Latest / Becker’s Healthcare Podcast / Health System M&A Activity and Mounting Financial Pressures with Laura Dyrda

Transcript

Health System M&A Activity and Mounting Financial Pressures with Laura Dyrda · Becker’s Healthcare Podcast

• 0:02
  - There's a small circle of people who truly
• 0:04
  - understand what it takes to lead a health
• 0:05
  - system right now. The decisions are enormous.
• 0:08
  - The variables are constantly shifting, and the stakes
• 0:11
  - of getting a call wrong don't stay contained.
• 0:14
  - That's not a complaint. It's a structural reality.
• 0:17
  - And it's why the most effective c suite
• 0:19
  - leaders are deliberate about where they go to
• 0:21
  - pressure test their thinking.
• 0:22
  - Becker's fourteenth annual CEO and CFO roundtable
• 0:26
  - brings together more than 1,500
• 0:28
  - executive level attendees
• 0:30
  - and nearly 400 speakers for four days built
• 0:32
  - around growth, financial sustainability,
• 0:35
  - workforce strategy, and the leadership questions that don't
• 0:38
  - have easy answers.
• 0:39
  - Join us November second through the fifth in
• 0:41
  - Chicago.
• 0:42
  - For the agenda and event details,
• 0:45
  - visit beckershospitalreview.com
• 0:47
  - and click on the events tab in the
• 0:49
  - upper right.
• 0:50
  - This is Scott Becker with the Becker's Healthcare
• 0:53
  - Podcast.
• 0:55
  - Thrilled today to visit with one of my
• 0:56
  - favorite guests. We're dealing today with Laura Dierda.
• 1:00
  - Laura is the editor in chief at Becker's
• 1:02
  - Healthcare,
• 1:03
  - an amazing person and leader and great thinker
• 1:06
  - around healthcare.
• 1:08
  - Laura, we we we often ask you to
• 1:10
  - tell us what are the couple of the
• 1:12
  - stories that you're watching currently in healthcare,
• 1:14
  - and what's top of mind. So let me
• 1:16
  - turn it over to you and ask you
• 1:18
  - what are a couple of things that you're
• 1:19
  - watching that are top of mind currently.
• 1:21
  - Absolutely. Well, thank you so much, Scott. I
• 1:23
  - think
• 1:24
  - a lot happening as always in health care,
• 1:26
  - but especially in the past couple weeks, we've
• 1:28
  - seen a lot of health systems making
• 1:30
  - deals, and it's really been a a really
• 1:32
  - busy week, especially. So there's two big merger
• 1:35
  - announcements and acquisition that I wanted to highlight
• 1:37
  - really quickly as health systems are chasing scale,
• 1:40
  - capital, and growth markets. So first, I wanted
• 1:43
  - to mention one that happened right here in
• 1:45
  - Chicago. The Rush University System for Health and
• 1:47
  - Evanston,
• 1:48
  - Illinois based Endeavor Health announced plans to merge
• 1:51
  - on October 14. The combined system will have
• 1:54
  - around 12 hospitals, more than 400 care sites,
• 1:56
  - and 46,000
• 1:57
  - employees,
• 1:58
  - including its clinicians that will serve around 2,000,000
• 2:01
  - patients in Illinois and Indiana.
• 2:03
  - So that deal is really fascinating because, I
• 2:06
  - mean, it's coming together of two organizations, Endeavor,
• 2:09
  - which
• 2:10
  - recently was a a merger between two other,
• 2:12
  - health systems. And then with an academic system
• 2:15
  - like Rush, really, truly is gonna be fascinating.
• 2:17
  - I think the system will operate under the
• 2:19
  - Rush name, which is a nod to the
• 2:21
  - health system's academic reputation. And Endeavor plans to
• 2:24
  - commit around $1,000,000,000
• 2:26
  - as part of the deal, which will include
• 2:28
  - 500,000,000
• 2:29
  - for academics and research, 300,000,000
• 2:31
  - for the community impact, and 200,000,000
• 2:33
  - for quality innovation.
• 2:36
  - And then once the deal closes,
• 2:38
  - Endeavor CEO, JP Gallagher, will lead the combined
• 2:41
  - system, and in Russia's CEO, doctor Omar Lateef,
• 2:44
  - will stay on through the closing and then
• 2:46
  - become CEO Emeritus
• 2:48
  - as well as a strategic adviser. And the
• 2:50
  - two organizations are putting together a 20 member
• 2:52
  - board that will be split evenly between them
• 2:54
  - with Rush having a representative chair too, and
• 2:57
  - the deal is expect... Expected to close early
• 2:59
  - next year. So,
• 3:01
  - definitely, a lot of fascinating things happening in
• 3:03
  - Chicago, and it's kind of reshaping how we
• 3:06
  - look at the Chicago
• 3:07
  - health care landscape.
• 3:09
  - We're also seeing additional deals happen, in New
• 3:12
  - Jersey. Hackensack Meridian Health and,
• 3:15
  - Hunterton Health have signed a definitive agreement for
• 3:17
  - Hunterton to join the Hackensack Meridian Health Network.
