Category Archives: Debt Service

Financial Literacy: A Leadership Prerequisite

Posted on by • Posted in Accessible Liquidity, Board, Board Purpose, Debt Levels, Debt Service, Debt Service Coverage Ratio, Financial Literacy, Financial Vital Signs, Leadership, Leadership Continuity, Leadership Learning, Operating Expenses, Operating Income, Operating Margin, Operating Margin Drivers, Operating Metrics, Operating Revenue, Revenue Diversification, Revenue Growth, Unrestricted Cash • Leave a comment

https://www.kaufmanhall.com/insights/blog/financial-literacy-leadership-prerequisite

In last month’s blog, we discussed the importance of financial planning, both for internal audiences—including the leadership team and the board of trustees—and for external audiences—including prospective students and their families, rating agencies, alumni and other stakeholders. This month, in the first of a series of blogs focused on key finance-related issues, we’re turning our attention to a broader and deeper internal audience, asking the question, “What is your institution’s financial literacy?”

The terms described in this blog will be very familiar to members of college and university finance teams and to many institutional leaders as well.

The point is that these terms should be familiar to as many individuals as possible throughout the institution: they form the foundation of a basic financial literacy that every college and university should foster across its faculty and staff.

What is financial literacy?

Financial literacy is the ability to understand where an institution stands at any given time with respect to key elements of its balance sheet and income statement. To state it simply, financial literacy means an understanding of the vital signs that describe the financial health of the institution. In medicine, the basic vital signs are body temperature, pulse rate, respiration rate, and blood pressure. In finance, the vital signs include measures of unrestricted cash, revenue, expenses, debt, and risk.

In medicine, there are professionals whose job is to dig deeper if any of the body’s vital signs are deteriorating. Similarly in finance, it is the job of the CFO and finance team to monitor the vital signs of the institution’s financial health and to seek causes and solutions of current troubles or to use changes in the vital signs to address potential future issues. For most of us—in medicine or finance—the goal should be a basic understanding of what the vital signs measure and whether they point to good health.

There are some key considerations for each financial vital sign:

  • Unrestricted Cash. The critical question related to unrestricted cash (also termed liquidity) is whether the institution has enough accessible liquidity to meet its daily expenses if its cash flow was unexpectedly interrupted. Days cash on hand is a balance sheet metric that is typically used to assess this issue: days cash on hand literally measures how long unrestricted cash reserves could cover the institution’s operating costs if its cash flow suddenly stopped. 

    The emphasis on “accessible liquidity” is an important element of this financial vital sign: it speaks to the ability to distinguish between institutional wealth versus liquidity. In higher education, an endowment can be an important source of the institution’s wealth, but many of the funds within an endowment cannot be easily accessed—they are, by and large, not liquid funds or are highly restricted as to their use. Readily available, unrestricted cash reserves are what an institution must rely on to meet its day-to-day expenses should cash flow be interrupted or reduced.
     
  • Revenue. Because an institution needs to maintain or grow its cash reserves and allocate them sparingly, the amount of revenue coming in—from tuition and fees and from other sources of additional income (see below)—is also an important vital sign. An institution should obviously be taking in enough revenue to cover its expenses without drawing on its cash reserves. 

    Additionally, however, given continued growth in expenses, revenue growth (through enrollment growth, student mix, and/or program mix) is a significant measure of ongoing vitality.

    Financial health is also enhanced if an institution does not rely too heavily on a single revenue source. For schools with an endowment, for example, the amount of income the endowment can generate to support operations is an important source of additional income. More generally, additional income can come from such auxiliary revenue sources as residential fees, fundraising, special events, concessions, and a host of other sources. These additional revenue sources, while potentially small on an individual basis, can be material on a cumulative basis.
     
  • Expenses. How much does it cost to produce the education that a college or university provides to its students? If that cost is approaching—or worse, surpassing—the net tuition revenue and additional income that the institution brings in, what is being done—or could be done—to reduce those costs? Expenses are perhaps most similar to body temperature in medical vital signs; if they get too high, they must be brought down before the health of the institution begins to decline. And the measure of expenses should be viewed overall for the institution as well as on a per student basis to communicate the “value” of different student types to the organization.
     
