The pull of these forces left many doctors anguished and distraught, caught between the Hippocratic oath and “the realities of making a profit from people at their sickest and most vulnerable.”
Not only are clinicians feeling betrayed by their leadership,” she says, “but when they allow these barriers to get in the way, they are part of the betrayal. They’re the instruments of betrayal.”
From “The Moral Crisis of America’s Doctors.”
Speaking of physician shortages, Tennessee just became the first state to pass legislation allowing international medical graduates to obtain licensure and practice independently without completing a U.S. residency program. Bryan Carmody breaks it down.
It took a few years before it finally got there, but massive private equity-owned physician staffing company Envision finally filed for Chapter 11 bankruptcy this week.
The harbinger of the coming wave of PE defaults, bankruptcies, distressed exchanges, and other failures has fully arrived. Make no mistake, this is just the beginning.
There are people who see this news and rejoice. It’s not hard to see why. There might be more than a bit of schadenfreude seeing a big private equity company go belly up. These entities are so often in the business of pure value extraction. They aggressively use leverage to buy a bunch of stuff using a bunch of borrowed money and try to increase profits through negotiating clout, suppressed salaries, and unsavory financial machinations. They often take successful companies and saddle them with so much debt that they fail, strip them for parts, and let everything fall apart after they’ve made sure they made their buck. Many of the big retail failures of the past decades have all been the same story.
Envision was in the process of the usual playbook of financial machinations to separate the profitable wheat from the debt-riddled chaff when the WSJ reported on the possible impending bankruptcy and forced their hand.
Because such a large portion of their purchases are funded through debt, it’s relatively rare that the PE-owner actually loses a ton of their own money in the process. Envision’s owner KKR wasn’t quite so lucky: while the levered buyout was almost $10 billion in 2018, they are still likely to lose their entire ~$3.5 billion stake.
Envision’s reimbursement games didn’t pan out, not just their ploy of going out of network to charge exorbitant rates to unsuspecting patients–a practice curtailed by the No Surprises Act–but also from the bad acting of big payers like UnitedHealthcare (there are very few good guys in healthcare). Adding insult to injury, they weren’t able to squeeze physicians and other staff in the hot job market. Labor costs have been going up.
While Envision as a normal business is functioning, valuable, and generates cash, its growth was nowhere near the level required to service its more than $7 billion of debt. If the credit markets were loose like in the pre-Covid era, they probably would have been able to refinance without issue. Now, the cost of capital is simply too expensive.
This possibility was in the news back during the early Covid days, but Envision was temporarily saved by an influx of cash from the CARES Act. They recently defaulted on their debt and subsequently filed for Chapter 11 bankruptcy on May 15.
From the announcement email from Envision CEO Jim Rechtin:
Upon emergence from the restructuring, both Envision and AMSURG will be under new and separate ownership, comprised of current lenders. KKR will no longer have a stake in either company.
The email goes on to state the following items unironically:
As part of the process, Envision is now owned by its creditors (the lenders who had given secured loans and/or purchased corporate bonds,) and KKR has lost its stake and will no longer own/run the company. And it’s worth pointing out that nothing unsavory has really happened in the sense of business practice. This is how the industry is designed to work. People invest money and take on risk in order to make money. A company taking on debt it knows it can’t really afford and other unnecessary/excessive risks that might screw over its creditors is part of the game. When companies fail, the creditors get the scraps before the equity owners/shareholders.
Billions of dollars have been lost, absolutely, but at the end of the day, it’s mostly big institutional investors like large pension funds that are the ones who have lost in the short term. KKR made a bet and lost. They’ll be fine.
Of interest to most physicians is that the day-to-day function of Envision probably won’t change much, and this big company that got big by borrowing an unsustainable amount of money to fund its growth still exists. It may even emerge from this process potentially stronger than recent years now that it won’t have billions of dollars on the balance sheet and the need to make periodic debt payments. They will probably not be able to raise more capital in the current environment, which will prevent the kind of debt-fueled highly-leveraged growth that allowed a company like Envision to buy large practices in the first place. And their management record still does not inspire confidence. But at the end of the day, Envision as an entity is still big, still employs thousands of doctors, and still has a dominant market position in several locales. If there is any physician staffing company that could be considered too big to fail, Envision is one.
