SEC Filings

ENVISION HEALTHCARE CORP filed this Form 10-Q on 11/03/2017
Entire Document
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)

The Company’s consolidated balance sheet as of December 31, 2016 reflects the full consolidation of EHH’s assets and liabilities as of December 1, 2016. The Company’s purchase accounting for the Merger remains preliminary as permitted under GAAP and, as a 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. During the nine months ended September 30, 2017, the Board approved a plan to actively market and divest the American Medical Response (AMR) business. Accordingly, the results of the medical transportation business have been recorded in discontinued operations for the three and nine months ended September 30, 2017 and assets and liabilities have been recorded as held for sale as of September 30, 2017 and December 31, 2016. The medical transportation business is no longer a separate reportable segment. On August 7, 2017, we executed a definitive agreement to sell our medical transportation business to an entity controlled by funds affiliated with KKR & Co. L.P. for approximately $2.40 billion in cash. The transaction is subject to regulatory approval and customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act. We received a second request from the FTC asking for further information related to the transaction, and the buyer is exploring potential divestiture remedies to address certain concerns raised by the FTC. We expect that the transaction will be completed during the fourth quarter of 2017 or the first quarter of 2018.

Review of Strategic Alternatives

On October 31, 2017, the Company announced that the Board, in consultation with management and financial and legal advisors, had unanimously decided to initiate a full review of a broad range of strategic alternatives to enhance shareholder value. The Board has not set a timetable for completion of its review. There can be no assurance that this review will result in a transaction or other alternatives of any kind, or if such strategic alternative does occur, that it will successfully enhance shareholder value.

Physician Services Overview

At September 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 46 states and the District of Columbia, with a significant presence in Arizona, California, Florida, New Jersey and Texas. At September 30, 2017, we employed more than 26,900 physicians and other healthcare professionals in our physician services business. We receive reimbursement from third-party payors primarily 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 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 September 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 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 nine months ended September 30, 2017, we derived approximately 28% of both 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,”