  • Debt. Debt is an essential component of the funding of significant capital projects that colleges and universities must undertake to maintain updated and competitive facilities. Just as most people need to take out a mortgage to afford a home purchase—spreading the cost of the home over a multiyear payment period—so too do institutions often need debt to finance large capital expenditures. But the amount of debt (also termed “leverage”) can also be an indicator of the institution’s financial health. That health begins to decline if the amount of debt relative to an institution’s assets or annual income grows too large, or if the amount required to pay for the debt (i.e., to meet the scheduled principal and interest payments—the debt service) puts too much of a burden on the cash flow generated from the institution’s day-to-day operations. If the debt service becomes too high relative to cash flow, the institution may face onerous legal requirements, or even default, which may severely constrain its ability to provide the range of programs desired and expected by its student population.
     
  • Risk. Risk is an indicator that identifies potential weaknesses in any of the preceding indicators that could jeopardize the institution’s financial health. For basic financial literacy, only the most significant risks need to be identified: over-reliance on tuition revenue in a market with declining enrollments, for example, or over-reliance on endowment income in the event of market instability. Once an institution consistently measures its risks, it can begin to determine what level of risk is appropriate and address strategies to manage that risk.

Why does financial literacy matter?

Promoting financial literacy throughout an institution cultivates a common understanding of financial health that provides context for leadership’s decisions and a common language to address issues. If tuition revenue is declining, for example, financially literate faculty members should better understand the need to prioritize academic programs that not only meet the academic needs of their students, but also can draw more students or produce healthier margins. If cost-cutting measures are required to reduce expenses, financially literate staff should understand the genesis of the need for reductions and why the institution cannot simply draw on its endowment to close the gap. Furthermore, acknowledging and describing the most significant risks an institution faces using a common language makes clear the need for action if one or more of those risks begins to materialize.

Financial literacy is also an important tool for cultivating the next generation of faculty leaders. When faculty members rise to leadership positions, it is essential that they understand that academic growth and strategic initiatives cannot succeed without sufficient resources to support them, or if they cannot generate the revenue needed to cover—or exceed—their costs.

By promoting financial literacy across the institution, the institution can help ensure that future leaders are acquiring the foundation needed for them to grow into informed decision-makers who understand the need to maintain the institution’s financial health.

Fitch says lower operating margins may be the new normal for nonprofit hospitals

Posted on by • Posted in Credit Downgrade, Credit Quality, Credit Ratings, Debt Capacity, Debt Levels, Debt Service, Debt Service Coverage Ratio, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Operating Expenses, Operating Income, Operating Margin, Operating Margin Drivers, Operating Performance, Operating Revenue, Outpatient Migration, Strategic Imperative • Leave a comment

https://mailchi.mp/09f9563acfcf/gist-weekly-february-2-2024?e=d1e747d2d8

On Monday, Fitch Ratings, the New York City-based credit rating agency, released a report predicting that the US not-for-profit hospital sector will see average operating margins reset in the one-to-two percent range, rather than returning to historical levels of above three percent. 

Following disruptions from the pandemic that saw utilization drop and operating costs rise, hospitals have seen a slower-than-expected recovery.

But, according to Fitch, these rebased margins are unlikely to lead to widespread credit downgrades as most hospitals still carry robust balance sheets and have curtailed capital spending in response. 

The Gist: As labor costs stabilize and volumes return, the median hospital has been able to maintain a positive operating margin for the past ten months. 

But nonprofit hospitals are in a transitory period, one with both continued challenges—including labor costs that rebased at a higher rate and ongoing capital restraints—and opportunities—including the increase in outpatient demand, which has driven hospital outpatient revenue up over 40 percent from 2020 levels.

While the future margin outlook for individual hospitals will depend on factors that vary greatly across markets, organizations that thrive in this new era will be the ones willing to pivot, take risks, and invest heavily in outpatient services.