You might ask, why would Envision’s creditors take the deal? Is losing billions of dollars fun? Well, no. This is the nature of distressed exchanges: better to lose a few billion and end up with a big profitable company at the end than lose all of your billions.
From the official FAQ:
How will patients be impacted?
Patients will continue to receive the same high-quality, high-value care our clinicians and physician partners have always provided. Patients and their families should notice no difference in our operations or level of care.
This is why those hoping that the collapse of private equity-funded healthcare ventures will lead to a return to better times are unfortunately in for a grim reality check. The tactics and market consolidation don’t have to go away just because they can’t pay their debts. We’re not likely to undo any damage already done. For better or worse, these companies will mostly soldier on. The playbook lives to see another day.
Unless physicians quit in droves on principle or in fear, the status quo continues. If people take the wake-up call about the flaws in the funding model, that’s a different story.
From Elisabeth Rosenthal’s (author of An American Sickness) “Denials of health-insurance claims are rising — and getting weirder“:
An insurer’s letter was sent directly to a newborn child denying coverage for his 4th day in a neonatal intensive-care unit. “You are drinking from a bottle,” the denial notification said, and “you are breathing on your own.” If only the baby could read.
Osteopathic and allopathic physicians, DOs and MDs, are already essentially the same and have been increasingly so over recent years. But one admissions practice is very common for osteopathic schools and exceedingly rare for allopathic schools: requiring a letter of recommendation from a practicing physician (PLOR):
Although requiring a PLOR is very common practice among osteopathic medical schools, with 81.8% (36 out of 44) requiring it, it is rare among allopathic schools, with 3.9% (6 out of 154) requiring a PLOR. Allopathic medical schools only require LORs from a student’s undergraduate institution and strongly recommend a clinical letter but do not require it. According to the Association of American Medical Colleges (AAMC), allopathic schools matriculated 14.6% URM students in the year 2020 [28], compared to 11.1% URM students at osteopathic schools [4]. They also had more than double the percentage of Black matriculants (7.6 vs. 3.3%) [4, 28].
But.
On average, schools that required a PLOR have 37.3% (185 vs. 295; p<0.0001) fewer Black applicants and 51.2% (4 vs. 8.2; p<0.0001) fewer Black matriculants.
That’s a painful number. Schools that have this requirement receive end up with half as many black students.
Perhaps there are confounding factors here, but that difference demands at least further study. Frankly, I’m not sure whatever the purported benefits of a physician letter are that they could possibly justify the practice given the functional barrier they seem to create.
If you look at the data, applicants across the board are actually down with the requirement. While the barrier wasn’t specific to any group or underrepresented minority, the changes reached statistical significance only in that subgroup. It’s just a cudgel to decrease the admissions administrative burden.
I’ve written before about the “good reason to be a doctor” police. I think we, as a profession, are simply not that good at choosing candidates, and I sincerely doubt a letter from a random doctor means literally anything. Letters of Recommendation are mostly useless, but I especially fail to see how a letter from someone you follow around for a shadowing experience tells me anything about you as a person that I care about that couldn’t be determined from someone else.
There are social determinants of medical school admissions that are entrenched and difficult to change. Then there are the incredible costs of medical school that are baked into the status quo. But this? This is not a good or equitable way to shrink the applicant pool to a more manageable size for the admissions committee.
This is a petty, minor detail that every school should delete today.
(hat tip Bryan Carmody)
When you look for the answers needed to confirm your beliefs, you can almost always find evidence. That doesn’t mean you’re right. It means confirmation bias is a real cognitive trap.
Radiologists (or clinicians of any stripe) need to constantly regulate and bring to consciousness balanced decision-making between observation and synthesis (putting together multiple findings to reach a conclusion) and anchoring on initial observations in ways that can impair objective analysis.
As in: is this additional imaging or clinical finding subtle or simply not there?
