Almost 90% of Most Distressed Healthcare Companies are Owned by PE Firms

A new report by Moody’s Investors Service has found that healthcare companies in North America are increasingly facing credit rating downgrades and potential defaults, including 34 companies rated B3 negative or lower.[1] PESP has found that 30 of those 34 companies most at risk are currently owned or controlled by private equity firms – about 88%.

The Moody’s analysis, reported on by Fierce Healthcare, found that “Among 193 rated North American-based healthcare companies, 34, or nearly 18%, were rated B3 negative or lower as of Nov. 30, up from nine, or about 4%, of rated healthcare companies as of Dec. 31, 2015.”[2]

Becker’s Hospital Review obtained the list of the 34 healthcare companies that are at risk of default.[3] PESP has identified the 30 private-equity-owned companies below. Altogether, the companies have over 271,000 employees.[4]

Among the largest companies on the list is KKR’s physician staffing firm Envision Healthcare, which PESP researcher Mary Bugbee wrote about in a December 2022 report. Bugbee pointed out that Envision’s mounting distress is linked to increased regulatory scrutiny of surprise medical billing, which occurs when patient seeks care at a supposedly in-network provider but is treated by out-of-network physicians, resulting in unexpected and sometimes exorbitant medical bills. Envision’s business strategy appears to have historically relied on staying out-of-network with patients’ insurers in order to extract higher payments. Saddled in billions in debt under KKR, the company has been in a vulnerable condition as market conditions and regulations have changed in recent years.[5]

“Under KKR’s ownership,” Bugbee wrote, “Envision has transformed from a profitable company and desirable acquisition target purchased in one of the largest leveraged buyouts since the financial crisis to a financially distressed one at high risk for bankruptcy and facing reputational fallout from its business practices.”[6]

Another large company on the list is Sevita (formerly known as the The Mentor Network and Civitas Solutions), which is owned by private equity firms Centerbridge Partners and the Vistria Group.[7] Sevita is one of the largest for-profit foster care companies in the US, and also provides residential and community services to children and adults with intellectual and developmental disabilities.[8]

In our February 2022 report “The Kids Are Not Alright: How Private Equity Profits Off of Behavioral Health Services for Vulnerable and At-Risk Youth,” PESP found that Centerbridge and Vistria have collected almost half a billion dollars in debt-funded dividends from Sevita over the course of their two-year ownership even as the company faced ongoing regulatory scrutiny for quality and safety concerns including numerous allegations of abuse, neglect, and deaths at its foster care and residential programs.[9]

Other notable companies on the list:

• Aveanna Healthcare is a pediatric home healthcare company owned by J.H. Whitney and Bain Capital. A damning 2019 Bloomberg investigation shed light on Aveanna’s private-equity-driven cost-cutting practices and their relationship to staffing issues and patient neglect.[10] (PESP wrote about it in our March 2022 report: “Private Equity at Home: Wall Street’s Incursion into the Home Healthcare and Hospice Industries”)
• Numotion is a durable medical equipment company that produces mobility products, including wheelchairs and wheelchair parts. It is owned by private equity firm AEA Investors.[11] Numotion has come under fire for profit-seeking tactics that have harmed wheelchair users, including inadequate staffing that leads to faulty or delayed repairs.[12]
• Team Health is a medical staffing firm owned by Blackstone. Like Envision, Team Health has faced scrutiny for its role in surprise medical billing and for financing a dark money campaign to preserve its ability to charge surprise medical bills.[13] It also cut doctors’ hours and pay at the height of the COVID-19 pandemic.[14]
• Air Methods is an air ambulance company owned by American Securities.[15] With KKR’s Air Medical Resource Group, the companies control nearly two-thirds of the national market for air ambulances. Private-equity-owned air ambulances have been found to receive higher payments and to generate larger and more frequent surprise bills.[16]

Top PE-Owned Distressed Healthcare Companies

Sources: Moody’s Investor Service and PitchBook (accessed December 2022).