Inside Rating Committee: Five Things to Know

Posted on by • Posted in CEO, CFO, Credit Quality, Credit Rating Committee, Credit Rating Process, Credit Ratings, Debt Capacity, Debt Service, Debt Service Covenants, Debt Service Coverage Ratio, Debt Structure, Debt Swap, Health System, Hospital, Hospital Industry, Investment Banking • Leave a comment
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Rating agencies have done a great job in increasing transparency around how ratings are determined. Detailed methodologies, scorecards, and medians are a big part of that effort.

Central to the rating process is the rating committee. All rating decisions are made by a rating committee, not an individual. The rating committee provides a robust discussion of various viewpoints as it deliberates, votes, and assigns ratings to the debt instrument.

Here are five things to know about what happens in a rating committee.

1. Rating committees are presided over by a Rating Committee Chair.

The Chair’s primary responsibility is to check that the committee follows numerous processes that meet company and SEC-mandated guidelines. For example, the Chair must verify that the correct methodology is being used to determine the rating, or if a rating requires additional methodologies (such as short-term rating methodologies on variable rate debt). The Chair must confirm that the rating decision will be based on verifiable facts or assessments (such as an audit) and that voting members are free of conflicts. Committees can be subject to internal and external reviews after the fact to ensure that decisions were made impartially and documented correctly.

The Chair ensures that the committee is populated with voting members who possess in-depth knowledge about the sector or related-credit knowledge (such as a higher education analyst in the case of an academic medical center) and are skilled in credit assessment. Each voting member has one vote and an equal vote. Serving as a voting member of a rating committee or as a Chair is a privilege and must be earned.

2. The rating committee discussion centers around the ability of a borrower to repay its obligations, or said another way, the likelihood of payment default.

As such, debt structure is integral to the rating committee. Detailed information provided in the committee package will include information on outstanding and proposed debt (if a bond financing is imminent), debt structure risks (fixed versus variable, for example), debt service schedule (level payments or with bullets), maturities and call dates, taxable and tax-exempt debt, bank lines and revolvers, counterparty risk and termination events, derivative products such as interest rate swaps and collateral thresholds, senior-subordinate debt structures, bond and bank covenants, obligated group, and security pledge, to name a few. Leases and pension obligations are also considered, particularly when liabilities outsize the direct debt.

Rating committees review hundreds of financial metrics to assess recent financial performance and an organization’s ability to pay debt in the future. Audited financial statements, year-to-date results, and annual budgets and projections are the basis for computing the financial ratios. Non-quantitative factors include success with past strategies and capital projects, market position and essentiality, management, governance and corporate structure, workforce needs, and local economic data. Confidential information provided by the organization is also shared. The job of the lead analyst is to distill all the information and present an organized credit story to the rating committee.

3. Rating consistency is paramount.

An “A” should be an “A” should be an “A.” Comparables (or “comps”) are an important part of the rating committee. Comps may include the other hospitals and health systems operating in the same state given shared Medicaid and state regulations (such as Certificate of Need or state-mandated minimum wage), workforce environment (such as the presence of active unions), and similar economic factors. Like-sized peers in the same rating category also populate comps. The type of hospital being evaluated is also important. For example, health systems that own health plans would be compared to other integrated delivery systems; likewise for children’s hospitals, academic medical centers, or subacute care providers. Medians are also a part of the comps and provide relativity to like-rated borrowers by highlighting outliers.

4. Rating committee spends time reviewing the draft report to make sure the committee’s views are accurately expressed and check that confidential information was not inadvertently revealed. If you want to know what was discussed in the rating committee, read the last rating report.

Over the years, many executives have asked to speak directly to the rating committee. While that is not possible, you can bring your voice to the discussion with an informative, well-crafted rating presentation. That brings me to my final “inside rating committee” point.

5. Rating presentations matter.

Effective, informative presentations that encapsulate your organization’s strengths will be shared with the rating committee. Every slide in your presentation should send a clear message that the organization’s ability to repay the debt and exceed covenants is strong. Emphasize the positives, acknowledge the challenges, and share what your action plan is to address them. Do your homework and review what you shared with the analysts last year; they will be doing the same to prepare. Provide updates on how the strategic plans are going. If you exceeded your financial goals, explain how. If you fell short, explain why.

How you tell the story is as important as the story itself. That’s how you can inform the discussion and ensure your voice is heard around the rating committee table.