• 3:20
  - The two had first signed a letter of
• 3:22
  - intent in June, and now we're getting more
• 3:24
  - serious about that. Hackensack Meridian plans to invest
• 3:27
  - around $200,000,000
• 3:28
  - in capital projects at Hunterton plus $30,000,000
• 3:31
  - to roll out epic across the system.
• 3:34
  - And Hunterton will keep day to day leadership
• 3:36
  - as well as its foundation and its medical
• 3:38
  - staff,
• 3:39
  - to keep the board oversight,
• 3:41
  - for six years after closing, and then a
• 3:43
  - joint committee will monitor whether
• 3:46
  - Hackensack Meridian,
• 3:47
  - you know, continues to keep those promises and
• 3:49
  - where it's going,
• 3:51
  - so that really the deal can go as,
• 3:53
  - ideally, as planned for both sides.
• 3:56
  - So that deal still needs state and federal
• 3:58
  - approval, including a review from New Jersey's Community
• 4:01
  - Healthcare Assessments Protection Act and federal antitrust. So,
• 4:05
  - looking at that and then seeing interesting how,
• 4:08
  - different health systems decide to organize, think about
• 4:11
  - governance, leadership, and ownership
• 4:13
  - as time goes on. And then finally, I
• 4:15
  - wanted to mention that,
• 4:17
  - in Texas, Ascension, Seton has agreed to buy
• 4:20
  - a family hospital at Lake Travis and two
• 4:23
  - urgent care centers,
• 4:24
  - in
• 4:25
  - the the health system. So Ascension said the
• 4:27
  - deal is about keeping pace with growing a
• 4:31
  - number of people in the suburbs in Austin,
• 4:34
  - Texas, and they're really among the fastest growing
• 4:36
  - communities in the country. So that deal is
• 4:39
  - expected to close later that... This year, and
• 4:41
  - I expect we'll see more deals coming, before
• 4:43
  - the year ends.
• 4:45
  - I mean, it's simply amazing how much deal
• 4:47
  - activity is going on. Obviously,
• 4:50
  - you and I live local, so watching the
• 4:52
  - Endeavor Health rush deal
• 4:54
  - is fascinating and should be great ultimately
• 4:58
  - for the Chicago health care community and the
• 5:00
  - area health care community
• 5:02
  - and should help
• 5:04
  - North Shore become a more deeply academic system.
• 5:07
  - Hopefully, it also helps rush
• 5:10
  - continue to drive the great research that they
• 5:12
  - do there as an academic medical center. And
• 5:15
  - so, hopefully, it becomes a win win
• 5:17
  - for both Chicago and for Endeavor and Rush.
• 5:21
  - Hats off, quite frankly, to Omar Lateef,
• 5:25
  - the long term CEO of Rush, and JP
• 5:27
  - Gallagher, the long term CEO of Endeavor Health,
• 5:30
  - two really good leaders and good people. So
• 5:34
  - really exciting to watch that.
• 5:36
  - And then Hackensack continues to grow a great
• 5:39
  - system as does Ascension, which has done unbelievable
• 5:42
  - things under the leadership of Eduardo Conrado too.
• 5:46
  - Just simply amazing what they are trying to
• 5:48
  - accomplish. So fascinating to see all this merger
• 5:50
  - acquisition and activity going on.
• 5:54
  - It seems like a pickup again in mergers
• 5:55
  - and acquisitions. Is that what people are seeing
• 5:58
  - or what what they're saying in general?
• 6:00
  - Yeah. Absolutely. So that is what we've noticed
• 6:03
  - at Becker's through our coverage on our daily
• 6:05
  - news base. But, certainly, when we look at
• 6:07
  - some of the advisements and projections and predictions,
• 6:10
  - for the next several months,
• 6:12
  - you know, I I think there is an
• 6:14
  - anticipation
• 6:15
  - that more partnerships will happen. I think there's
• 6:17
  - been a lot of informal alignments
• 6:19
  - and different types of
• 6:22
  - ways that hospitals and systems have worked together.
• 6:24
  - But, ultimately,
• 6:26
  - you know, in thinking about how different, legislation
• 6:29
  - will impact hospitals and systems next year, especially
• 6:32
  - thinking about changes in Medicaid,
• 6:34
  - you know, potentially with three forty b,
• 6:37
  - and site neutral payments, and just a variety
• 6:39
  - of different things.
