Latest / Becker’s Healthcare Podcast / How Healthcare Organizations Are Approaching Financial, Operational, and Strategic Decisions to Drive Long-term Value in a Challenging Economic Environment

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How Healthcare Organizations Are Approaching Financial, Operational, and Strategic Decisions to Drive Long-term Value in a Challenging Economic Environment · Becker’s Healthcare Podcast

• 0:00
  Hello, everyone. This is Erica Spicer Mason with
• 0:02
  Becker's Healthcare. Thank you so much for tuning
• 0:04
  into the Becker's Healthcare podcast series.
• 0:07
  Today, we're going to talk about how healthcare
• 0:09
  organizations
• 0:10
  are approaching financial, operational, and strategic decisions to
• 0:14
  drive long term value in a challenging economic
• 0:16
  environment.
• 0:17
  And joining me for this conversation are three
• 0:19
  leaders from KPMG.
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  We have with us Adam McDonald, managing director,
• 0:25
  Karishma Sharma, also a managing director,
• 0:27
  and Ross Nelson, senior partner.
• 0:30
  Adam, Karishma, Ross, thank you all so much
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  for being here today. Welcome to the podcast.
• 0:35
  Thanks so much for having us. Well, it's
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  great to have you all on the line
• 0:38
  today, and I wanted to get us started
• 0:40
  with some introductions. But,
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  in addition to that, you know, we know
• 0:45
  that health care organizations are navigating a very
• 0:48
  complex set of demands right now,
• 0:50
  growth constraints, financial sustainability,
• 0:52
  shifting care delivery models.
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  So as you
• 0:56
  each share a little bit more about yourself,
• 0:58
  can you also share your area of focus
• 1:01
  in this environment? And, Ross, let's get started
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  with you.
• 1:04
  Sure. Thanks, Erica. So this is Ross Nelson.
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  I'm a partner with KPMG. I lead our
• 1:09
  deal advisory and strategy sector for health care.
• 1:13
  Our practice, which includes Karisma,
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  Adam, and various other partners, managing directors, and
• 1:19
  staff,
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  works with payers, health systems, and multisite providers
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  on a variety of mandates and engagement that
• 1:27
  span
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  growth strategy,
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  enterprise strategy,
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  tactical strategy work, performance improvement work,
• 1:36
  business cases for strategies and deals and commercialization
• 1:39
  of opportunities.
• 1:41
  We do cross functional diligence for transactions,
• 1:45
  and we do integration and separation work on
• 1:48
  the back end of transactions.
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  Right now, what we're seeing is a dynamic
• 1:52
  environment within the corporate,
• 1:54
  landscape
• 1:55
  with corporates,
• 1:57
  commanding more of a market share of activity
• 1:59
  lately
• 2:00
  with PE activity near five to ten year
• 2:02
  lows, but we're optimistic that that activity will
• 2:05
  rebound,
• 2:06
  this year.
• 2:07
  The activity that we're seeing is driven by
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  pressures from Medicare and Medicaid on both rates
• 2:12
  and eligibility levels,
• 2:14
  as well as continued growth in select markets,
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  and a continued wide dispersion of performance and
• 2:21
  profitability
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  amongst the various entities within each of these
• 2:24
  sectors.
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  Ross, thank you so much. Great to learn
• 2:28
  more about you.
• 2:29
  Karishma, Adam, would you like to share a
• 2:31
  bit more about yourselves as well?
• 2:33
  Yeah. Thanks, Erica. It's great to be here.
• 2:36
  I'm Karishma Sharma. I'm a managing director with
• 2:39
  KPMG Healthcare Advisory Practice. I'm a physician by
• 2:42
  training and bring eighteen years of consulting experience.
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  I focus on health system performance improvement and
• 2:48
  value creation,
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  both within stand alone organizations
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  and in the context of transactions.
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  A big part of my work is helping
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  health systems translate strategy into execution,
• 3:01
  whether that's unlocking margin, improving access, or driving
• 3:04
  more sustainable operating models at the service line
• 3:07
  and network level.
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  Increasingly,
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  in the environment that Ross was referring to,
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  we are seeing more that
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  that also means thinking about how operational
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  transformation
• 3:18
  supports broader enterprise and deal strategy. So this
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  is a very timely conversation.
• 3:25
  Absolutely,
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  Krishna. Thank you. And last but not least,
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  Adam, tell us a little bit about yourself
• 3:30
  and your focus area as well. Yeah. Absolutely.
