Category Archives: Hospital Industry

Hospital Boards are Not Prepared for the Future

Posted on by • Posted in Board, Board Competency, Health Policy, Health System, Healthcare Reform, Hospital, Hospital Industry, Leadership, Leadership Vision • Leave a comment
Hospital Boards are Not Prepared for the Future

While Congressional leaders play chicken with the debt ceiling this week, antipathy toward hospitals is mounting.

To be fair, hospitals are not alone: drug companies and PBMs share the distinction while health insurers, device companies, medical groups and long-term care providers enjoy less attention…for now.

Hospitals are soft targets. They’re also vulnerable.

They operate in a sector that’s labor intense, capital intense and highly regulated by federal, state and local governments. They’re high profile: many advertise regionally/nationally, all claim unparalleled clinical excellence and unfair treatment by health insurers.

Hospitals operate locally, so storylines like these get attention

  • In Minnesota, Mississippi and Pennsylvania, hospitals are in court alleging under-payments and/or adverse coverage policies by dominant insurers in their markets.
  • In NC, the state treasurer and others are challenging a unanimous State Senate vote last week granting the UNC Health System a waiver from antitrust concerns as it builds out its system.
  • In CA, nurses are striking for higher wages, improved work conditions in 5 HCA hospitals.
  • And in Nashville today, private equity-owned Envision will declare bankruptcy throwing its emergency room staffing contracts with hospitals into limbo.

The future for hospitals is unclear

Inpatient demand is shrinking/shifting. Outpatient, virtual, and in-home services demand is growing. Discontent among workers and employed physicians is palpable. Labor and supply chain costs wipe-out operating margins and price sensitivity among consumers and employers is soaring. Most are trying to survive any way they can. Some won’t.

Per Syntellis’ latest analysis, the tide may be turning:

  • Total hospital expenses rose for an 11th consecutive month, but growth in labor expenses slowed for the first three months of 2023; Total Expense rose 4.7% YOY for the month while Total Non-Labor Expense rose 5.5% YOY due to higher costs for drugs, supplies, and purchased services. Total Labor Expense was up 1.8% YOY — a slight uptick after YOY labor expense increases eased to less than 1% in January and February.
  • Hospital margins remained extremely narrow but inched back into the black for the first time in 15 months as revenue growth outpaced expense increases. The median, actual year-to-date Operating Margin was 0.4% for March, up from -1.1% in February.
  • Surgery expenses increased despite lower volumes, while levels of patient care remained relatively steady.

Syntellis March Performance Report performance_trends_april_hc.1105.05.23.pdf (syntellis.com)

But no one knows for sure how long a full recovery will take, how debt ceiling negotiations will impact payments by Medicaid or Medicare or how court and antitrust actions by the DOJ will impact hospitals in the future.

What we know with a fair amount of confidence is this:

  • Bigger organizations in each sector—hospitals, drug & device manufacturers, medical groups, and health insurers—will have advantages others don’t.
  • Private equity will play a bigger role in the delivery and financing of care through strategic investments that drive low cost, high value alternatives for consumers and employers.
  • Regulators will enact selective price controls in targeted domains of the health system.
  • Large self-insured employers will be the primary catalyst for transformative changes.
  • Inpatient demand will shrink and tertiary services will be centralized in regulated hubs.
  • Structural remedies—convergence of social services and health systems, integration of financing and delivering care and direct alignment of insurer and provider incentives—will be key features of systemness choices to consumers and purchasing groups.

Most hospital boards of directors, especially not-for-profit organizations, are not prepared to calibrate the pace of these changes nor active in developing scenario possibilities for their future. That’s the place to start.

Post-pandemic recovery is not a technology-empowered 2.0 version of hospital operations: it is a fundamentally different business model based on new assumptions and bold leadership.

