (ACEP), was not exactly a social justice warrior. He drove a yellow Maserati—and posed with it for a 1977 newspaper spread on the “sexiest cars” in Grand Prairie, Texas—and in interviews complained vociferously about patients who “abused the privilege” of emergency room care for non-emergent conditions. Riggs became president of ACEP in 1980; by 1982, the group had amended its code of ethics to drop a prohibition on “fee-splitting,” the practice of taking kickbacks from doctors in exchange for referrals.
EmCare invented the modern American emergency room in all its dilapidated, understaffed, price-gouging misery.
Emergency medicine specialists were often idealists with little interest in the sales and networking component of American medicine, which was then still dominated by solo practitioners who built practices by coaching youth sports teams and teaching Sunday school and dispatching wives to run charity balls. And that was OK, because although emergency rooms were notoriously unprofitable, they were steady generators of patient referrals, and most acute-care hospitals were required by law to staff them at all times.
But ERs became bigger money-losers in the 1980s, as patient volumes soared while both insurers and the Medicare program moved reimbursement formulas toward flat fees for certain diagnoses. Hospitals began to hire consultants to advise them on how to maximize their revenues and “dump” their most unprofitable patients on charity hospitals, a practice that was most widespread in Riggs’s home state of Texas. In 1985, Congress passed the Emergency Medical Treatment and Active Labor Act (EMTALA), requiring all acute-care hospitals to keep ERs staffed 24 hours a day with physicians who would provide “stabilizing treatment” to patients, regardless of their ability to pay. The statute was vague—hospitals were explicitly required to deliver the babies of uninsured women, but not go out of their way to diagnose a patient who might have broken bones or a brain bleed—and it was also unfunded, meaning hospitals were effectively required by law to finance the treatment of uninsured patients by overbilling those who could afford it.
EmCare, which managed a handful of hospital ERs throughout Texas in the mid-1980s, seized upon the weaknesses and uncertainties of EMTALA to build itself into a giant of emergency medicine, offering 24-hour, EMTALA-compliant, low-rate staffing services to hospitals across the country, in exchange for a cut of the fees they would generate billing insurers and Medicare for the non-charity cases.
Private equity first entered the picture in 1992, when Welsh, Carson, Anderson & Stowe, a tech-oriented buyout shop that had started betting heavily on health care plays in the mid-1980s, took a stake in EmCare and brought the company public in 1994, raising $100 million it used to acquire emergency physician practices across the country. WCAS would end up bankrolling more than two dozen such medical rollups over the years, in specialties ranging from pathology to radiology to neonatology to oncology to the competing emergency medicine platform US Acute Care Solutions (USACS). But EmCare was the blueprint. By the time EmCare sold out to the bus operator Laidlaw, Inc., for $400 million in 1997, it ran emergency rooms in 161 hospitals in 21 states. That number would climb above 500 during the 2000s.
The secret to EmCare’s success—and the obvious explanation for its current failure—was “balance” or “surprise” billing, the now-banned practice of jacking up costs on insured patients to supplement the amounts their insurers agreed to reimburse for their care. A well-publicized study showed that ER charges for the same services roughly doubled after a hospital outsourced its emergency services to EmCare. This often dovetailed with the “out-of-network” scam, claiming that ER doctors or radiologists or anesthesiologists were not in a patient’s insurance plan, even if they were being cared for at their home hospital. That enabled astronomical charges imposed directly on patients for uncovered care.
But there were a litany of other tricks for raking in cash, from pressuring doctors to fraudulently admit healthy Medicare patients in exchange for kickbacks from for-profit hospitals, to systemically understaffing ERs and replacing physicians with physician assistants and nurse practitioners, to stationing said non-physicians in waiting rooms to order unnecessary tests on behalf of waiting patients, so that the company could successfully send massive medical bills even to patients who leave the ER without seeing a doctor due to the interminable wait times.
In 2017, EmCare, by now called Envision, paid $29.6 million to settle lawsuits alleging it colluded with the since-acquired hospital chain Health Management Associates to fraudulently admit Medicare patients, and in 2021 it was forced to pay a $26 million jury award to a Kansas physician the company had fired for protesting its agreements with HCA, a hospital chain with which Envision operates dozens of Florida ERs in a “joint venture,” to guarantee physician coverage throughout the hospital even when the ER was dangerously understaffed and in violation of EMTALA.
Another huge boon for EmCare/Envision was the passage of tort reform bills, starting with Texas’s Proposition 12 in 2003, that raised the threshold for filing a malpractice lawsuit against an emergency room provider to “willful and wanton negligence.” That’s a standard “you’d have to be a Nazi death camp guard” to meet, in the words of one malpractice attorney interviewed for a horrific story on the case of a woman who lost both legs, her livelihood, and ultimately her life after being discharged by a San Antonio physician at the Christus Health system, one of the biggest bankrollers of the “Yes on 12” campaign and a major client of EmCare’s. The law freed EmCare and other copycat mega-practices like TeamHealth and USACS from the consequences of egregious understaffing and patient dumping in Texas, and it was shortly followed by similar ER malpractice carve-outs in North Carolina and Florida.
