Reports have surfaced in the last few days, including from Bloomberg, that air ambulance provider Air Methods is contemplating a structured Chapter 11 bankruptcy filing.
The move would cede control of the company to creditors that are owed $1.25 billion. The loans, with floating interest rates, come due next April. Another $500 million on 8 percent interest bonds is due in 2025. Rating agency Moody’s is grading that debt as Caa3, deep into the highly speculative or “junk” category.
Much of that debt was tied to the $2.5 billion acquisition of Air Methods by private equity firm American Securities in 2017. Investment data company Macroaxis recently gave Air Methods a “100 percent” chance of bankruptcy. AIN’s attempts to solicit comment from Air Methods prior to today’s deadline were not successful.
As early as 2017, financial analysts were warning that the company’s business model was not sustainable as it was becoming dependent on ever-increasing transport price hikes charged to private payers/insurance companies in a saturated market. Those price hikes stemmed from Medicare/Medicaid transport reimbursements for patients covered by those programs that were substantially below costs.
That problem was exacerbated when Congress incorporated the “No Surprises Act” (NSA) into the second Covid relief package (the Consolidated Appropriations Act) in 2021. The act was supposed to insulate patients when it came to payment disputes between healthcare providers and payers, including insurance companies. Critics charged that provisions of the legislation gave insurance companies outsized power in settling billing disputes, providing them wide latitude to delay, discount, and deny claims.
The consequences hit providers with community-based air ambulance programs, such as Air Methods, particularly hard, and the company, which operates more than 400 air ambulances nationwide, most of them helicopters, began closing bases last year. Reports also surfaced that the NSA’s impact trimmed the company’s revenues in recent quarters by more than 50 percent. (Air Methods is privately held and does not disclose financial data.)
While certain implementation rules for the NSA have been successfully challenged in federal court, including last year when air ambulance provider LifeNet brought suit, that is likely a temporary reprieve as the relevant federal agencies, including Health and Human Services and Labor, tweak those rules to pass legal muster.
But any bankruptcy filing by Air Methods could be followed by more from other air ambulance providers. Last year, Christopher Eastlee, Association of Air Medical Services vice president for public affairs, expressed doubt that enough of the NSA could be sufficiently changed and done soon enough to provide needed relief. “Can we wait it out? I don’t know if we can,” he said.