‘Rough road’ ahead for healthcare staffing companies in radiology and other services, S&P predicts

Healthcare staffing companies in radiology and other service lines may have a “rough road” ahead, according to a new analysis from Standard & Poor's Global Ratings.

The agency specifically mentions three big names in imaging staffing—Radiology Partners, Mednax and Envision Healthcare—which have all seen their credit ratings downgraded at least once since the pandemic’s start. Such companies have sustained substantial declines in volume, as providers have delayed nonurgent imaging, and S&P worries that a return to pre-COVID levels may not arrive until “sometime in 2021 at best.”

“The collapse in patient volume following the government directive to delay all elective procedures to conserve hospital capacity and patients' fear of visiting health care providers has cascaded through the health system, dramatically affecting U.S. healthcare staffing companies' revenues and cash flows,” S&P wrote Thursday, June 18. “Staffing companies are slowly recovering from the COVID-19-related shutdown as patients return to their health providers, but the pace of the recovery will not be linear.”

At the “trough” of the pandemic in mid-April, radiology volume had dipped by some 60%, S&P noted. Given the “sudden and severe decline in business, the resultant strain on cash flow and liquidity, and the uncertain duration and severity of the pandemic,” the agency made several downgrades of the three aforementioned firms. Here’s a quick look at those actions:


Standard & Poor’s issued its first downgrade of Mednax on March 31, after the company withdrew its guidance for 2020 and amended its $1.2 billion revolving credit line. At the time, leaders with the Florida physician firm predicted “significant” declines in both its radiology and anesthesiology businesses.

S&P further downgraded Mednax’s long-term issuer credit rating on May 12, after the company’s sale of its troubled anesthesia service line. However, the ratings agency labeled Mednax’s outlook as “stable,” given expectations that it would continue to grow through acquisitions, and could finance them through “internally generated cash flow and some incremental debt issuance.”

And S&P “affirmed” its B+ rating of Mednax on June 10 and maintained its stable outlook, following the announcement that the company is exiting the radiology space to focus on pediatrics. Imaging revenue only accounted for about 14% of Mednax’s revenue, or about $490 million last year.

“We view the U.S. healthcare staffing industry as highly fragmented, but Mednax benefits as the only large, national provider of neonatology services, with a market share greater than 20%,” S&P wrote earlier this month.

Mednax declined to comment on the report Monday.

Envision Healthcare

Meanwhile, the ratings firm took a less rosy outlook for Nashville-based physician services firm Envision Healthcare, which is shouldering a heavy debt load and at one point had reportedly considered bankruptcy protection.

S&P issued its first downgrade of Envision this year on April 6 from B to CC, amid the company announcing a proposed offer to exchange distressed debt. It labeled its outlook as “negative.”

It issued a second downgrade of Envision on April 28, labelling its debt as “distressed.” However, S&P upgraded its outlook in early May, after Envision completed a debt exchange that reduced its total obligations by about $329 million. The outlook remained “negative.”

“We believe Envision's liquidity over the next 12 months may be insufficient to overcome business disruption from the COVID-19 pandemic, and it may violate its first-lien springing debt covenant over that time, which could trigger a restructuring,” S&P wrote in its June 18 analysis. “The business may also not recover to near pre-pandemic levels in 2021, leading the company to struggle to generate enough cash flow to meet its operating needs and cover its debt obligations.”

Envision is one of the largest multispecialty, facility-based physician groups in the U.S., leading a team of more than 900 radiologists alongside numerous other provider types. In a statement emailed to Radiology Business Monday, a spokesperson noted that provider groups across the U.S., “regardless of size or ownership,” have confronted “significant financial challenges as a result of the COVID-19 pandemic.”

“Envision has taken steps to continue its operations in the fight against COVID-19, as well as to protect its long-term ability to care for patients and communities once the crisis has passed,” the spokesperson wrote.

Radiology Partners

S&P also issued a ratings downgrade of Radiology Partners from B- from B back on April 29. At the time, it noted that the El Segundo, California-based imaging giant would likely face further headwinds from COVID-related volume declines.  

“Radiology Partners Holdings LLC's more aggressive than expected pace of debt-finance acquisitions led to lower free cash flow and significantly higher leverage following debt-financed acquisitions in 2019” Standard & Poor’s wrote. “Furthermore, we believe that volume decline in 2020 due to COVID-19 pandemic situation will further delay deleveraging and ability to generate positive free cash flow.”

RP earned a “stable” outlook for the future, though, with the agency predicting the imaging giant will further “enhance scale through its aggressive growth strategy of debt-financed acquisitions in 2021,” after taking a pause this year.

In a statement issued Monday, Rad Partners Chief Operating Officer Anthony Gabriel, MD, echoed those positive sentiments, despite this “challenging time” for physician practices.

“Nonetheless, we are more committed than ever to the bright future of radiology. Our fundamentals are strong, enabling us to continue to grow, recruit and invest,” he told Radiology Business.

Since the start of the pandemic, he added, Rad Partners has set “recruitment records,” and invested in new clinical programs including practice guidelines related to the novel coronavirus.

“Our practices continue to see steady increases in volumes, and a few have returned to pre-COVID volume levels. We remain optimistic about our business and expect to emerge from this global crisis both stronger and more committed than ever to our mission to transform radiology,” Gabriel added.