Perhaps no population has been more impacted by EmCare and its copycats, however, than the doctors forced to work for them. Emergency medicine is now dominated by private equity–controlled mega-practices: Apollo’s USACS, Blackstone’s TeamHealth, Onex’s Shumacher Clinical Partners, Brown Brothers Harriman’s American Physician Partners, ValorBridge’s ApolloMD, and others. Many of these mega-practices share a family tree: Shumacher owner Onex used to own EmCare; Welsh Carson used to own both EmCare and USACS; USACS owner Apollo was last year reported to be kicking the tires at Envision. These companies ostensibly compete against one another for ER contracts and physicians, but they are also famously collaborative. Envision and TeamHealth together bankrolled a $75 million ad blitz to undermine surprise billing legislation during the 2020 presidential campaigns. In practice, it often seems as though the ER operators function as a collection of regional fiefdoms, with Envision dominating Florida, USACS claiming Denver and much of Ohio, ApolloMD staffing dozens of smaller hospitals and freestanding ERs in the Southeast, etc.
Envision and other private equity ER contractors have conspired with hospital systems to produce a “glut” of emergency physicians.
In recent years, all of the major private equity ER operators have shifted their compensation schemes to complicated volume-based formulas that doctors say invariably wind up constituting severe pay cuts unless they agree to work dangerously short-staffed. More insidiously, Envision and other private equity ER contractors have conspired with hospital systems—namely, HCA—to produce a “glut” of emergency physicians by opening dozens of new residencies for med school grads in emergency medicine at hospitals with none of the resources to actually educate them. Residents are typically paid between $50,000 and $80,000 a year to work and “train” 50 to 70 hours a week, making them an alluring source of cheap labor even without the generous subsidies supplied by the Centers for Medicare & Medicaid Services for most residency slots, which typically pay hospitals about $150,000 per resident per year.
Envision and HCA in particular went all in on the residency gravy train beginning around 2014, though the scheme has started to backfire since ACEP published a paper warning members of the impending “oversupply” of ER doctors. This year, an unprecedented 550 emergency medicine slots were unfilled after “Match Day,” as med school grads began to shun newer residency programs for fear of meeting the fate of HCA residents like the anonymous “hcaresidentfail,” who posted on a subreddit in March that accepting an emergency medicine residency at an HCA hospital was “one of the biggest mistakes I have ever made” that had left them “totally unprepared to even begin practicing on my own … It is clear that all HCA wants to do is exploit cheap labor and increase their bottom line and your training as a emergency medicine resident is not even be a priority.” The poster added that more than half of their fellow residents were still looking for jobs.
While Envision was not mentioned by name, the “faculty” of most HCA emergency medicine residencies consists of Envision doctors who are paid commensurately with the patient volume they handle, meaning there’s little time to teach anything, according to one longtime Envision doctor who told me the “chair” of a residency at one of his hospitals had paid a dubious “medical” journal to publish some of his papers to give the appearance that he was a legitimate academic.
None of this is actually legal, argues McNamara, a veteran critic of private equity health care profiteering. In 2021, McNamara and his colleagues at the American Academy of Emergency Medicine, a nonprofit professional organization that also operates a practice in California, sued Envision for, among other things, violating the state prohibition on the “corporate practice of medicine.” Much of the case revolves around Envision’s use of “straw” chief medical officers like “Douglas Smith M.D.,” whose name is listed at the helm of hundreds of Envision subsidiaries in states in which he is not licensed to practice medicine.
Given the veritably nonexistent enforcement of CPOM statutes in recent years, the case seemed like a long shot when it was filed, but the judge last May denied Envision’s motion to dismiss it, and federal prosecutor Brendan Ballou recently recommended strengthening CPOM laws as one way of fighting back against private equity in his recent book Plunder, a sign the legal establishment may be starting to take the laws more seriously.
Like a lot of the social ills private equity has perpetrated upon the public, Envision’s grotesque business model was arguably illegal under the CPOM laws long before the No Surprises Act made it less profitable; it’s a case Dr. McNamara and other gadfly ER docs like his friend James Keaney have been making for more than 30 years now, since Welsh Carson first discovered surprise billing. But they have never been more optimistic than they are today. By contrast with many of the institutions that have been irretrievably destroyed by Wall Street looting, Envision’s most valuable assets were people, doctors and nurse practitioners, who have little trouble imagining what their lives and workplaces would be like in the absence of extractive overlords. As one emergency physician who left a USACS gig last year to be closer to family after leading an (ultimately successful) campaign to get her hospital to cut its ties with private equity says, “You don’t learn anything about corporate profits in med school. But that is probably a good thing.”