Imaging interpretation is a surprisingly noisy process. Sometimes we simply don’t know if a finding is “real” or not—we make judgment calls based on intuitive probabilities all the time. When findings make sense for a given clinical picture, we are more likely to believe them. Conversely, when we know what to look for, we are more likely to marshall our attention effectively and be able to identify subtle findings.
But: balance in all things.
There are two facets of confirmation bias that deserve their own discussion here: cherry picking and selective windowing.
You can’t retrospectively judge the likelihood of an event after the fact. This is part of the unfairness of Monday-morning quarterbacking and medical malpractice. You can’t predict the weather that occurred last week. Forecasting is a prospective process.
From Richard Feynman’s classic The Meaning of It All: Thoughts of a Citizen-Scientist:
“A lot of scientists don’t even appreciate this. In fact, the first time I got into an argument over this was when I was a graduate student at Princeton, and there was a guy in the psychology department who was running rat races. I mean, he has a T-shaped thing, and the rats go, and they go to the right, and the left, and so on. And it’s a general principle of psychologists that in these tests they arrange so that the odds that the things that happen by chance is small, in fact, less than one in twenty. That means that one in twenty of their laws is probably wrong. But the statistical ways of calculating the odds, like coin flipping if the rats were to go randomly right and left, are easy to work out.
This man had designed an experiment which would show something which I do not remember, if the rats always went to the right, let’s say. He had to do a great number of tests, because, of course, they could go to the right accidentally, so to get it down to one in twenty by odds, he had to do a number of them. And it’s hard to do, and he did his number. Then he found that it didn’t work. They went to the right, and they went to the left, and so on. And then he noticed, most remarkably, that they alternated, first right, then left, then right, then left. And then he ran to me, and he said, “Calculate the probability for me that they should alternate, so that I can see if it is less than one in twenty.” I said, “It probably is less than one in twenty, but it doesn’t count.”
He said, “Why?” I said, “Because it doesn’t make any sense to calculate after the event. You see, you found the peculiarity, and so you selected the peculiar case.”
The fact that the rat directions alternate suggests the possibility that rats alternate. If he wants to test this hypothesis, one in twenty, he cannot do it from the same data that gave him the clue. He must do another experiment all over again and then see if they alternate. He did, and it didn’t work.”
His conclusion?
“Never fool yourself, and remember that you are the easiest person to fool.”
This is also why when we evaluate a new AI tool, we don’t just judge how well it works on its training data. That information doesn’t help us predict how well it will work in the real world.
Cherry picking is seductive, which is why it’s so easy to fool yourself. We can’t just learn key lessons from post hoc judgments.
Selective windowing refers to the tendency to selectively seek and interpret the subset information that confirms our pre-existing beliefs or expectations while ignoring or discounting information that contradicts them. By analogy, a window constrains your view of the outside world.
The selective windowing of attention can dramatically skew decision-making.
I had an attending once who would review a case, and upon seeing one finding pointing in a direction, “see” several subtle supporting features to confirm a diagnosis. I assume some of this ability stemmed from experience and reflected true expertise.
But, some residents would also play a game during readout where they would describe the patient’s symptoms but purposefully not mention the side, and the attending would concoct a tidy narrative beautifully tying together a number of subtle observations. The problem, as I’m sure you guessed, is that frequently it would be the wrong side. The observations were only possible through that selective window. Too narrow a window and your view of the world is woefully incomplete and distorted. To torture another metaphor, the anchor of that initial observation sunk the proverbial diagnostic ship.
But, in practice, what a fine line to walk! Being sensitive to subtle manifestations of a complex process versus just seeing what you expect to see. Many radiologists have pet diagnoses that they call more than their colleagues. There are neuroradiologists who seem positively primed to see the findings of idiopathic intracranial hypertension or normal pressure hydrocephalus. Some of them are even assuredly better, more thoughtful radiologists. But some aren’t. Some will anchor on an initial observation and confirm their way to the story.
