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Analysis

UnitedHealth-Team Health Feud Could Have Broad Industry Impact

By Jack O'Brien  
   September 04, 2019

A Moody's report highlighted the similarities between UnitedHealth's disputes with Envision Healthcare and Team Health.

Moody's Investor Services released a report Tuesday delving into the potential implications of UnitedHealth Group's (UHG) ongoing spat with Team Health, a Knoxville-based hospital staffing and management company. 

At the center of the dispute is UHG's intention to cancel high reimbursement in-network contracts with Team, a move that mirrors what the Minnetonka, Minnesota-based insurer utilized in its feud with Envision Healthcare last year.

UHG's planned cancellations would occur in 18 states between mid-October and July 2020. After UHG reduced reimbursements on specific out-of-network claims earlier this year, Team sued the insurer in eight states.

Given UHG's actions, Moody's expects other payers to follow the company's lead on canceling high reimbursement in-network contracts as a way to lower median reimbursement rates in certain areas.

This development comes as Congress considers several pieces of legislation to address surprise medical billing, primarily based on in-network rates for providers in similar geographic regions.

According to Moody's, while large providers like Team and Envision have more flexibility to handle potential pressures from payers canceling high in-network contracts, potential legislation removing the incentive to pursue in-network contracts might leave them with less negotiating leverage. 

Related: UnitedHealth, CHS Among Healthcare Winners and Losers in Q2

Related: UnitedHealth Rebounds in Q2 With $4.7B in Earnings

As Team Health told HealthLeaders in a statement in August, the company is gearing up for a lengthy legal fight with UHG, but Moody's indicated that such an approach might come at a cost.

Envision's eerily similar dispute last year, where the company accepted a haircut, the difference between an asset's market value compared to its use as collateral for a loan, resulted in its physician staffing segment experiencing an EBITDA decline of 22% during the first half of 2019. 

A large portion of Team's revenue comes from its emergency department (ED), 61%, while about 44% of Envision's revenue comes from the ED. Still, Envision maintains more diverse business offerings, according to Moody's, with 85% of its total revenue coming from physician staffing and the remaining 15% coming from ambulatory surgery centers.

Given the uncertainty surrounding the UHG situation, Moody's expects Team's overall EBITDA to fall between 11% to 18%, with revenues also sliding by 1% to 2%. If Team's EBITDA erodes by 18%, Moody's projects that the company's free cash flow would be "wiped out."

In mid-August, Moody's downgraded Team Health's outlook from stable to negative, owing the change to the company's ongoing fight with UHG.

"The change of outlook reflects rising uncertainty around Team Health's ability to reduce leverage given its recently disclosed dispute with UnitedHealth Group Inc., one of its largest commercial payors," Moody's said.

Related: Moody's Outlook Darkens for Team Health

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.

Photo credit: Jonathan Weiss / Shutterstock.com


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