[1] Heather Landi, “Healthcare companies’ default risk steadily rising, with most owned by private equity: Moody’s,” Fierce Healthcare, December 12, 2022. https://www.fiercehealthcare.com/finance/healthcare-companies-default-risk-steadily-rising-most-owned-private-equity-moodys

[2] Heather Landi, “Healthcare companies’ default risk steadily rising, with most owned by private equity: Moody’s,” Fierce Healthcare, December 12, 2022. https://www.fiercehealthcare.com/finance/healthcare-companies-default-risk-steadily-rising-most-owned-private-equity-moodys

[3] Nick Thomas, “34 healthcare companies at risk of default as debt rises amid weak operating performance: Moody’s,” Becker’s Hospital Review, December 13, 2022. https://www.beckershospitalreview.com/finance/34-healthcare-companies-at-risk-of-default-as-debt-rises-amid-weak-operating-performance-moodys.html

[4] PESP compiled the list of PE-owned companies through a combination of Moody’s credit ratings for those companies, data provider PitchBook, and new searches. The employee numbers were derived entirely from PitchBook.

[5] Mary Bugbee, “Envision Healthcare: A Private Equity Case Study,” Private Equity Stakeholder Project. December 2022. https://pestakeholder.org/wp-content/uploads/2022/12/Envision_CaseStudy_Final_Dec2022.pdf

[6] Mary Bugbee, “Envision Healthcare: A Private Equity Case Study,” Private Equity Stakeholder Project. December 2022. https://pestakeholder.org/wp-content/uploads/2022/12/Envision_CaseStudy_Final_Dec2022.pdf

[7] The Vistria Group, “The Vistria Group Announces Investment in Help at Home” company press release, November 13, 2020. https://vistria.com/the-vistria-group-announces-investment-in-help-at-home/ Accessed December 2022.

[8] Mentor Network/Sevita website, accessed December 2022. https://sevitahealth.com/

[9] Eileen O’Grady, “The Kids Are Not Alright: How Private Equity Profits Off of Behavioral Health Services for Vulnerable and At-Risk Youth,” Private Equity Stakeholder Project, February 2022. https://pestakeholder.org/wp-content/uploads/2022/02/PESP_Youth_BH_Report_2022.pdf

[10] Sabrina Willmer, “When Wall Street Took Over This Nursing Company, Profits Grew and Patients Suffered,” Bloomberg, October 22, 2019. https://www.bloomberg.com/news/features/2019-10-22/death-and-deals-sick-children-suffer-private-equity-profits

[11] “AEA Investors LP Acquires Numotion, the Nation’s Leading Provider of Complex Rehab Technology (CRT),” Numotion press release, Nov, 13, 2018. https://www.numotion.com/about-us/news/aea-investors-lp-acquires-numotion-the-nation-s-l

[12] Paul Roberts, “Two Behemoths Dominate the Motorized Wheelchair Industry. Disabled Customers Pay the Price.,” Mother Jones, May/June 2022. https://www.motherjones.com/politics/2022/05/motorized-wheelchairs-numotion-national-seating-mobility/

[13] Isaac Arnsdorf, “How Rich Investors, Not Doctors, Profit From Marking Up ER Bills,” Propublica, June 12, 2020. https://www.propublica.org/article/how-rich-investors-not-doctors-profit-from-marking-up-er-bills

[14] Isaac Arnsdorf, “Overwhelmed Hospitals Face a New Crisis: Staffing Firms Are Cutting Their Doctors’ Hours and Pay,” Propublica, April 3, 2020. https://www.propublica.org/article/overwhelmed-hospitals-face-a-new-crisis-staffing-firms-are-cutting-their-doctors-hours-and-pay

[15] “Air Methods agrees to be taken private in $2.5 billion deal,” Reuters, March 14, 2017. https://www.reuters.com/article/us-air-methods-m-a-american-securities/air-methods-agrees-to-be-taken-private-in-2-5-billion-deal-idUSKBN16L1H6

[16] Loren Adler, Kathleen Hannick and Sobin Lee, “High Air Ambulance Charges Concentrated in Private Equity- Owned Carriers,” USC-BROOKINGS SCHAEFFER ON HEALTH POLICY, October 13, 2020. https://healthpolicy.usc.edu/brookings-schaeffer/high-air-ambulance-charges-concentrated-in-private-equity-owned-carriers/