The End of the Pandemic Health Emergency is Ill-timed and Short-sighted: The Impact will further Destabilize the Health Industry

Posted on by • Posted in Financial Instability, Financial Stewardship, Financial Viability, Financially Distressed, Health Policy, Health System, Healthcare Reform, Hospital, Hospital Industry, Public Health Emergency (PHE) • Leave a comment
The End of the Pandemic Health Emergency is Ill-timed and Short-sighted: The Impact will further Destabilize the Health Industry

The national spotlight this week will be on the debt ceiling stand-off in Congress, the end of Title 42 that enables immigrants’ legal access to the U.S., the April CPI report from the Department of Labor and the aftermath of the nation’s 199th mass shooting this year in Allen TX.

The official end of the Pandemic Health Emergency (PHE) Thursday will also be noted but its impact on the health industry will be immediate and under-estimated.

The US Centers for Disease Control and Prevention (CDC) logged more than 104 million COVID-19 cases in the US as of late April and more than 11% of adults who had COVID-19 currently have symptoms of long COVID. It comes as the CDC say there’s a 20% chance of a Pandemic 2.0 in the next 2-5 years and the current death toll tops 1000/day in the U.S.

The Immediate impact:

The official end of the PHE means much of the cost for treating Covid will shift to private insurers; access to testing, vaccines and treatments with no out-of-pocket costs for the uninsured will continue through 2024. But enrollees in commercial plans, Medicare, Medicaid and the Children’s Health Insurance Program can expect more cost-sharing for tests and antivirals. 

That means higher revenues for insurers, increased out of pocket costs for consumers and more bad debt for hospitals and physicians.

At the state level, Medicaid disenrollment efforts will intensify to alleviate state financial obligations for Covid-related health costs. In tandem, state allocations for SNAP benefits used by 1 in 4 long-covid victims will shrink as budget-belts tighten lending to hunger cliff.  

That means less access to health programs in many states and more disruption in low-income households seeking care.

The Under-estimated Impact:

The end of the PHE enables politicians to shift “good will” toward direct care workers, home and Veteran’s health services and away from hospitals and specialty medicine who face reimbursement cuts and hostile negotiations with insurers. The April 18, 2023 White House Executive Order which enables increased funding for direct care workers called for prioritization across all federal agencies. Notably, in the PHE, hospitals received emergency funding to treat the Covid-19 patients while utilization and funding for non-urgent services was curtailed. Though the Covid-19 population is still significant, funding for hospitals is unlikely in lieu of in-home and social services programs for at risk populations.

A second unknown is this: As the ranks of the uninsured and under-insured swell, and as affordability looms as a primary concern among voters and employers, provider unpaid medical bills and “bad debt” increases are likely to follow.

Hostility over declining reimbursement between health insurers and local hospitals and medical groups will intensify while the biggest drug manufacturers, hospital systems and health insurers launch fresh social media campaigns and advocacy efforts to advance their interests and demonize their foes. 

Loss of confidence in the system and a desire for something better may be sparked by the official end of the PHE. And it’s certain to widen antipathy between insurers and hospitals.

My take:

In this month’s Health Affairs, DePaul University health researchers reported results of their analysis of the association between hospital reimbursement rates and insurer consolidation:

“Our results confirm this prior work and suggest that greater insurer market power is associated with lower prices paid for services nationally. A critical question for policy makers and consumers is whether savings obtained from lower prices are passed on in the form of lower premiums. The relationship to premiums is theoretically ambiguous. It is possible that insurers simply retain the savings in the form of higher profits.”

What’s clear is health insurers are winners and providers—especially hospitals and physicians—are likely losers as the PHE ends. What’s also clear is policymakers are in no mood to provide financial rescue to either.

In the weeks ahead as the debt ceiling is debated, the Federal FY 2024 budget finalized and campaign 2024 launches, the societal value of the entire health system and speculation about its preparedness for the next pandemic will be top of mind.

For some—especially not-for-profit hospitals and insurers who benefit from tax exemptions in favor of community health obligations– it requires rethinking of long-term strategies to serve the public good. And it necessitates their Boards to alter capital and operating priorities toward a more sustainnable future.

The pandemic exposed the disconnect between local health and human services programs and inadequacy of local, state and federal preparedness Given what’s ahead, the end of the Pandemic Health Emergency seems ill-timed and short-sighted: the impact will further destabilize the health industry.

