Healthcare staffing PE deals persist in fallout of bankruptcies

Private equity firms are showing new confidence in clinical staffing companies after a previous wave of such investments struggled.

Some investors have lost billions as their staffing companies, which employ healthcare workers and contract them out to medical facilities, go bankrupt. Yet others are making new moves in the sector by capitalizing on demand for travel nurses and focusing on in-network billing.

Havencrest Capital Management announced Thursday its acquisition of Focus Staff Services, a Dallas-based agency for travel nurses, therapists and technicians. On the same day, York Capital Management said it made a growth investment in Illinois-based Comprehensive Rehab Consultants, which provides physicians to nursing homes.

Investment this year in clinical staffing companies has been on pace to eclipse the peak of 2021, according to PitchBook data, with at least 17 PE deals announced so far.

Focus Staff Services and Comprehensive Rehab Consultants serve different corners of the healthcare industry, but both respond to the same growing workforce demand as the US population gets older.

Earlier PE investment in healthcare staffing has borne some sour fruit.

The business model of physician staffing companies, which often placed doctors and anesthesiologists in hospital settings, especially emergency departments, frequently relied on out-of-network billing, said PitchBook lead healthcare analyst Rebecca Springer. Those bills often came as surprises to patients who were under the impression they’d be billed for in-network services.

That was until the federal No Surprises Act came into effect in 2022, almost entirely banning out-of-network charges within in-network facilities—which was good for patients but pressured many physician staffing companies and their business models.

Out of network, out of service

KKR-backed Envision Healthcare credited the No Surprises Act for some of its financial woes when the physician staffing company filed for Chapter 11 bankruptcy protection in April. As a result, KKR lost ownership and the company split into two units: Envision Physician Services and Amsurg.

KKR had taken the company private in 2018 at an enterprise valuation of $9.9 billion.

While Envision—which employed 20,000 physicians at its nadir—lives on, PE-backed American Physician Partners shut down before filing for bankruptcy in September. The Tennessee-based company, which specialized in supplying physicians to emergency departments, has been held by Brown Brothers Harriman Capital Partners since 2016.

Other physician staffing companies could also struggle to service debt. Sound Physicians—backed by Summit Partners, Revelstoke Capital Partners and Silversmith Capital Partners—and Blackstone‘s Team Health Holdings received credit rating downgrades in the past year.

Outside of staffing, emergency helicopter company Air Methods, backed by PE firm American Securities since 2017, filed for bankruptcy protection Oct. 24, citing high interest rates, labor costs and effects of the No Surprises Act.

Nurse staffing bills differently

Pushback from payers began years before the ban on so-called surprise medical bills became effective, according to Springer.

“The No Surprises Act was a culmination of the longer term industry struggle between payers, who did not want to pay high out-of-network rates, and staffing groups, fought via litigation and lobbying and PR campaigns,” she said.

As investors began to see the writing on the wall for clinical staffing that relies on out-of-network billing, Springer said other types of staffing companies—mainly, those billed as in-network providers—began to show promise.

The COVID-19 pandemic boosted demand for healthcare providers of all stripes, and agencies that specialized in nursing and other medical staff were best able to take advantage of that demand by boosting the rates they charged to hospitals and raising pay for nurses.

“For nurse staffing,” Springer said, “the financial model is different because nurses don’t bill [patients] directly.”

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