Top hospital leaders have little choice but to strategize for a changing landscape.
When it comes to hospital CEOs’ top concerns, workforce remains king.
The challenges with keeping the backbone of organizations strong continue to pile up, forcing leaders to reconsider how to appeal to the wants and needs of their nurses and physicians.
Reimagining workforce solutions was the topic of conversation on the first day of the HealthLeaders CEO Exchange, where dozens of hospital decision-makers gathered in Kohler, Wisconsin, to hear and learn from their peers.
Improving the experience
Recruiting and retaining talent is far from easy in an uber-competitive environment, but it’s not reductive to say that it comes down to understanding what workers are seeking from their experience.
That preferred experience is also changing over time as newer generations put greater value on work-life balance, often putting it ahead of compensation. Whether it’s physicians or nurses, CEOs must consider how to give more time back to their staff so they can use it outside of the workplace, potentially reducing burnout and turnover.
Leaders should also be aware of how they’re training and developing their managers to oversee the workforce. Placing an emphasis on relationships enables more connection for staff amongst themselves and with management, cultivating a culture that workers want to be part of.
A happier, more fulfilled physician or nurse is less likely to walk out the door, which ultimately saves on the bottom line.
Pictured: Top hospital leaders are currently meeting at the CEO Exchange to talk workforce and more.
Leaning on tech
Reducing the workload on staff is easier said than done, but this is where investments in technology can pay off in a big way.
Generative AI has proven to cut down on the time physicians put towards completing administrative tasks, such as documentation or responding to patient emails.
Many of the CEOs in attendance also reported either already implementing virtual nursing or having plans to roll it out, illustrating that leaders have had to pursue innovative solutions in a post-COVID world.
As hospitals continue to learn the best ways to utilize technology on the patient side, there’s plenty of low-hanging fruit in terms of its benefits within the workforce. Considering the impacts on recruitment and retention efforts, those benefits are no longer luxuries but rather must-haves.
Stay tuned for more coverage of the Exchange as the CEOs continue to drill down on solutions and strategies in the remainder of the event.
Are you a CEO or executive leader interested in attending an upcoming event? To inquire about attending the HealthLeaders Exchange event, email us at exchange@healthleadersmedia.com.
The HealthLeaders Exchange is an executive community for sharing ideas, solutions, and insights. Please join the community at our LinkedIn page.
Amy Perry shares with HealthLeaders her plan to guide the health system into the future.
As Banner Health enters a new era under new leadership, incoming CEO Amy Perry is shifting the focus onto technology to drive the health system forward.
The Phoenix-based nonprofit operator is saying goodbye to longtime CEO Peter Fine, who is retiring after 24 years at the helm, and welcoming current president Perry into the role beginning June 30.
The changing of the guard represents Banner charting its course for the foreseeable future, with an emphasis on modern, innovative solutions that have become almost a necessity for health systems in a post-COVID world.
“When Peter came to Banner, he established a 20-year strategic plan and that got us all the way up to the precipice of COVID and then we've been calling the last three-ish years ‘survive it’ because it's been such a difficult time,” Perry told HealthLeaders. “But now coming out of that and seeing the momentum that Banner has is really the start of our new 10-year plan, 10-year vision for the future.”
At the heart of that vision is investment in technology to make care easier to access for patients and easier to deliver for physician and nurses. Perry highlighted that last fall, Banner put together a “very aggressive” five-year plan to make a billion-dollar commitment to technology to build its automation and data for accelerating usage of AI and large language models. Further investment will also go towards the digital consumer experience.
“That technology changing our reimbursement, even leaning further into our payvider status, being able to ensure more members, and just serve our community in a new and innovative way is really where we're going in the future,” Perry said.
Specifically, Banner is prioritizing data. The soon-to-be CEO noted that before you can use data in different ways, it must be curated in a manner that can be utilized in the most streamlined and accurate fashion. Without clean, highly reliable data, you’re susceptible to human error in its collection and management.