Financial Reserves and Credit Management

Posted on by • Posted in Credit Management, Credit Quality, Credit Ratings, Days Cash on Hand, Debt Capacity, Debt Issuance, Debt Service, Debt Service Covenants, Debt Service Coverage Ratio, Financial Reserves, General Obligation Bonds, Health System, Hospital, Hospital Industry, Municipal Debt, Revenue-backed Municipal Bonds • Leave a comment

Click to access KH_AHA-Essential-Role_Financial_Reserves_Not-for-Profit_Healthcare_2023-04.pdf

For large capital projects—construction of a new cancer
treatment center, for example, or replacement of an
aging facility—issuance of municipal debt is one of the
most affordable ways for not-for-profit hospitals and
health system to finance the project.

The affordability of that debt is, however, partly contingent on the
organization’s ability to maintain a strong credit rating,
and financial reserves—again measured as Days Cash on
Hand—are a significant component of that credit rating.


There are two basic forms of municipal debt:


Ÿ General obligation bonds are backed by the full
taxing power of the issuing municipal authority and
are considered relatively low risk. Hospitals that are
owned by a city or county can be funded by general
obligation bonds, although there are practical
limitations on their ability to issue these bonds,
including in many instances the need to obtain voter
or county commissioner approval. Organizations

without municipal ownership—including most
not-for-profit hospitals and health systems—
cannot issue general obligation bonds.


Ÿ Revenue-backed municipal bonds are backed by
the ability of the organization borrowing the debt
to meet its obligation to make principal and interest
payments through the revenue it generates over the
life of the bond. Because revenues can be disrupted
by any range of factors, revenue-backed bonds are
higher risk for investors. Most healthcare bonds
are revenue-backed municipal bonds.


When determining whether to invest in revenue-backed
municipal healthcare bonds, investors will look to the
credit rating of the hospital or health system that is
borrowing the debt. Credit ratings—issued by one or
more of the three major credit rating agencies (Fitch
Ratings, Moody’s Investors Service, and S&P Global
Ratings)—provide an assessment of the probability

that the hospital or health system will be able to meet
the terms of the debt obligation. These ratings are
tiered. A credit rating in the AA tier is better than a credit
rating in the A tier, which is better than a rating in the
BBB tier. Ratings below the BBB tier are considered sub-investment grade.

Organizations with a sub-investment
grade rating can still access various forms of debt,
but the amount of debt they can access generally will
be lower, the cost of the debt will be higher, and the
covenants that lenders require will be more stringent
than for investment-grade rated organizations.


Financial reserves and credit ratings


Days Cash on Hand is one of the most important factors
credit rating agencies use because it is an indicator
of how long the rated organization could withstand
serious disruption to its operations and cashflow.
The rating agencies issue median values for the various
metrics they use to determine credit ratings. Median

values for Days Cash on Hand increased significantly
across most rating categories for all three agencies
in 2020 and 2021; this reflects the temporary inflow
of pandemic relief funding through, for example,
the Coronavirus Aid, Relief, and Economic Security
(CARES) Act.


We anticipate these medians will move
closer to pre-pandemic levels as relief funds are
exhausted and hospitals repay remaining balances
on Medicare’s COVID-19 Accelerated and Advanced
Payment (MAAP) program funds. But even before
the pandemic, organizations in 2019 had a median
Days Cash on Hand of 276 to 289 days at the AA level,
173 to 219 days at the A level, and 140 to 163 days at
the BBB level.


In other words, the Days Cash on Hand
benchmark for organizations seeking to maintain an
investment-grade rating would be well over 100 Days
Cash on Hand, and well over 200 Days Cash on Hand for
organizations seeking to achieve a higher rating level.
Again, these reserves are proportionate to the operating
expenses of the individual hospital or health system.