Paul

PS: Saturday, the Allen Premium Outlets, (Allen, TX) was the site of America’s 199th mass shooting this year:

this time, 8 innocents died and 7 remain hospitalized, 4 in critical condition. Sadly, it’s becoming a new normal, marked by public officials who offer “thoughts and prayers” followed by calls for mental health and gun controls. Local law enforcement is deified if prompt or demonized if not. But because it’s a “new normal,” the heroics of EMS, ED and hospitals escapes mention. Medical City Healthcare is where 2 of the 8 drew their last breaths while staff labored to save the other 7. At a time when hospitals are battered by bad press, they deserve recognition for work done like this every day.

The Tit for Tat Game in Healthcare produces No Winners

Posted on by • Posted in Health Policy, Health System, Healthcare Reform, Hospital, Hospital Industry, Mission, Unintended Consequences • Leave a comment
The Tit for Tat Game in Healthcare produces No Winners

Tit for Tat battles in healthcare are nothing new. Last week, they were on full display.

  • Health insurers and drug manufacturers squared off in national ad campaigns accusing the other of complicity in keeping drug costs high.
  • The House Energy and Commerce and Ways and Means Committees held hearings challenging non-profit hospital tax exemptions as momentum builds for a new site neutral payment policy opposed by the American Hospital Association. In tandem, Indiana Republican Rep. Victoria Spartz reintroduced “Combatting Hospital Monopolies Act,”– a bill April 20 that would allow the FTC to enforce antitrust rules among the nation’s more than 2,900 nonprofit hospitals.

The intensity of these battles is likely to increase because healthcare affordability is a kitchen-table issue and the public’s paying attention.

Executive compensation in hospitals, drug companies and health insurers is a flashpoint: the disparity between pay packages for healthcare CEOs and their rank-and-file employees is widening. Books and documentaries about healthcare rogue operators like Theranos and Purdue draw wide audiences. And announcements like the Kaiser Permanente-Geisinger deal last week lend to the industry’s growing kinship with BIG BUSINESS.

The corporatization of U.S. healthcare has endangered its future.  The time has come to revisit its purpose, refresh its structure and re-organize its finances.

  • Revisit it’s purpose:
  • The modern health system has evolved through economic cycles, population growth, scientific explosion and shifting demand. Regulations, roles and money has followed. The integration of artificial intelligence is the next threshold in its evolution unlocking efficiencies heretofore unimagined and capabilities that enable self-care and customization. Might the system’s purpose shift from producing products and services for patients to enabling individuals to care for themselves and others more effectively? Might price and cost transparency in each sector be without pre-condition and barriers? And might the system’s true north be health and wellbeing rather than utilization and revenue growth?
  • Refresh its structure:
  • The system’s fundamental flaw is structural: the U.S. operates a health system of caregivers and facilities that serve its majority and a separate system of 3000 public health programs that serve the rest. Though long acknowledged, social determinants of health play second fiddle to specialized services to populations that are insured. The destination for the system must be health + social services, not health or human services, and the fiduciary role of its prominent non-profit institutions to steward the transition. In tandem, the system’s financing (through insurance) and delivery (through services and facilities) must necessarily be integrated so investments in prevention, population health management and care coordination are optimized.
  • Re-organize its finances:
  • The health system’s primary financing is derived primarily from direct government appropriations (vis a vis tax collections from individuals and employers) and profits earned by its operators and suppliers. Its capital investing is increasingly dependent on private equity that seeks profits in 5-6 years for its limited partner investors. In systems of the world with better outcomes and lower costs, government financing plays a bigger role balancing prevention and social services with the needs of the sick. The U.S. financing system rewards taking care of health problems after they’re manifest in hospitalization or medication management and insignificant investment elsewhere. Capitalizing innovation across the system is an imperative: otherwise, risk-taking by private investors in the system will default to short-term returns. And the public’s long-term wellbeing is compromised.