“That is the fundamental, important stuff of putting together any technology plan,” Perry said. “It allows us to create more customization in our digital consumer experience. It allows us to do more predictive analytics.”
Ultimately though, Banner wants to use technology to make delivering care easier, which is why it is rolling out an AI tool to all 33 of its hospitals that is designed to make clinicians’ lives easier.
The technology, developed by Regard, will summarize clinical notes, allowing doctors to spend more time with their patients and less time completing administrative tasks.
“They don't have to go home and continue their work, which is what physicians call ‘pajama time’. We have to cut that out because we need to make providing healthcare just a better experience or we're going to continue having a pipeline shortage,” Perry said.
Banner recognizes the importance of using technology to supplement the workforce and drive labor costs down. In 2023, the system experienced an 8% increase in expenses, including salaries, benefits, and contract labor rising 6% year-over-year to $6 billion.
“It's critical that we change our processes and we add the technology that can facilitate a different kind of work stream,” Perry said. “We talk a lot at Banner about the fact that we just can't ask people to do more with the same number of people without changing the process. It's absolutely impossible. It's not sustainable. So the only sustainable change is to look at each one of our work streams and say how do we blow this up? How do we start over? How do we do it differently?”
These are questions health systems across the country are asking themselves, but the ones attempting to answer them won’t be caught flat-footed during healthcare’s digital transformation.
A strong start is expected to give way to more modest returns the rest of the year.
Kaiser Permanente started the year on a positive note by riding “favorable financial market conditions” to a healthy bottom line in the first quarter.
However, the nonprofit health system cautioned that historically, the first quarter is buoyed by the open enrollment cycle while the operating margin in the remaining quarters is usually deflated by steady revenue and incurred expenses.
For the first three months of the year, Kaiser reported a $7.4 billion net gain, $935 million of operating income, and a 3.4% operating margin. All those figures easily surpassed Kaiser’s performance over the same period in 2023, when it reported $1.2 billion in net income, $233 million in operating income, and a 0.9% operating margin.
Here are three takeaways from Kaiser’s first quarter financial activity:
Lifted by Geisinger deal
Kaiser’s $7.4 billion in net income was largely the result of its subsidiary, Risant Health, completing its deal for Geisinger Health.
The acquisition is part of Risant’s vision to form a value-based network, with four to five other systems expected to be added in the next five years.
By bringing in Geisinger, Kaiser received a one-time net asset gain of $4.6 billion. Excluding the deal, Kaiser’s net income for the first quarter was $2.7 billion.
The transaction considerably strengthened the system’s bottom line in the quarter, but will require investment going forward, with Kaiser having designated up to $5 billion to support Risant.
Rising expenses
Though Kaiser’s operating income of $935 million marked an increase of more than 300% over the first quarter in 2023, the system noted that it was still “below historical first-quarter trends leading up to the pandemic.”
The reason? Cost pressures stemming from high utilization, care acuity, and higher prices for goods and services. That led to Kaiser reporting operating expenses of $26.5 billion, representing a nearly 6% increase from the same period last year.
With labor costs weighing heavily on hospital operators, many are turning to trimming the workforce. Kaiser has now laid off around 350 workers in mostly IT and administrative roles since last fall, with 76 more reductions coming by June 21, according to regulatory documents.
Shifting out of private equity
Amidst all the chatter about private equity’s impact on healthcare, Kaiser is planning to sell up to $3.5 billion of its private investment holdings, according to The Wall Street Journal.
The report, which cites unnamed sources familiar with the situation, stated that the move is due to cash constraints as the system works with investment bank Jefferies Financial Group to liquidate assets. Kaiser is also expected to sell off similar sized holdings later this year.
The system and its subsidiaries held almost $100 billion of investments at the end of 2022, most of which were made through its pension system, the report said. Illiquid alternative assets, including private equity and real estate assets, made up nearly 57% of Kaiser’s investments at the time.
The sales point to Kaiser moving away from private equity and into other investment areas.
From keeping the workforce strong to maintaining a healthy bottom line, there's plenty to consider for the topmost execs.