• 3:32
  Thanks, Erica. Adam McDonald,
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  also a managing director in our health care
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  deal advisory and strategy practice.
• 3:40
  I support some of the areas that that
• 3:41
  Ross and Krishna have mentioned, but in particular,
• 3:43
  my focus is in health care m and
• 3:45
  a,
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  for both private equity and and corporate, but
• 3:48
  a little more on the private equity side.
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  And and my focus is really in the
• 3:52
  diligence phases. So for both commercial and operational
• 3:56
  due diligence as well as, you know, pre
• 3:58
  and post close performance and improvement initiatives also
• 4:01
  often tied to those key, you know, deal
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  thesis that are identified by either the buyer
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  or the seller during the during the process.
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  And I think, you know, to to to
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  piggyback off of Ross's point around where we're
• 4:12
  seeing the slowdown, I think what we're seeing
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  is
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  an an increased
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  select selectivity,
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  right, of of what assets they're going after.
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  I think certain
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  organizations and firms are being very particular about
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  where they want to invest and particular about
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  the types of it, of assets they invest
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  in and making sure that the performance is
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  scale scalable, defensible, and and something they're looking
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  to, you know, be in involved in long
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  term.
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  Adam, thanks so much for rounding us out
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  with the intros, and it's been great to
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  learn about each of the lenses that you're
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  all bringing to the conversation today. I think
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  this is going to be very helpful for
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  our listeners.
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  And I wanted to turn the first question
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  over to Ross.
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  Ross, I know you had mentioned that you
• 4:57
  have a close eye in your work on
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  kind of the enterprise level deal strategy,
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  that's taking place in hospitals and health systems
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  and with PE activity as well.
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  But I wanna back up and just acknowledge
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  that the conversation around
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  health care financial strategy has historically skewed toward
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  cost reduction. So can you share with our
• 5:15
  listeners where you're seeing organizations
• 5:17
  move beyond just cost reduction, whether that means
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  partnerships, affiliations,
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  portfolio strategy,
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  in order to actively create value?
• 5:27
  Yeah. Sure, Erica. So
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  amongst the growth strategy work that we see,
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  portfolio
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  strategy of folks looking at,
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  doubling down or exiting businesses,
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  and the deal work we're seeing, it it
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  falls into five basic categories.
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  So one would be expansion into new markets.
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  Second would be expansion into new services.
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  Third would be,
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  exposure to vertical integration or new business models.
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  Fourth would be capability
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  add ons, and fifth would be cost leverage
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  or economies of scale.
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  So for example, we're seeing payers
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  focused
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  on doing capability add ons to a lot
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  of their work,
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  as well as,
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  new services while rationalizing,
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  various lines of businesses. So for example,
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  for UHG or UnitedHealthcare,
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  they've continually had a provider focus
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  and have continued to kinda double down
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  on their commercial business,
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  acquiring,
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  various assets from other folks.
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  Cigna continues to be focused on tech and
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  tech enablement,
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  and membership enablement,
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  and CVS continues to be a broad services
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  provider.
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  On the deal front with regards to payers,
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  we recently helped Cigna with their Medicare Advantage
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  business exit, and it helped CVS with the
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  various divestitures,
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  in the market.
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  On the provider side,
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  we're seeing a range of structures
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  between
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  full mergers,
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  joint operating agreements between,
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  organizations that are somewhat dissimilar,
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  and new joint ventures to create value.
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  One example of this would be we're seeing
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  physician groups that are owned by health systems
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  partner with independent physician groups
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  to create value through such levers as,
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  getting paid more robustly by payers,
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  offering
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  more services that they don't previously offer,
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  ensuring better share of wallet or cross selling
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  of services amongst their patients,
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  moving to lower cost care models and taking
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  on risk arrangements,
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  and creating more efficient combined managed services organizations
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  for the back office.
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  We're also seeing an uptick in health system
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  joint venture activity with PE
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  on non acute care services,
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  in order to leverage operating scale, cost, and
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  expertise that some of the PE providers bring
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  to the team.
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  Really helpful examples, Ross. I appreciate those and
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  also how you broke what you broke down
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  what you're seeing into five basic categories. So,
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  again, for our listeners, that was expansion to
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  new markets, new services, vertical integration,
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  capability add ons, and cost leverage or economies
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  of scale.
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  Really insightful.