Most of the food fights in healthcare like last week’s revolve around each sector’s unique response to the three challenges above. That’s why they exist: to protect the interests of their members and advocate on their behalf. All believe their mission and vision is essential to the greater good and the moral high ground theirs. Some are imperiled more than others: not for profit, rural and safety net hospitals, long-term care operators, direct caregivers and public health programs at the top of this list.

Educating lawmakers is necessary but what’s needed is serious, objective forward-looking definition of the U.S. health system’s future. The tit for tat game will not solve anything. That’s where we are.

Paul

PS: Bipartisanship in Congress is rare.

Hospitals, particularly non-profit hospitals, may be the exception. Bipartisan headwinds are swelling and adversaries organizing. Members of Congress appear keen to assert more influence in how hospitals operate.

Price transparency, cost controls, site-neutral payments, charity care, pay equity and funding for non-patient care activity are on their radar. Hospitals, especially large not-for-profit multi-hospital systems, have joined drug manufacturers and pharmacy benefits managers as targets for reformers seeking lower cost and greater accountability.

As the debt ceiling is debated and FY24 federal budget is crafted, softening support for healthcare will take its toll across the industry and create unintended negative consequences for all.

The Debt Ceiling Debate is Problematic for Healthcare

Posted on by • Posted in For-Profit, Health Policy, Health System, Hospital, Hospital Industry, Non-Profit Healthcare Industry, Strategy, Tax Exempt Status • Leave a comment
The Debt Ceiling Debate is Problematic for Healthcare

Last week, 35,000 gathered in Chicago to hear about the future of health information technologies at the HIMSS Global Health Conference & Exhibition where generative AI, smart devices and cybersecurity were prominent themes.

Yesterday, the Annual Meeting of the American Hospital Association convened. Its line-up includes some big names in federal health policy and politics along with some surprising notaries like Chris Wray, Head of the FBI and others. In tandem, a new TV ad campaign launched yesterday by the Coalition to Protect America’s Health Care, of which the AHA is a founding member to pressure Congress to avoid budget cuts to hospitals to “protect care for seniors”.

These events bracket what has been a whip-lash week for the U.S. healthcare industry…

  • Throughout the week, the fate of medication-abortion mifepristone was in suspense ending with a Supreme Court emergency-stay decision late Friday night that defers prohibitions against its use until court challenges are resolved.
  • At HIMSS last Monday, EHR juggernaut EPIC and Microsoft announced they are expanding their partnership and integrating Microsoft’s Azure Open AI Service into Epic’s EHR software. Epic’s EHR system will be able to run generative AI solutions through Microsoft’s Open AI Azure Service. Microsoft uses Open Ai’s language model GPT-4 capabilities in its Azure cloud solution.
  • Thursday HHS posted data online showing who owns 6,000 hospices and 11,000 home health agencies that are reimbursed by Medicare.
  • Bell-weather companies HCA (investor-owned hospitals), Johnson and Johnson (prescription drugs) and Elevance (health insurers) reported strong 1Q profits and raised their guidance to shareholders for year-end performance.
  • And Monday, House Speaker Kevin McCarthy told an audience at the New York Stock Exchange that Republicans will agree to increase the $31.4 trillion debt-limit if it is accompanied by spending cuts i.e. a requirement that all “able bodied Americans without children” work to receive benefits like Medicaid, re-setting federal spending to 2022 levels and others.

Each of these is newsworthy. The partisan brinksmanship about the debt ceiling is perhaps the most immediately consequential for healthcare because it will draw attention to 2 themes:

Healthcare is profitable for some. Big companies and others with access to capital are advantaged in the current environment. Healthcare is fast-becoming a land of giants: it’s almost there in health insurance (the Big 7 in the US), prescription drugs (36 major players globally), retail drugstores (the Big 5), PBMs (the Big 4) and even the accountancies who monitor their results (the Big 4).

By contrast, the hospital and long-term care sectors sectors remain fragmented though investor-owned systems now own a quarter of operations in both.

Physicians and other clinical service provider sectors (physical therapy, dentistry, et al) are transitioning toward two options—corporatization via private equity roll-ups or hospital employment.

