If Envision Healthcare files for bankruptcy, a group of emergency room doctors would seek permission to continue their federal lawsuit that claims the private equity-backed company is violating California’s ban on corporate control of medical practices.

“I anticipate that we would ask the bankruptcy judge to let our case proceed,” said David Millstein, an attorney representing the Milwaukee-based American Academy of Emergency Medicine Physician Group. “Among other things, Envision’s practices violate the law, are continuing, and need to be addressed.”

Still, the future of the lawsuit is uncertain since it’s unclear how a judge might rule.

On May 9, The Wall Street Journal reported that Envision planned to file for Chapter 11 bankruptcy protection, possibly as early as this weekend. That would allow the company, based in Nashville, Tennessee, to reduce its debt while reorganizing its business. The Journal said Envision failed to report quarterly financial results by a March 31 deadline and missed an interest payment in April.

Envision spokesperson Aliese Polk declined to comment.

The emergency doctors’ lawsuit does not ask for monetary damages, so the Milwaukee group would presumably not have a financial claim against Envision. Instead, the doctors are seeking a declaration by the court that the company’s alleged use of shell business structures to retain de facto ownership of ER staffing groups is illegal. A trial in San Francisco had been scheduled to start next January, but the date has been pushed back.

The doctors believe that a victory in their case would lead to a ban on that business strategy across California — not just in ERs run by Envision but also by TeamHealth, another private equity-owned medical staffing firm, and in other medical services the two companies provide, including anesthesiology, hospital-based medicine, and gynecology.

Many doctors, nurses, consumer advocates, and even some lawmakers, hope a legal victory would spur prosecutors and regulators in other states to take the issue of medical practices controlled by corporations more seriously.

Envision runs 467 emergency departments across the country and TeamHealth operates 511, according to Ivy Clinicians, a startup job search website for emergency physicians. Together, the two companies control more than 17% of emergency departments, the data shows.

Envision was acquired by the investment firm KKR in 2018 for $9.9 billion, making it the largest private equity deal in health care during that decade. The deal saddled Envision with about $7 billion in debt. Last September, analysts at S&P Global Ratings estimated that the company’s debt was 29 times its earnings in 2022, a staggeringly high figure that raised alarms about its ability to pay its obligations.

At the same time, Envision’s revenue picture has deteriorated. The federal No Surprises Act, which protects patients from unexpected bills sent by out-of-network providers, sapped a key source of revenue. The pandemic shrank patient volumes, and burnout among health care workers fueled staffing shortages that have jacked up labor costs. A fierce battle with insurance giant UnitedHealthcare over payments for patient care also hit Envision.

“The financial profile of the company is just not strong enough to manage the debt they have on the balance sheet, and I think that’s really what the bottom line is,” said David Peknay, a director at S&P Global Ratings.

This article was produced by KFF Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation. 

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.

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