Many of the same challenges hospital CEOs have reckoned with for years remain at the forefront in 2024. Through the ebbs and flows, the biggest question for leaders continues to be, ‘How do we solve for those challenges better?’
Here are three pain points that CEOs will be diving into at next week’s HealthLeaders CEO Exchange, where the hospital decision-makers will convene to share strategies and ideas to improve best practices:
Fiscal sensibility
Unforgiving financial headwinds have further put an emphasis on efficiency and optimization, forcing CEOs to evolve their approach to both survive and grow.
So how are execs holding other leaders accountable for financial stewardship and achieving efficiencies in portfolio management? CEOs now need to think outside of the box, so what new areas are you looking at to save money?
Pictured: Attendees discuss operational pain points during the 2023 CEO Exchange.
Technology
Maybe no area of focus for CEOs has changed more in recent years than technology, which continues to outpace healthcare’s adoption of it.
Can execs be ahead of the curve? If not, can they at least not fall behind the curve completely to the point where new technology is passing them by?
Innovation should be at heart of any CEO’s long-term vision right now, but it requires a commitment to investing resources and a willingness to potentially fail and learn from those failures.
Technology is unlikely to ever replace the workforce completely in healthcare, so how can you make it work in concert with staff in a supplementary way that gets the most out of everyone?
Physician workforce
Speaking of the workforce, recruiting, retaining, and promoting physicians specifically is a major talking point at the moment.
A hospital can’t thrive without its talented physicians, but creating an environment where they want to practice in is becoming more challenging, as unions and strikes across the country are demonstrating.
Attracting physicians and having strategies in place to avoid them feeling burned out or devalued is only part of the equation, however. As a CEO, how are you also training them to be effective leaders so they can be part of the decision-making process alongside you?
These questions and more will be asked next week at the CEO Exchange. Follow HealthLeaders for more coverage of the event.
Are you a CEO or executive leader interested in attending an upcoming event? To inquire about attending the HealthLeaders Exchange event, email us at exchange@healthleadersmedia.com.
The HealthLeaders Exchange is an executive community for sharing ideas, solutions, and insights. Please join the community at our LinkedIn page.
Dealmaking in the first quarter was down, "even from 2023's sluggish pace," analysts revealed.
Private equity’s impact on healthcare has been in the headlines of late, but actual investment activity by firms continues to slow down, according to a new report.
Research by market data firm PitchBook found that a tough regulatory climate, price differences between buyers and sellers, and signs that the Federal Reserve will hold rates higher or longer has depressed private equity dealmaking.
In the first quarter of the year, 158 estimated deals were announced or closed by private equity sponsors, which marked a decrease from 2023’s rate and a 20% decline from the 200 deal count over the same period last year.
While private equity investment has been trailing off since the end of 2021, PitchBook notes that it expects activity to ramp back up in 2025 and that more deals will be announced toward the end of this year.
Though more firms are actively looking to invest and financing is easier than it was in 2023, certain factors are driving down numbers at the moment.
Chief among those causes is regulatory concern, which was heightened as a result of the Change Healthcare cybersecurity attack. The breach, which occurred in February, “caused temporary delays in active deal processes as target companies scrambled to reconfigure their billing processes and buyers looked for assurance that revenue would normalize at previous levels,” the report stated. Additionally, the event created heightened awareness for buyers over cybersecurity compliance and HIPAA compliance risk.
PitchBook also highlighted that while antitrust enforcement remains low, the increase in chatter about private equity trends in the news cycle is resulting in a cooler market. For example, the struggles of Steward Health Care have been well documented and brought more attention from lawmakers to private equity’s role in healthcare.
“Even if the public spotlight drifts elsewhere post-election, we fear a lasting effect on perceptions of PE’s interests and approaches among potential sellers and partners in the provider landscape, including physician groups and health systems,” the report said.
From a state perspective, California now has a deal review process that gone into effect, which could lead to extended deal timelines, extra review costs, and the publicizing of information on the parties involved. Other states have followed California’s lead, such as Connecticut, Illinois, Indiana, Massachusetts, Minnesota, Nevada, New York, Oregon, and Washington.