Impact of credit ratings on access to capital


Organizations that can achieve a higher rating can
also borrow money at more affordable interest
rates. Figure 3 shows average interest rates for
municipal bonds across a range of maturities as of
mid-December 2022 (maturity is the term in years
for repayment of the bond at the time the bond is
issued). Lower-risk general obligation municipal bonds
are shown as the baseline, with lines for AA, A, and
BBB rated healthcare revenue-backed bonds above
it. As a reminder, most hospitals and health systems
cannot borrow money using general obligation bonds;
instead, they use higher-risk revenue-backed bonds.
Because revenue-backed bonds are a higher risk for
investors than tax-based general obligation bonds,

even hospitals and health systems with a strong
AA credit rating will pay a higher interest rate than
would a city or county that could back repayment of
the bond with tax revenues (see the line for AA rated
Healthcare Revenue Bonds compared to the line
for AAA rated General Obligation bonds). But there
is also a significant gap between the interest rate a
hospital with an AA credit rating would pay compared
to the interest rate available to a hospital with a lower
BBB rating. Here, the difference is approximately
three-fourths of a full percentage point. When the
amount borrowed for a major new hospital project
can run into the hundreds of millions of dollars,
that difference represents significant savings for
organizations with a higher credit rating.

Financial reserves and debt capacity


Financial reserves and the funds they generate—
including investment income—also help define an
organization’s debt capacity: essentially, the amount of
debt an organization can assume without jeopardizing
its current credit rating. There are two key ratios here:


Ÿ The first is total unrestricted cash and investments
to debt. In general, the more favorable that ratio is,
the more latitude a hospital or health system has to
take on additional debt, especially if the organization
is toward the middle to top end of its rating tier.

Ÿ The second is the debt service coverage ratio,
which measures the organization’s ability to
make principal and interest payments with funds
derived from both operating and non-operating
(e.g., investment income) activity. A higher ratio
here means the organization has more funds
available to service debt.


The ability to assume additional debt is an important
safety valve if, for example, an organization needs to
mitigate poor financial performance to fund ongoing
capital needs or strategic initiatives.

KEY TAKEAWAYS

Not-for-profit hospitals and health systems often
borrow debt through revenue-backed municipal
bonds, meaning that the debt obligations will be
met by the revenue the organization generates
over the life of the bond.


Ÿ Because revenue-backed bonds are higher
risk than general obligation bonds backed by a
municipality’s taxing authority (revenues can
be disrupted), investors seek assurance that an
organization will be able to meet its obligations.


Ÿ Credit ratings offer investors an assessment of
an organization’s current and near-term ability to
meet these obligations.

Ÿ Days Cash on Hand is an important metric in
assessing the organization’s credit rating, and a
higher rating generally requires a higher number of
Days Cash on Hand.


Ÿ A higher credit rating allows organizations to
borrow money at more affordable interest rates.


Ÿ A higher level of financial reserves and investment
income in relation to existing debt obligations also
increases an organization’s debt capacity, creating
an important safety valve if an organization has
to borrow money to mitigate poor operating or
investment performance.

Credit downgrades aren’t attributable to COVID-19 but cash flow will be a challenge

Posted on by • Posted in ACA, Cash, Cash Reserves, Coronavirus, Cost Management, Credit Quality, Credit Ratings, Crisis, Crisis Management, Debt Service, Debt Service Covenants, Economic Crisis, Economic Recovery, Economic Stimulus, Elective Procedures, Elective Surgery, Health Insurance Coverage Adequacy, Health Policy, Health System, High Deductible Health Plans, Hospital, Hospital Industry, Liquidity, Out of Pocket Expenses, Underinsured, Uninsured • Leave a comment

https://www.healthcarefinancenews.com/news/credit-downgrades-arent-attributable-covid-19-cash-flow-will-be-ongoing-challenge?mkt_tok=eyJpIjoiTUdSbVptVmhaR0ZpT0RJMyIsInQiOiJ2TVwvb3g5VWF4R05DeWFScVJ4U0lXeW9xWG1cL0pVMWo1RE1cL24rd21ySEErbk9kZWNIXC9hdmZYYmJBcGU1RDQ5MDVDNXVyZ2RZSWo2djRRSXhSOVFVQk1yNjFWOTVoVjlkTXVxXC95QXU1SU8yMEhJcEtHZXJ3ZDhDc2RMb2RcLzlMcSJ9

Just How Bad Is My Bad Credit Score? | Credit.com

The coronavirus is mainly affecting the credit outlook for the rest of the year and beyond as hospitals adapt to new financial realities.

