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Research Announcement:

Moody's – Surprise billing ban to constrain physician staffing firms' cash flow, curb negotiating clout for air ambulances

28 January 2021


New York, January 28, 2021 --

The "No Surprises Act," a new law passed by the US Congress and set to take effect in January 2022 to ban surprise medical bills, will constrain cash flow at physician staffing companies and reduce negotiating clout for air ambulance operators, Moody's Investors Service says in two newly published reports. Surprise medical bills are received by insured patients who inadvertently receive care from providers outside of their insurance networks, and often in emergency situations.

According to Moody's, any company that bills patients directly for services will have some level of exposure to the Act. Among the most exposed are physician staffing companies that operate emergency rooms, as well as those that provide anesthesiology, and to a lesser extent, radiology services. The Act will also have modest financial repercussions for the hospitals that depend on staffing firms' outsourcing capabilities.

"Many rated staffing companies carry leverage, cash flow and liquidity metrics that place them well into speculative-grade territory," said Jonathan Kanarek, a Moody's Vice President-Senior Credit Officer. "As such, even a modest reduction in collections could negatively impact cash flow and liquidity, placing further pressures on their credit profiles."

Nevertheless, Moody's says for the largest staffing companies, including Envision Healthcare and Team Health, factors such as negotiating leverage with insurance companies and their greater likelihood of being in-network with the largest payers in the markets will help insulate these providers. Instead, it will be the smaller, independent and local or regional providers that are more likely to have considerably higher out-of-network exposure due to lack of scale.

The new Act will also weigh on air ambulance operators, which rely on their ability to directly bill patients for the difference between the prices they charge for their services and the amount received initially from commercial insurers.

"The ability to directly balance bill patients has been particularly important for air ambulance companies, which often provide services on an out-of-network basis," says Kailash Chhaya, a Moody's Vice President-Senior Analyst.

And while quantifying the impact of the new law to air ambulance providers is difficult due to very little reimbursement data being publicly available, Moody's estimates that approximately 50%-60% of the ambulance transports reimbursed by private insurance are out-of-network – down from more than 80% in 2019. According to the rating agency, however, the percentage of revenue generated from out-of-network reimbursements, while varying considerably by geography, is still higher for air ambulances than for other healthcare service sectors.

In terms of company exposure to the Act, Moody's says that Global Medical Response has less vulnerability than Air Methods because it is less dependent on the air ambulance business. For its part, Air Methods generates approximately 75% of total net revenue from non-contractual fee-for-service ambulance patent transport, versus 35% for Global Medical. Air Method's debt/EBITDA is also significantly higher than Global Medical, creating further exposure.

Nevertheless, according to Moody's, the No Surprises Act is less onerous for healthcare providers than previous proposals linked to some form of median rates to curb balance billing. It instead relies on an arbitration process between providers and insurers when they cannot agree on the amount owed for out-of-network services.

"Healthcare providers generally favor the arbitration approach which preserves some of their negotiating leverage," said Chhaya. "This is especially true for air ambulance operators because determining a benchmark in-network reimbursement rate on which to base out-of-network transports is challenging."

According to Moody's, rating agency analysts expect that over the next year and ahead of the implementation of the new legislation, air ambulance providers will continue to pursue in-network contracts with insurers, further reducing their exposure to uncertainty created by out-of-network claims.

Subscribers can access the report, "Healthcare – US: Surprise billing ban will curb air ambulances' negotiating clout for out-of-network payments," at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1259513

Subscribers can access the report, "Healthcare – US: Surprise billing ban will constrain cash flow for some physician staffing firms," at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1260180

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Jonathan Kanarek, CFA
VP-Sr Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Kailash Chhaya, CFA
VP-Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Jessica Gladstone, CFA
Associate Managing Director
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
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JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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