An article in the Wall Street Journal (Saturday/Sunday edition, September 28 – 29, 2019) revealed that the corporate debt of large physician services companies, TeamHealth and Envision Healthcare, was now trading below the distress ratio.
These, and other, healthcare companies’ junk-rated bonds are now trading below 80 cents on the dollar, the upper limit of the ratio.
The cause? Well, first, these companies loaded up on debt to fund their private equity backed acquisition and expansion. And, more telling and potentially troubling for their competitors in the market for physician services such as emergency medicine, anesthesiology, and other hospital-based specialties, is that the national push for a “solution” to the so-called “surprise medical bill” problem is a major cause of the financial distress.
Traditionally, the healthcare sector, which accounts for about one-fifth of the U.S. gross domestic product, has been seen as a defensive sector for investment. In other words, it’s been seen as a safe sector even when the economy is in a downturn. But now, cracks are developing.
I’m certainly not giving you investment advice so don’t for a moment think that’s the take away for you here.
Instead, if you are a physician group leader, consider that although the large players have many advantages, some of those advantages easily flip into weaknesses.
For example, your 70 physician group isn’t able to float even junk rated bonds. But there are other sources for financing and expansion on your scale.
On the other hand, the very, very large groups which can turn to the markets for financing, in this case debt financing, can easily become starved, even to death, by the inability to continue to feed.
For those focused on the size of an enterprise, size is seen as bringing stability. But, as in Yin and Yang, it can also bring fragility.
And, that fragility brings opportunity, that is, opportunity to others.
Why not make it to you?
