HCA lowers risk amid Envision's bankruptcy, American Physician Partners collapse

Nashville, Tenn.-based HCA Healthcare has taken steps to secure its physician management strategy after Dallas-based Envision Healthcare filed for bankruptcy earlier this year.

HCA Healthcare has a joint venture with EmCare, a physician practice management firm affiliated with Envision. In April, HCA went from a 50 percent owner to 90 percent owner of the joint venture, known as Valesco, and the company is now consolidating operations.The move reduced HCA's consolidated margins approximately 30 basis points in the second quarter, according to CFO Bill Rutherford.

"We believe this transaction not only mitigates business risk with the Envision bankruptcy proceedings, but will also further support alignment between our hospital-based physicians and our hospital care teams on improving quality, patient satisfaction and efficiencies," he said during the July 27 second quarter earnings call, as transcribed by The Motley Fool.

HCA's adjusted EBITDA margins were consistent for the first two quarters of the year considering the Valesco transaction and a $145 million payer settlement. The182-hospital health system reported nearly $1.2 billion net income for the second quarter, up 3.3 percent over the same period last year.

The recent closure of American Physician Partners, a Brentwood, Tenn.-based medical staffing company, spotlighted the difficulties in physician staffing. APP blamed ongoing financial challenges for its closure and began transitioning hospital contracts from more than 150 institutions July 31.

"The backdrop in the hospital-based physician space has been very difficult over the past few years because of multiple factors," said Sam Hazen, CEO of HCA Healthcare, during the earnings call. "And for us, in the short run, we have to respond to these difficulties to maintain capacity and service availabilities and so forth. We did what we had to do to make sure that our business continues to move forward appropriately. For the most part, we've overcome these pressures and been able to grow, and we've increased our earnings expectations for the year in the face of some of these challenges."

Mr. Hazen said the Valesco platform will allow HCA to better respond to challenges and potentially integrate hospital-based physicians into hospital operations more effectively. Professional fees were up for the quarter, but aren't expected to rise similarly in the second half of the year. Mr. Hazen noted HCA has overcome physician cost issues in the past.

"In the short run, sometimes they can create an individual pressure," he said. "But I think the scale of HCA, the resources that we have and the ability to execute allows us to move through some of these pressures over time and get where we want to be."

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