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  Karishma, I wanted to move this over to
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  you next. Margin compression remains a defining challenge
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  across health systems.
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  So how can organizations unlock real improvements, again,
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  beyond cost reduction as we just touched on?
• 8:38
  That's exactly right.
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  Happy to expand on that more. So margin
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  compression continues to be a defining challenge across
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  health systems. What we are seeing is that
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  organizations that are able to move beyond traditional
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  cost reductions are taking a much more integrated
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  service line driven approach to performance improvement.
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  So that means looking at each service line
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  holistically
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  from demand and access to throughput inside of
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  care and really aligning how care is delivered
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  with both patient needs and economic realities in
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  mind.
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  At the same time,
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  most effective organizations
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  are combining both revenue and cost actions together.
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  So a number of our health system clients
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  are working on things like pricing
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  and rate strategy,
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  enhancing their value based contracts performance, and capturing
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  the incentives that are tied to quality and
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  access, and reducing unwarranted
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  clinical and operational variation.
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  So it's less about isolated initiatives
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  and more about a coordinated approach that drives
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  both growth and efficiency.
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  And we're seeing a number of our health
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  systems clients thinking in integrated service line driven
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  approach to their
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  enterprise value enhancement and margin expansion.
• 9:55
  Mhmm. Yeah. I I appreciate how you put
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  that, Karishma. A coordinated approach is what it's
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  all about. So appreciate you sharing some more
• 10:02
  of what the operational lens here looks like.
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  And, Adam, I'd love to turn it over
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  to you next to get a little more
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  insight on the investor piece.
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  You'd mentioned or at least touched on this
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  earlier in your intro remarks that investors and
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  capital partners are increasingly selective in the health
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  care market right now. So from your point
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  of view, what signals, whether operational, financial, maybe
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  even strategic,
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  can indicate that an organization is actually ready
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  for sustainable value creation?
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  Yeah. Absolutely. I think there's, you know, a
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  few things that that all investors are gonna
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  be looking at on the revenue and cost
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  side, and it's gonna vary a lot depending
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  on the the subsector that you're in, the
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  type of asset, etcetera. But, ultimately, they're looking
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  for defensibility in in two areas.
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  The first is is defensible revenue. So, obviously,
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  again, it's gonna vary, but there's going to
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  be some subset
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  of tailwinds and headwinds for a revenue outlook
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  for any type of asset, whether that's on
• 11:00
  the reimbursement side, taking a look at how
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  rate changes are affecting or payer mix
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  is is affecting what, you know, rates or
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  payments are gonna be coming through for those
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  types of services. And there's also going to
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  be a a volume and utilization
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  play that's gonna be impacted by demographic
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  shifting service utilizations,
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  shifting care models that determine, you know, patient
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  care pathways and what patients need, what services
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  when, and at what sites of service, etcetera.
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  And so, really, there there's not meant to
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  be a silver bullet, but
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  investors are gonna be looking for, do you
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  have a defensible strategy that is going to
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  address the relevant headwinds,
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  and tailwinds that are impacting your market? Do
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  you have kind of a point of view
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  on how you're going to be, you know,
• 11:44
  pursuing growth moving forward? Maybe this is a
• 11:46
  white space growth or de novo expansion strategy.
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  If if you have kind of market opportunity,
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  maybe it's going to be, to Karisma's point,
• 11:53
  a site of service
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  strategy where you have a a point of
• 11:56
  view where you can materially shift volumes towards
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  a lower cost,
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  site of service and drive additional productivity and
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  throughput there. And then on the flip side,
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  they're they're gonna be looking at defensibility
• 12:06
  in the
• 12:08
  integration space and scalability
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  space. And what this really means is, you
• 12:12
  know, does the asset have a sustainable and
• 12:15
  consistent operating model, or do they have a
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  path to create one that's across, you know,
• 12:20
  care delivery technology and systems as well as
• 12:23
  back office management. I think what we always
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  like to say is, you know, we're gonna
• 12:27
  be wary of success on an island, right,
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  of of a success coming from an asset
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  or an individual practice, an individual site location
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  that's, you know, disconnected
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  from kind of a broader network or a
• 12:38
  broader broader system.