* * *
Attention is a finite resource. The world is too rich and vibrant to be seen unfiltered. We are always windowing, and when faced with important decisions, we must always seek to widen our window to consider competing information and address alternative explanations. Evidence is ubiquitous: it’s usually easy to find support for your preferred position, even when it’s wrong.
The online course version of WCICON23, “Continuing Financial Education 2023: The Latest in Physician Wellness and Financial Literacy” is now available. It includes 55 hours of content and qualifies for 22 hours of CME. It also includes a talk from yours truly on the surprisingly interesting topic of thinking about thinking.
Enrollment is $100 off through midnight on April 17th and would be–in my opinion–a great way to use your CME funds.
(Signing up from this post also supports my writing, thank you.)
The late Hans Rosling gave an amazingly popular TED talk back in 2006 (and many other popular talks since). You may have seen it. It’s the one showing recent human progress by following counties over time as a series of bubbles. It’s not all rosy, but it shows us how counterintuitive reality can be compared with our usually grimmer assumptions. One could summarize: things can be bad but still be improving. Trajectories matter.
In his follow-up book, Factfulness, Rosling discusses the fact that almost all “news” by definition is bad news. His helpful grounding suggestion: When you hear bad news, ask yourself if similar good news would be able to reach you.
* * *
In healthcare, M&M is full of bad outcomes. Do you hear about the patients who recover uneventfully in the hospital? Not really. Do people gossip about the patients who go home after surgery with well-healed incisions? No, they do not. As a radiologist, I only hear about my misses. About once a year, someone congratulates me on a good catch, and usually, that’s coming from another radiologist who read the follow-up.
As an attending evaluating my residents’ overnight work, I have to grade every change. We have grades for verbiage changes, incidental additions, small relevant misses, and big emergent misses. There’s nothing forcing me to tell my residents that I recognize the great job they’re doing tackling a large volume of complex cases. Most of what they see is negative feedback, even though that parade of bad news doesn’t really tell them an accurate story about the work they’re doing.
When I was a resident, my program had a separate grade for doing an amazing job. You could receive a coveted “1” on the 1-4 scale for crushing a subtle case, performing at a subspecialty level, etc. 1’s were rare.
One evening as I logged in for another shift, I was reviewing my grades from the night before and I saw I’d received a 1. Exhaustion aside, I was always excited when I earned a 1. The comment said, “Everyone deserves a 1 every now and again, so here’s yours.” I didn’t know how to parse that cryptic statement, so I clicked on the link to see the case.
It was a completely normal head CT in a young patient.
I hadn’t changed a word of the template.
* * *
We learn medicine through the slow accumulation of emotional microtrauma. As an educator, it takes special effort to try to really teach through praise and positive reinforcement; usually the vague “great jobs” show up on end-of-rotation evaluations. I’ll be the first to admit I can be too far on the pedantic curmudgeon spectrum.
Yes, feedback–even negative feedback–is a critical component of the learning process. But, when you’re beating yourself up about your mistakes and questioning your skills/growth, you also need to ask yourself:
What are the odds that I’m receiving the true positive side of the same coin?
The answer is you’re probably not.
Things can be bad and still be improving. Trajectories matter.
You can have a lot to learn and a long way to go and still be doing a great job.
I’m guessing it doesn’t feel great for Radiology Partners to once again be one of a handful of named companies in another “distressed debt” article. From last month’s “Health-Care Debt Gets Harder Look as Distress Builds” in Bloomberg:
The companies face legal and regulatory pressures too. The No Surprises Act, which makes it harder for medical providers to charge patients large amounts of money for work done outside their health insurance network, has weighed on some companies.
Loans to Radiology Partners, a group of radiology practices, have deteriorated since the end of 2021 in part due to the law, according to Moody’s Investors Service, which downgraded the company to Caa1 in November. The company’s $1.6 billion first-lien loan due 2025 is currently quoted at about 86.8 cents on the dollar, Bloomberg-compiled data show, down from nearly par a year ago.
Note the ungenerous implication that the inability to squeeze patients through surprise billing is a mention-worthy driver of its worsening financial outlook. Please note, non-radiologists, that the RP story isn’t much different from other highly-leveraged companies operating in this space. Recall that behemoth Envision just finished with its round of financial machinations aimed at screwing over its creditors.