The 1Q earnings reported by HCA, J&J and Elevance last week give credence to beliefs among budget hawks that healthcare is a business that can be lucrative for some and expensive for all. That view aka “Survival of the Fittest” will figure prominently into the debt ceiling debate.

The regulatory environment in which U.S. healthcare operates is hostile because the public thinks it needs more scrutiny. 82% of U.S. adults think the health system puts its profits above all else. The public’s antipathy toward the system feeds regulatory activism toward healthcare.

 At a federal level, the debt ceiling debate in Congress will be intense and healthcare cuts a likely by-product of negotiations between hawks and doves.

In addition, government accountants and lawmakers will increase penalties for fraud and compliance suspecting healthcare’s ripe for ill-gotten gain and/or excess. Federal advocacy in each sector will be strained by increasingly significant structural fault-lines between non-profit and for profits, and public health programs that operate on shoestrings below the radar.  Two committees of the House (Ways and Means and Energy and Commerce) and two Senate Committee’s) will hold public hearings on issues including not-for-profit hospitals consolidation, price transparency and others with unprecedented Bipartisan support for changes likely “uncomfortable” for industry insiders.

At a state level, matters are even more complicated: states are the gatekeeper for the healthcare system’s future. States will increasingly control the supply and performance criteria for providers and payers. Ballot referenda will address issues reflective of the state’s cultural and political values—abortion rights, public health funding, gun control, provider and prescription drug price controls, and many more.

My take

The upcoming debt ceiling debate comes at a pivotal time for healthcare because it does not enjoy the good will it has in decades past.  The pandemic, dysfunctional political system and the struggling economy have taken a toll on public confidence. Long-term planning for the system’s future is subordinated to the near term imperative to control costs in the context of the debt ceiling debate.

The federal debt will hit its ceiling in June. Speaker McCarthy’s ‘Limit, Save, Grow Act’ would return the government’s discretionary spending to fiscal year 2022 levels, cap annual spending growth at 1% for a decade and raise the debt ceiling until March 31, 2024, or until the national debt increases by $1.5 trillion, whichever comes first. 

That means healthcare program cuts. That’s why this debt ceiling expansion is more than perfunctory: it’s an important barometer about the system’s future in the U.S. and how it MIGHT evolve:

In 8-10 years, it MIGHT be dominated by fewer players with heightened regulatory constraints.

It MIGHT be funded by higher taxes in exchange for better performance.

It MIGHT be restructured with acute services as a public utility. It might be a B2C industry in which employers play a lesser role and a national platform powered by generative AI and GPT4 enables self-care and interoperability.

It MIGHT be an industry wherein public health and social services programs are seamlessly integrated with non-profit health systems.

It MIGHT be built on the convergence of financing and delivery into regional systems of health.

It MIGHT bifurcate into two systems—one public for the majority and one private for some who can afford it.

It MIGHT replace the trade-off between community benefits and tax exemption.

It MIGHT re-define distinctions between non-profit hospitals and plans with their predicate investor-owned operators, and so on.

No one knows for sure, but everyone accepts the future will NOT be a repeat of the past. And the resolution of the debt ceiling in the next 60 days will set the stage for healthcare for the next decade.

The imperative to “parallel process” mergers and integration

Posted on by • Posted in Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Trends, Mergers & Acquisitions, Post Merger Integration • Leave a comment

https://mailchi.mp/55e7cecb9d73/the-weekly-gist-may-12-2023?e=d1e747d2d8

Given the somewhat frantic pace at which transactions are happening in healthcare these days, with insurers buying up primary care assets, private equity firms rolling up specialty practices, hospital systems looking to consolidate, and everyone circling around digital players, it’s little surprise that we’ve begun to hear some angst among health system executives about their ability to keep pace.

“Some of these disruptors are focused entirely on M&A strategies,” one CEO told us recently. “My team still has to run a complex health system at the same time. It takes us forever to get deals done.”

The concern is legitimate: for many health systems, M&A has been a one-at-a-time proposition. Evaluating and completing an acquisition takes many months, if not a year or more—and the integration of even a relatively small entity into a larger health system often takes longer. 
 