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  And so
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  we're gonna be looking at, you know, what
• 12:42
  are the aspects of of clinical as well
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  as nonclinical operations that have been
• 12:47
  standardized, maybe centralized,
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  what's been technology enabled. And for those things
• 12:51
  that have been standardized, streamlined, integrated, etcetera, how
• 12:54
  well have they been? And so on the
• 12:56
  clinical side, this is with their staffing and
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  care models. It might be in how you're,
• 13:01
  pursuing patient journeys and documenting patient journeys. It
• 13:04
  might be in your overall clinical application side
• 13:07
  of your tech stack. And on the nonclinical
• 13:09
  side, it's gonna be, you know, function centralization
• 13:11
  and standardization for, you know, revenue cycle, HR,
• 13:15
  IT,
• 13:16
  marketing, finance, all those sorts of, you know,
• 13:18
  big buckets that that are important there.
• 13:22
  Thanks, Adam. So I I it's a lot
• 13:24
  of ground for organizations to cover, but it
• 13:26
  sounds like overall
• 13:28
  ensuring that there's a defensible strategy in place
• 13:30
  that addresses
• 13:31
  headwinds, tailwinds, shows that the organization is prepared
• 13:35
  and aware of what's ahead and the opportunities
• 13:37
  in front of them sounds like a key
• 13:39
  best practice.
• 13:41
  Well, wonderful. I know we've we've talked about
• 13:43
  a lot today in our short time together,
• 13:45
  but given everything that we have discussed from
• 13:48
  deal strategy to operational performance and investor
• 13:53
  confidence. If health care leaders could focus on
• 13:54
  just one lever to drive long term value
• 13:56
  in the next
• 13:57
  five years, what would each of you recommend
• 13:59
  and why?
• 14:01
  Sure, Erica. I can start. I'd say that
• 14:03
  having the right portfolio of assets
• 14:06
  and the right alignments of physicians to both
• 14:10
  fulfill the mission
• 14:11
  and extract as much value creation as possible
• 14:14
  and fulfill the goals of the organization
• 14:16
  is an important characteristic
• 14:18
  to follow.
• 14:19
  Sound advice. Thanks, Ross. Krishna, what would you
• 14:22
  say? If I had to point to one
• 14:24
  lever, I would say it's enterprise wide performance
• 14:27
  improvement as the foundation for long term value
• 14:29
  creation.
• 14:30
  What we consistently see is that organizations that
• 14:33
  invest in building a scalable, repeatable performance engine
• 14:37
  across service lines, site of care, and functions
• 14:40
  are the ones that can sustain margin,
• 14:42
  adapt to market shifts, and actually execute on
• 14:45
  their strategic
• 14:46
  ambitions.
• 14:47
  So when it's in place, it becomes a
• 14:49
  real multiplier
• 14:50
  across the entire organization initiatives.
• 14:54
  And, Adam, how about you?
• 14:56
  Yeah. I'd I'd definitely agree with everything Ross
• 14:58
  and Krishna have have both said there. I
• 15:00
  I think maybe I would just reiterate to
• 15:02
  Krishma's point on the, you know, scalability on
• 15:05
  the platform.
• 15:06
  There's there's gotta be kind of that disciplined
• 15:08
  performance
• 15:10
  as well. So, you know, it it's step
• 15:12
  one, of course, is building that platform, building
• 15:14
  that foundation,
• 15:16
  enterprise wide like Krishma mentioned. And then step
• 15:19
  two is really, you know, having the operating
• 15:22
  model, the governance,
• 15:23
  and, you know, the data infrastructure as well
• 15:26
  behind it to kind of track, make sure
• 15:29
  you're you are maintaining that that performance,
• 15:32
  addressing issues as they arise,
• 15:35
  and kind of, continuing to standardize, continuing to
• 15:37
  innovate where there are opportunities,
• 15:40
  to do so.
• 15:42
  Fantastic.
• 15:43
  Well, Adam, Ross, Krishna, it's been incredibly insightful
• 15:47
  having you on the podcast today. We've heard
• 15:49
  everything from the enterprise and deal strategy lens
• 15:52
  to operations and investments. So I just wanna
• 15:55
  thank you all again for making the time
• 15:57
  to be with Becker's and for sharing your
• 15:58
  expertise with our audience.
• 16:00
  Thanks so much, Erica. Appreciate it. Thank you,
• 16:03
  Erica. Thank you, Erica.
• 16:05
  Thank you. And, of course, we'd also like
• 16:07
  to thank our podcast sponsor for today, KPMG.
• 16:11
  Listeners, be sure to tune in to more
• 16:13
  podcasts from Becker's Healthcare by visiting our podcast
• 16:15
  page at beckershospitalreview.com.