• 6:41
  - We do see that there's going to be,
• 6:43
  - you know,
• 6:44
  - the
• 6:46
  - the decisions, I guess, a lot of health
• 6:48
  - systems are trying to make is whether they
• 6:50
  - want to grow, whether they wanna partner, whether
• 6:52
  - they wanna officially merge together. And I think
• 6:54
  - the merger becomes attractive,
• 6:57
  - because you can
• 6:58
  - be in a spot where you've got more,
• 7:02
  - geography, more scale. And I think there's,
• 7:05
  - more of a hunger right now, I guess,
• 7:07
  - to work closely together and figure out how
• 7:09
  - to serve the community, I think, with the
• 7:11
  - uncertainties,
• 7:12
  - and certainly a lot of
• 7:15
  - challenges up in the air when there's leadership
• 7:17
  - transitions like doctor Latif said had been previously
• 7:20
  - announced and others, you know, being able to,
• 7:24
  - have a partner system there or a larger
• 7:26
  - system organization to lean on and really come
• 7:29
  - through these, challenging times. I I think certainly
• 7:32
  - is very attractive for board members and and
• 7:35
  - communities at large. And so I do anticipate
• 7:37
  - there's gonna be more mergers and acquisitions, and
• 7:39
  - that's what we're hearing from,
• 7:41
  - different firms and advisers too is, you know,
• 7:44
  - looking at how do we really get through
• 7:46
  - and transform and incorporate the right technology,
• 7:49
  - make sure we've got the right base of
• 7:51
  - providers and leadership and more,
• 7:53
  - likely will will come from,
• 7:56
  - having larger scale and trying to figure out
• 7:58
  - how to keep some of that local governance
• 8:01
  - and and whatnot in place. But,
• 8:03
  - being able
• 8:04
  - to take advantage of of some of the
• 8:06
  - larger resources is gonna be important.
• 8:09
  - No. It's simply fascinating. And as systems continue
• 8:12
  - to grow up their technology, their kinda... Clinical
• 8:14
  - workforce,
• 8:16
  - lots of challenges. I I see that in
• 8:18
  - general, revenues are going up,
• 8:20
  - but costs are going up more quickly than
• 8:22
  - our revenues. So so putting health systems still
• 8:25
  - in this continuous challenge,
• 8:27
  - we're thinking it's likely to go on for
• 8:28
  - the rest of our lifetimes. There's margin pressures
• 8:30
  - and challenges. I just don't see a round...
• 8:32
  - A way around that for a very long
• 8:34
  - time,
• 8:35
  - given the age and growing population, the fact
• 8:37
  - that hospitals and health systems are already 31%
• 8:40
  - of total health care cost.
• 8:42
  - It's hard to see
• 8:43
  - that much reimbursement growth, so people are gonna
• 8:46
  - be riding
• 8:47
  - tighter and tighter shifts going forward is my
• 8:49
  - is my impression, and and that's not gonna
• 8:51
  - change, I don't think, anytime soon. Yeah. Absolutely.
• 8:54
  - And I think that, you know, it's definitely
• 8:55
  - reflected,
• 8:56
  - in some of the numbers we saw from
• 8:58
  - Kaufman Hall's last
• 9:00
  - national hospital flash report,
• 9:02
  - Reporting numbers in August at that point, around
• 9:04
  - 43%
• 9:04
  - of hospitals,
• 9:06
  - were operating in the red compared to about
• 9:09
  - a third that were before the pandemic. So,
• 9:12
  - we're still seeing some of those after effects.
• 9:13
  - We're still seeing a number of hospitals losing
• 9:16
  - money.
• 9:17
  - And after around six years of those staffing
• 9:19
  - shortages, rising costs, and, some of the big
• 9:22
  - spending on technology, their financial cushions are are
• 9:24
  - waning a bit. So,
• 9:26
  - you know, the challenges isn't revenue necessarily to
• 9:29
  - your point. Hospitals continue to bring in more
• 9:31
  - money, and outpatient volume is especially strong right
• 9:34
  - now, but costs are rising faster. And, you
• 9:37
  - know, we're seeing expenses up more than 20%
• 9:40
  - over the past three years as well as
• 9:42
  - labor continuing to increase, although not as much
• 9:44
  - as it did a few years ago, but
• 9:46
  - it's still going up. And so the trend
• 9:48
  - that we're watching very closely here is bad
• 9:50
  - debt and charity care, where the hospitals are,
• 9:53
  - you know, providing care that they're not getting
• 9:55
  - paid for. So that's gone up around 50%
• 9:57
  - in the last three years. And Kaufman Hall
• 10:00
  - mentioned that, you know, worsening payer mix means
• 10:02
  - there are fewer patients with insure... Commercial insurance
• 10:05
  - coming in, and we expect that to continue
• 10:07
  - to be the case next year.
• 10:09
  - And so that will be a huge, huge
• 10:10
  - challenge for a lot of hospitals and systems
• 10:12
  - going forward.
• 10:14
  - A 100%. Laura, I always learn something talking
• 10:16
  - to you. Tremendous update. Thank you so much
• 10:18
  - for joining us on the Becker's Healthcare podcast.
• 10:21
  - Again, Laura Dirda, editor in chief,
• 10:24
  - rock solid Chicago White Sox fan and as
• 10:26
  - good a leader in person as they come.
• 10:28
  - Thank you for joining us today. Thank you
• 10:30
  - very much. Thanks, Scott. Appreciate it.