In their December 2022 healthcare sector report, Moody’s gave this cozy summary:
The healthcare sector’s credit default risk is rising. So far this year, the ratings of 25 North American healthcare companies have been downgraded to B3 negative or lower, representing a material deterioration in the sector’s credit quality. Healthcare now accounts for approximately 16% of the companies on our B3 Negative and Lower List, compared to less than 4% at 31 December 2015.
Nearly 90% of healthcare companies rated B3 negative or below are owned by private equity. Attracted by healthcare’s historical stability and buoyed by accommodative debt markets, financial sponsors have aggressively consolidated fragmented subsectors, including physician practices, emergency medicine and anesthesiology, to name a few. The resulting roll-ups carry high levels of debt, which will pressure their cash flow and limit their ability to adapt to the changing macroeconomic environment, as well as to increasing social risk, new legislation and litigation.
Capital structures will become unsustainable.
90%!
For those who usually ignore market gibberish, here’s some context about credit agency ratings and corporate bonds:
Moody’s is an independent firm that grades the quality/riskiness of investments. When Moody’s downgraded Radiology Partners to Caa1 from B3 last fall, that grade reflected a move from “speculative” and “high-risk” to “poor quality” and “very high credit risk.”
From Bloomberg’s analysis, “86.8 cents on the dollar” and “down from nearly par” are talking about the current value of RP corporate bonds on the secondary market. Unlike a mortgage or car that gets amortized over a specific term, bonds are issued with a par (face) value and a coupon rate. The par value is what the bondholder gets at the end of the term (i.e. the loaned money that you get back at the end). The coupon rate is the interest rate paid during the life of the bond.
When a bond trades below par, it’s discounted. In this case, the discount is likely a reflection of both the decreased credit rating (possible default/increased uncertainty regarding being paid back when the bond reaches maturity) and rising interest rates (the fixed rate of the old bonds are not competitive with higher current market rates).
Back in 2020, RP raised $800 million at 5.25% for 5 years to buy vRad from Mednax. So, for example, if you bought that $100 bond in 2020 at 5.25%, you would have earned $5.25 in interest every year before getting $100 back in 2025. But if you bought that bond today at $86.8, that same $5.25 is an effective interest rate of 6% (you still get the original $100 at the end as well). That relative increase reflects the extra return investors currently require given current bond yields and the risk of default. RP’s cashflows in the short term are presumably fine. The question is what the market will be willing to provide in terms of letting them raise more money to pay off or roll over that $1.6 billion in 2025 and another $1.6 billion by 2028.
Back to Bloomberg:
Healthcare companies used to be some of the safest to lend to during economic downturns, until private equity firms bought them out and larded them with debt. Now they’re some of the riskiest borrowers in the world of leveraged loans. Five companies in the healthcare space defaulted last year, compared with a historical average of roughly one default a year for an industry that often has stable demand, according to S&P Global Ratings.
The article points out that many of these PE-owned healthcare companies are leveraged at around 7:1 debt to earnings. That figure was apparently around 5:1 back in 2014. In their downgrade release, Moody’s stated RP’s debt to EBITDA was 10:1.
The outlook for healthcare companies, especially service providers, looks bleak. They face labor shortages as medical professionals retire en masse, and regulatory changes are weighing on how much they can charge government payers and insurers. And as leveraged loan investors pare back their exposure to riskier healthcare borrowers, the companies face higher refinancing costs. The industry’s financial difficulties may hit not just investors, but also patients seeking treatment or care.
I don’t think the collapse of SVB last week is going to help. One driver of its spectacularly rapid fall was unrealized bond losses.
Unless inflationary pressures subside and the economy improves, there’ll likely be fewer loan sales coming to the market, money managers said. Companies with bloated debt and projected weaker cash flow will probably pursue transactions such as debt swaps and capital raises to create more breathing room.