There is a growing sentiment that the pace of single, sequential mergers and acquisitions will not allow health systems to keep pace. 

One CFO shared, “We did a large merger a decade ago, and we’re just at the point of feeling like we act as a single system. We’re looking at one or two others, and we can’t delay the next opportunity because we’re still working to integrate the last.”

His strategy: systems aiming to build a super-regional organization should “rapidly build the network and integrate it once you have all the pieces”. It’s a strategy, he said, that is serving vertically integrated payers like CVS and UHG well. To keep pace in a consolidating market, health systems must maintain a pipeline of potential partners that fit with their vision. But we’re also wary of “saving” all the integration until the deals are done.

Rather, health systems looking to rapidly expand must be able to “parallel process” multiple acquisitions and integration. With smaller financial reserves compared to payer behemoths, health systems need mergers to generate value more quickly. And moreover, as providers are held to a higher standard by regulators, new partnerships will benefit from demonstrating value to consumers and communities.  

As inflation ameliorates, healthcare returns as top financial concern

Posted on by • Posted in Health Insurance Coverage Adequacy, Health System, High Cost Therapies, High Deductible Health Plans, High Drug Prices, High Prices, Hospital, Hospital Industry, Inflation, Out of Pocket Expenses • Leave a comment

https://mailchi.mp/55e7cecb9d73/the-weekly-gist-may-12-2023?e=d1e747d2d8

With the latest Bureau of Labor Statistics’ Consumer Price Index (CPI) report revealing the 12-month inflation rate in April 2023 rose again after hitting a recent low in March, we’re using this week’s graphic to show the cumulative picture on price and consumer sentiment changes across the last five years. 

Since 2018, the CPI for all goods has risen 21 percent, while medical services have become 15 percent more expensive, in terms of consumer out-of-pocket spending. Leading into COVID, medical service prices were rising faster than general inflation, but the cumulative rise in the price of all goods caught up to medical services in early 2022. 

Since December of last year, the price of medical services has actually experienced some deflation, partly due to a lagging decline in insurer profits. Reports of easing inflation had elicited a slight rebound in consumer sentiment, but last month’s 9 percent drop, the largest since June 2022, suggests this confidence is easily shaken.

Unfortunately for healthcare providers, according to a recent poll, fewer consumers worrying about elevated grocery and gas prices means that healthcare has reclaimed the top spot for household financial concerns.

The extraordinary decline in not-for-profit healthcare debt issuance

Posted on by • Posted in Capital Formation, Competition, Financial Instability, Financial Performance, Financial Pressure, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Retrenchment, Strategic Change, Strategic Leadership, Strategy • Leave a comment

https://mailchi.mp/55e7cecb9d73/the-weekly-gist-may-12-2023?e=d1e747d2d8

Last month, Eric Jordahl, Managing Director of Kaufman Hall’s Treasury and Capital Markets practice, blogged about the dangers of nonprofit healthcare providers’ extremely conservative risk management in today’s uncertain economy.

Healthcare public debt issuance in the first quarter of 2023 was down almost 70 percent compared to the first quarter of 2022. While not the only funding channel for not-for-profit healthcare organizations,

the level of public debt issuance is a bellwether for the ambition of the sector’s capital formation strategies.

While health systems have plenty of reasons to be cautious about credit management right now, it’s important not to underrate the dangers of being too risk averse. As Jordahl puts it: “Retrenchment might be the right risk management choice in times of crisis, but once that crisis moderates that same strategy can quickly become a risk driver.” 

The Gist: Given current market conditions, there are a host of good reasons why caution reigns among nonprofit health systems, but this current holding pattern for capital spending endangers their future competitiveness and potentially even their survival. 

Nonprofit systems aren’t just at risk of losing a competitive edge to vertically integrated payers, whom the pandemic market treated far more kindly in financial terms, but also to for-profit national systems, like HCA and Tenet, who have been flywheeling strong quarterly results into revamped growth and expansion plans. 