While the COVID-19 coronavirus is likely to cause cash flow and liquidity issues for hospitals through the end of the year and into 2021, the credit outlook for the healthcare industry isn’t as dire as some had feared. While there have been some downgrades this year, most of those are attributable to healthcare financial performance at the end of 2019.

At a virtual session of the Healthcare Financial Management Association on Wednesday, Lisa Goldstein, associate managing director at Moody’s Investors Service, said the agency is taking a measured approach to issuing credit ratings and will “triage” these ratings based on factors such as liquidity and cash flow.

“Changes are happening daily, and sometimes hourly with funding coming from the federal government,” said Goldstein, “so we’re taking a very measured approach.”

Healthcare is among the most volatile industries being affected by the coronavirus due to the fact that it operates like a business, with a general lack of government support to pay off debt.

Credit downgrades are on the rise, but there’s historical precedent at play. Looking at data beginning with the 2008 financial crisis, there were consistently more downgrades than upgrades in the healthcare industry, owing to its inherent volatility. It was and has generally been subject to public policy and competitive forces. In any given year, downgrades exceed upgrades.

After passage of the Affordable Care Act, however, the number of uninsured Americans hit an all-time low. Hospitals grew in occupancy and revenues improved. The situation started to worsen once more when it became clear that there was a national nursing shortage, as well as top-line revenue pressure from government and commercial payers lowering their rates, but credit downgrades didn’t truly explode until this year. There have been 24 downgrades so far this year, already exceeding the 13 downgrades in all of 2019.

The rub is that it’s not the coronavirus’s fault.

“Most downgrades were in the first quarter of the year,” said Goldstein. “We did have a lot of downgrades in March, which is when the pandemic really started – when it became a pandemic – but even though there were 11 downgrades in March, it was based on what we’d seen through the end of 2019. There were problems that were appearing that had nothing to do with the pandemic.”

Basic fundamental operating challenges were becoming more pronounced during that time. A decline in inpatient cases, a rapid rise in observation stays, a decline in outpatient cases to competing clinics and health centers, and staffing and productivity challenges all contributed to material increases in debt.

COVID-19’s effects on hospital credit ratings are in the outlook for the rest of the year and beyond. Interestingly, in March, Moody’s changed its outlook from negative to stable.

“We haven’t seen anything like this,” said Goldstein. “The industry has been through shocks, but something this long in duration has been something we think will have an impact on financial performance going forward.”

Moody’s anticipates cash flow will remain low into 2021, mostly from the suspension of elective surgeries, rising staffing expenses and uncertainty around securing enough personal protective equipment. Liquidity is still a concern, but is more of a side issue due to Medicare funding providing a Band-Aid of sorts. The CARES act will help to fill some of that gap, but not all of it, said Goldstein.

She added that the $175 billion in stimulus funding is favorable, but modestly so, since it is estimated to cover only about two months’ worth of spending. The good news is that the opportunity to apply for grant money, which doesn’t have to be repaid, can help to fill some of the gap.

Some hospital leaders are concerned that if they violate covenants – also known as a technical default – their credit outlook will be downgraded. Goldstein sought to assuage those concerns.

“Debt service covenants are expected to rise, but an expected covenant breach or violation won’t have an impact on credit quality because it’s driven by an unusual event happening,” she said. “It doesn’t speak to your fundamental history as an operating entity.”

 

 

Navigating a Post-Covid Path to the New Normal with Gist Healthcare CEO, Chas Roades

