SEC Filings

ENVISION HEALTHCARE CORP filed this Form 10-Q on 08/08/2017
Entire Document
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)

result, there will likely be changes to certain balance sheet items relating to the value, as well as allocation, of the acquired assets and liabilities, associated amortization expense and goodwill, upon further review. Any such changes could be material.
Following the completion of the Merger, we had three reportable segments: physician services, medical transportation and ambulatory services. The physician services segment reflects the combination of AmSurg’s physician services segment and EHH’s physician services segment while the ambulatory services segment reflects AmSurg's ambulatory services segment. On February 28, 2017, we announced that the Company would begin exploring strategic alternatives for our medical transportation business, American Medical Response (AMR). During the six months ended June 30, 2017, the Board approved a plan to actively market and divest the AMR business. Accordingly, the results of the medical transportation business have been recorded in discontinued operations for the three and six months ended June 30, 2017 and assets and liabilities have been recorded as held for sale as of June 30, 2017 and December 31, 2016. The medical transportation business is no longer a separate reportable segment.

Physician Services Overview

At June 30, 2017, we delivered physician services, primarily in the areas of emergency department and hospitalist services, anesthesiology services, radiology/tele-radiology services, and children’s services to more than 1,800 clinical departments in healthcare facilities in 47 states and the District of Columbia, with a significant presence in Arizona, California, Florida, New Jersey and Texas. At June 30, 2017, we employed more than 24,200 physicians and other healthcare professionals in our physician services business. We receive reimbursement from third-party payors for fee for service medical services rendered by our affiliated healthcare professionals and other employees to the patients who receive medical treatment at these facilities. In certain cases, in addition to this primary form of reimbursement, we also receive contract revenue directly from the facilities where we perform our services through a variety of payment arrangements that are established to supplement payments from third-party payors. We also provide physician services and manage office-based practices in the areas of pain management, gynecology, obstetrics and perinatology.

Ambulatory Services Overview

We acquire, develop and operate surgery centers in partnership primarily with physicians. Our surgery centers are typically located adjacent to or in close proximity to the medical practices of our partner physicians. At June 30, 2017, we operated 263 ASCs in 35 states and the District of Columbia with approximately 2,000 physician partners and 1,000 other affiliated physicians who utilize our centers. We generally own a majority interest, primarily 51%, in the surgery centers we operate. We also own a minority interest in certain surgery centers in partnership with leading health systems and physicians, and currently intend to continue to pursue such partnerships.

Health Care Reform and Government Sponsored Programs

Our physician services and ASC businesses depend upon third-party reimbursement programs, including governmental and private insurance programs, to pay for substantially all of the services rendered to patients. For the six months ended June 30, 2017, we derived approximately 28% and 27%, respectively, of our physician services and ambulatory services net revenue from governmental healthcare programs, primarily Medicare and managed Medicare programs, and the remainder from a wide mix of commercial payors and patient co-pays and deductibles. The Medicare program currently reimburses physician practices and ASCs in accordance with predetermined fee schedules. We are not required to file cost reports and, accordingly, we have no unsettled amounts from governmental third-party payors.

The payments we receive under government healthcare programs are often less than our standard charges for the healthcare services provided. Furthermore, reimbursement payments under federally-funded healthcare programs are subject to across-the-board spending cuts to the federal budget imposed by the Budget Control Act of 2011. These spending cuts, commonly referred to as “sequestration,” may not be more than 2% for a FFY (federal fiscal year). The sequestration cuts have been extended through FFY 2025. In addition, the Health Reform Law contains a number of provisions designed to reduce Medicare program spending. We cannot predict what other deficit reduction initiatives may be proposed by Congress, whether Congress will attempt to restructure or suspend sequestration or the impact sequestration may have on our business.

Physician services payment. Medicare pays for physician services based upon the Medicare Physician Fee Schedule (MPFS), which contains a list of uniform payment rates. These payment rates are determined based on national relative value units (RVU), which CMS assigns to most medical procedures and services in an effort to capture the various resources required by a physician to provide the service relative to all other services. Each RVU is calculated based on a combination of work required in terms of time and intensity of effort for the service, practice expense attributable to the service and malpractice insurance expense attributable to the service. The work, practice expense, and malpractice insurance elements are each modified by a geographic adjustment factor to account for local practice costs and then aggregated. MACRA provides for an increase of 0.5% to the MPFS reimbursement rate each calendar year through 2019, partially offset by various adjustments and policy updates, and outlines a new method for determining