Let’s go back to Moody’s again for some more about that:
Distressed exchanges will remain the most common form of default. Saddled with unsustainable capital structures, many healthcare companies rated B3 negative or lower will likely pursue transactions that we consider to be distressed exchanges (DEs). DEs have always been popular among private equity sponsors when the companies they own get into financial difficulties and we expect their popularity to continue. We consider a transaction to be a distressed exchange if it allows a company to avoid default or bankruptcy and results in an economic loss for creditors.
For companies with deteriorating operating performance, lenders will likely be unwilling to refinance upcoming debt maturities unless they believe their economic loss would be less than it would be if the borrower filed for bankruptcy. Companies that are unable to meet greatly increased cash interest expense may seek to convert their debt to payment-in-kind (PIK) obligations, pursue debt-to-equity conversions, or even enter bankruptcy, in order to shed debt and revise their capital structures to make them more sustainable. Here too, lenders will often agree to such transactions because they represent less economic loss than their alternatives…Completing a distressed exchange is often less expensive than undergoing a formal bankruptcy process, and often enable financial sponsors to retain control of a company, which may well not occur in a bankruptcy.
This is future I think we’re likely to see, which is why people who are hoping that somehow these companies will cease to exist in a couple of years are in for disappointment. There are real and potentially irreversible changes in how medicine is practiced that may even worsen as these companies struggle.
Let’s finish with a practical consideration: distressed exchanges, if they occur, will almost certainly decrease the values of the stock owned by “shareholder” radiologists. The bondholders always get paid first. So yes, take the shares of stock when you work for one of these companies, but I wouldn’t consider them as a real investment opportunity, as many radiologists did during the early buyout days. And never take the IOU in lieu of real money.
There’s something very sad about the NBOME (the NBME’s osteopathic counterpart) marketing their COMLEX licensing examination with such cringeworthy desperation:
Good news is coming and we are so excited to see yours. Anticipating all your exciting and unique #Match2023 stories! @theNRMP #MatchDay #MatchDay2023 #IMatchedwithCOMLEX pic.twitter.com/7OHFYWMyIR
— National Board of Osteopathic Medical Examiners (@NBOME) March 10, 2023
Look everyone, some people can match without taking the USMLE too!
In other news, no one is going to use that hashtag.
The COMLEX is an expensive, duplicative exam that has almost no purpose in 2023. Many DO students, especially those attempting to break into more competitive specialties, have been taking the USMLE for years. The NBOME, by stubbornly existing, is effectively taxing DO students.
Parallel residency accreditation is gone. DO students finish school and enter the same residencies as MDs now exclusively supervised by the ACGME and work the exact same jobs as MDs. While the NBOME could reasonably offer a separate small examination to test for osteopathic manipulative medicine (OMM), every year the COMLEX exists is a waste of time and money for everyone involved.
Two years ago, I wrote:
In the 21st century, I’m not convinced physicians are best served by maintaining distinct osteopathic and allopathic pathways at all. A physician is a physician, and the easiest way to get rid of the unfair DO stigma is not to make it a PR issue–but to make it a non-issue. I understand there’s a lot of history here (though much of it not so positive) and plenty of strong feelings. However, even if one buys the argument that the underlying educational philosophy is sufficiently different to warrant different degrees, that’s no justification for perpetuating a separate-but-equal system for licensure given that post-graduate training has already merged and the vast majority of states don’t care.
The eventual outcome is the same. As we all know, it’s the residency training that really makes the doctor.
The future is hard to predict.
When a large language model can pass the USMLE (see the NBME awkwardly trying to deflect), it raises valid questions about how useful not one but a series of three (!) multiple-choice knowledge assessments will be in the future. But, there is no valid argument for why the COMLEX should even exist now let alone in the future. Even if both sets of exams were to be completely pass/fail, that would theoretically remove the extra cost for DOs, but it wouldn’t justify the wasted time and energy need to maintain two analogous physician licensing pathways. Instead, the development costs of both tests could be combined and the price lowered.
If the COMLEX exists 10 years from now, it can only be as an example of status quo bias and the self-serving power of the acronym mafia.