Posted on by • Posted in Affordability, Board, Board Assessment, Board Competency, Board Engagement, Brand Loyalty, Branding, Business to Consumer Model, Capitation, Cash, Cash Reserves, Competition, Consumer Loyalty, Consumer Trust, Consumerism, Coronavirus, Corporate Overhead, Corporate Strategy, Cost Management, Cost Reduction, Crisis, Crisis Management, Cross Subsidy Model, Debt Service, Decision Making, Demographics, Disruption, Disruptive Technology, Economic Crisis, Economic Stimulus, Efficiency, Elective Procedures, Elective Surgery, Fee for Service Reimbursement, Financial Incentives, Financial Viability, Financially Distressed, Focus, Governance, Health Insurance Coverage Adequacy, Health Insurance Industry, Health Policy, Health System, High Deductible Health Plans, High Drug Prices, High Prices, Hospital, Hospital Industry, Job, Job Market, Job Search, Job Security, KPI Dashboards, Labor Spend Management, Leadership, Leadership Alignment, Leadership Trust, Market Consolidation, Market Power, Market Share, Market Trends, Market Uncertainty, Medical Group, Member Health, Mergers & Acquisitions, Net Income, Nonoperating Income, Objectivity, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, Out of Pocket Expenses, Pandemic, Physician, Physician Employment, Physician Independent Network (IPA), Physician Multispecialty Network, Physician Practice Management, Price Transparency, Pricing, Primary Care Delivery Model, Primary Care Loyalty, Private Equity, Profit Model, Quality, Quality of Care, Safety, Strategic Alignment, Strategic Leadership, Strategy, Streamlining Operations, Supply Chain, Surprise Bills, Telemedicine, Trust, Trusted Brand, Truth, Value, Value Creation, Value Proposition, Value-Based Healthcare, Virtual Healthcare, Virtual Reality, Virtual Visit, Workplace Safety • Leave a comment

https://www.lrvhealth.com/podcast/?single_podcast=2203

Covid-19, Regulatory Changes and Election Implications: An Inside ...Chas Roades (@ChasRoades) | Twitter

Healthcare is Hard: A Podcast for Insiders; June 11, 2020

Over the course of nearly 20 years as Chief Research Officer at The Advisory Board Company, Chas Roades became a trusted advisor for CEOs, leadership teams and boards of directors at health systems across the country. When The Advisory Board was acquired by Optum in 2017, Chas left the company with Chief Medical Officer, Lisa Bielamowicz. Together they founded Gist Healthcare, where they play a similar role, but take an even deeper and more focused look at the issues health systems are facing.

As Chas explains, Gist Healthcare has members from Allentown, Pennsylvania to Beverly Hills, California and everywhere in between. Most of the organizations Gist works with are regional health systems in the $2 to $5 billion range, where Chas and his colleagues become adjunct members of the executive team and board. In this role, Chas is typically hopscotching the country for in-person meetings and strategy sessions, but Covid-19 has brought many changes.

“Almost overnight, Chas went from in-depth sessions about long-term five-year strategy, to discussions about how health systems will make it through the next six weeks and after that, adapt to the new normal. He spoke to Keith Figlioli about many of the issues impacting these discussions including:

  • Corporate Governance. The decisions health systems will be forced to make over the next two to five years are staggeringly big, according to Chas. As a result, Gist is spending a lot of time thinking about governance right now and how to help health systems supercharge governance processes to lay a foundation for the making these difficult choices.
  • Health Systems Acting Like Systems. As health systems struggle to maintain revenue and margins, they’ll be forced to streamline operations in a way that finally takes advantage of system value. As providers consolidated in recent years, they successfully met the goal of gaining size and negotiating leverage, but paid much less attention to the harder part – controlling cost and creating value. That’s about to change. It will be a lasting impact of Covid-19, and an opportunity for innovators.
  • The Telehealth Land Grab. Providers have quickly ramped-up telehealth services as a necessity to survive during lockdowns. But as telehealth plays a larger role in the new standard of care, payers will not sit idly by and are preparing to double-down on their own virtual care capabilities. They’re looking to take over the virtual space and own the digital front door in an effort to gain coveted customer loyalty. Chas talks about how it would be foolish for providers to expect that payers will continue reimburse at high rates or at parity for physical visits.
  • The Battleground Over Physicians. This is the other area to watch as payers and providers clash over the hearts and minds of consumers. The years-long trend of physician practices being acquired and rolled-up into larger organizations will significantly accelerate due to Covid-19. The financial pain the pandemic has caused will force some practices out of business and many others looking for an exit. And as health systems deal with their own financial hardships, payers with deep pockets are the more likely suitor.”