Health systems should be wary of becoming stuck on defense while the competition is running up the score.

California lawmakers pass loan program for financially distressed hospitals

Posted on by • Posted in Distressed Hospital Loan Program, Financial Distress, Financial Performance, Financial Reserves, Financial Stewardship, Financial Transparency, Financial Viability, Financially Distressed, Hospital, Hospital Industry, Restructure, Rural Hospital • Leave a comment

https://mailchi.mp/55e7cecb9d73/the-weekly-gist-may-12-2023?e=d1e747d2d8

Last week, California’s legislature passed a bill establishing the Distressed Hospital Loan Program, which will dole out $150M in interest-free emergency loans to struggling nonprofit hospitals in the state which meet specific eligibility criteria, including operating in an underserved area and serving a large share of Medicaid beneficiaries. A combination of state agencies will establish a specific methodology for selection, but hospitals that are part of a health system with more than two separately licensed hospital facilities will be ineligible.

Hospitals receiving loans must provide a plan for how they will use the loans to achieve financial sustainability, and must pay back the money within six years.

The Gist: With twenty percent of the state’s hospitals at risk of shuttering, California lawmakers are hoping to provide the most vulnerable hospitals an alternative to either closure or consolidation, an example other states may follow. But unlike the Paycheck Protection Program loans that shored up businesses through the pandemic’s initial disruption, the outlook for small, struggling, independent hospitals isn’t expected to improve in coming years, even if the economy recovers. 

Whether these loans provide lifelines or merely serve as Band-Aids on an untenable situation will depend on whether recipient hospitals can use them to restructure their operating models to absorb increased labor costs amid stagnating volumes and commercial reimbursement.

If these loans aren’t used for transformation, they will only delay the inevitable: more closures, and more mergers to find shelter in scale.

The Balance Sheet Bridge

Posted on by • Posted in Balance Sheet, Capital, Capital Formation, Capital Structure, Financial Instability, Financial Performance, Financial Pressure, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Operating Income, Operating Margin, Operating Performance, Restructure • Leave a comment

https://www.kaufmanhall.com/insights/blog/balance-sheet-bridge

Current Funding Environment

The healthcare financings that came in the past couple of weeks generally did well. Maturities seemed to do better than put bonds, and it remains important to pay attention to couponing and how best to navigate a challenging yield curve. But these are episodic indicators rather than trends, given that the scale of issuance remains muted. Other capital markets—like real estate—are becoming more active and offer competitive funding and different credit considerations relative to debt market options. Credit management continues to be the main driver of low external capital formation, but those looking for outside funding should spend time up front considering the full array of channels and structures.

This Part of the Crisis

And now it’s official. After JPMorgan acquired First Republic Bank—with a whole lot of help from the Federal Deposit Insurance Corporation—CEO Jamie Dimon declared, “this part of the crisis is over.” Not sure regional bank shareholders would agree, but from Mr. Dimon’s perspective the biggest bank got bigger, which made it a good day.

Last week the Federal Reserve raised rates another 25 basis points and the expectation (hope) seems to be that the Fed has reached the peak of its tightening cycle or will at least pause to see if constrictive forces like higher rates and regional bank balance sheet deflation slow activity enough to bring inflation back to the 2.0% Fed target. Assuming this is a pause point, it makes sense to check in on a few economic and market indicators.

Inflation is improving, although it remains well above the Fed’s 2.0% target range, and there are other indicators (like labor participation and unemployment) that have recovered some of the ground lost in 2020. But the weird part remains that this all seems quite civilized. To some, the Treasury curve spread continues to suggest a recession is looming, but in my neighborhood workers are still in short supply, restaurants are busy, and contractors are booked well into the future. Today’s ~3.36% 10-year Treasury rate is less than 100 basis points higher than the average since the start of the Fed interventionist era in 2008 and a whopping 257 basis points lower than the average since 1965. Think about how much capital has been raised in market environments much worse than now (including most of the modern-day healthcare inpatient infrastructure). Again, the main culprit in retarded capital formation is institutional credit management concerns rather than the funding environment.

The major fallout from the Fed’s recent anti-inflation efforts seems concentrated with financial intermediaries rather than consumers (or workers), and the financial intermediary stress the Fed is relying on to help curb economic activity is grounded in their own balance sheet management decisions rather than deteriorating loan portfolios. We’ve looked at this before, but it bears repeating that in the “great inflation” of the 1970s, the Chicago Fed’s Financial Conditions Index reached its highest recorded points (higher means tighter than average conditions) and in this most recent inflationary cycle, that same index has remained consistently accommodative. Can you wring inflation out of a system while retaining relatively accommodative financial conditions? Which begs the question of whether any Fed pause is more about shifting priorities: downgrading the inflation fight in favor of moderating the financial intermediary threat? We might be living a remake of the 1970s version of stubborn inflation, which means that all the attendant issues—rolling volatility across operations, financing, and investing—might be sticking around as well.

Meanwhile, somewhere out in the Atlantic the debt ceiling storm is forming. Who knows whether it will make landfall as a storm or a hurricane, but it does remind us that the operative portion of the Jamie Dimon quote noted above is this part of the crisis is over. The next part of the long saga that is about us climbing out of a deep fiscal and monetary hole will roll in and new variations of the same central challenge will emerge for healthcare leaders.

A Healthcare Makeover

Ken Kaufman has been advancing the idea that healthcare needs a “makeover” to align with post-COVID realities. Look for a piece from him on this soon, but the thesis is that reverting to a 2019 world isn’t going to happen, which means that restructuring is the only option. The most recent National Hospital Flash Report suggests improving margins, but they remain well below historical norms and the labor part of the expense equation is structurally higher. Where we are is not sustainable and waiting for a reversion is a rapidly decaying option.

My contribution to Ken’s argument is to reemphasize that balance sheet is the essential (only) bridge between here and a restructured sector and the journey is going to require very careful planning about how to size, position, and deploy liquidity, leverage, and investments. Of course, the central focus will be on how to reposition operations. But if organic cash generation remains anemic, the gap will be filled by either weakening the balance sheet (drawing down reserves, adding leverage, or adopting more aggressive asset allocation) or by partnering with organizations that have the necessary resources.

Organizations reach the point of greatest enterprise risk when the scale of operating challenges outstrips the scale of balance sheet resources. Missteps are manageable when the imbalance is the product of rapid growth but not when it is the result of deflating resources. If the core imperative is to remake operations, the co-equal imperative is continuously repositioning the balance sheet to carry you from here to whatever defines success.

Trinity Health to combine ministries, restructure leadership on West Coast

Posted on by • Posted in Decision Making, Decision Making Authority, Decision Making Process, Health System, Hospital, Hospital Industry, Leadership, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Restructure • Leave a comment
https://www.beckershospitalreview.com/strategy/trinity-health-to-combine-ministries-restructure-leadership-on-west-coast.html?origin=CFOE&utm_source=CFOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Livonia, Mich.-based Trinity Health is restructuring leadership on the West Coast as it combines Saint Agnes Medical Center in California and Saint Alphonsus Health System in Idaho and Oregon into one regional ministry, according to a statement shared with Becker’s May 4. 

Trinity Health said the combination will allow these ministries “to streamline management and decision-making, reduce administrative costs and improve overall operating performance.” 

The ministries will keep their names, and the boards of directors for each ministry will remain separate, the health system said. There will also be leadership changes.

Nancy Hollingsworth, MSN, RN, will retire as president and CEO of Fresno, Calif.-based Saint Agnes, effective May 26. Odette Bolano, BSN, president and CEO of Boise, Idaho-based Saint Alphonsus, will become president and CEO of the new regional entity. Additionally, David Spivey will join Saint Agnes as interim president and market leader.

This is a natural progression, as several services have already been consolidated between Saint Agnes and Saint Alphonsus, Trinity Health said.

The health system has also merged ministries in other regions, including Michigan, Indiana, Illinois, Iowa and New York.

Trinity Health has 123,000 employees in 26 states, according to its website.