Finally, the report shed light on the ramifications of the Federal Trade Commission’s vote to ban noncompetes in April.
“If implemented, a noncompete ban would theoretically advantage health systems over PE-backed physician groups in physician and clinical staff retention, and could also result in further wage inflation in the industry,” the report said.
Despite private equity investment in healthcare trending downward, a recent report by the Private Equity Stakeholder Project found that more bankruptcies in the industry are coming from private equity-backed companies.
Even more bankruptcies and defaults are expected this year due to many organizations suffering from significant debt and downgraded credit ratings.
The struggling hospital operator is searching for financial solvency while keeping its facilities open.
Steward Health Care announced this week that it has filed for Chapter 11 bankruptcy and put all 31 of its U.S. hospitals up for sale as it attempts to dig its way out of financial ruin.
The Dallas-based health system, which is the largest physician-owned hospital operator in the country, has suffered a precipitous fall after accruing significant debt stemming from missed rent and vendor payments, which lawmakers have laid at the feet of its previous private equity ownership, Cerberus Capital Management. Steward marks the latest example of private equity-backed companies in healthcare going awry due to mismanagement and overleveraging.
In announcing its bankruptcy filing—a move regulators anticipated—Steward said it is finalizing debtor-in-possession financing from Medical Properties Trust for initial funding of $75 million and up to an additional $225 million upon the satisfaction of certain conditions.
“Steward Health Care has done everything in its power to operate successfully in a highly challenging health care environment. Filing for Chapter 11 restructuring is in the best interests of our patients, physicians, employees, and communities at this time,” Ralph de la Torre, CEO of Steward, said in the news release. “In the past several months we have secured bridge financing and progressed the sale of our Stewardship Health business in order to help stabilize operations at all of our hospitals. With the delay in closing of the Stewardship Health transaction, Steward was forced to seek alternative methods of bridging its operations.”
One day after declaring bankruptcy, the operator stated that it has put all of its hospitals across eight states up for sale.
During a court hearing in Houston, Steward attorney Ray Schrock told U.S. Bankruptcy Judge Chris Lopez that the health system wants to keep all of its hospitals open as it works to complete transactions by the end of the summer.
Steward has over $9 billion in total liabilities, including $1.2 billion in loans, $6.6 billion in long-term rent obligations, almost $1 billion in unpaid vendor bills and $290 million in unpaid wages and benefits, according to court documents. Schrock said that the operator had $6 billion in annual revenue before filing for bankruptcy.
Spotlight on private equity
Not every private equity-backed organization in healthcare has gone down the path of Steward, but the operator’s unraveling has further put private equity’s impact on the industry under the microscope.
With much of the growth in private equity happening at the level of physician employment and consolidation though, Steward’s bankruptcy is a bit of an outlier in regards to health systems, Pam Stoyanoff, president and chief operating officer at Texas-based Methodist Health System, told HealthLeaders.
“Considering private equity in general, healthcare is complicated, local, capital and labor intensive, and relational. The wheels can turn slowly,” she said. “The requirement for higher and more rapid investor financial returns that are emphasized by private equity firms can be underestimated and consequently detrimental. To some extent, I believe that’s what we are seeing with Steward.”
Bankruptcies by private equity companies in healthcare, however, are on the rise, according to a report from the Private Equity Stakeholder Project.
This past year saw 17 such bankruptcy cases, which accounted for 21% of all healthcare bankruptcies. In comparison, the previous three years combined for 13 bankruptcies.
Lawmakers have taken notice and the result could be legislation designed to create more ownership transparency.
This past year saw 17 private equity-owned companies in healthcare filing for bankruptcy.
The numbers are clear—more and more bankruptcies happening in healthcare are related to private equity.
According to research by the Private Equity Stakeholder Project, 17 of the estimated 80 healthcare bankruptcies in 2023 involved companies backed by private equity firms.
That figure is more than twice the number of cases in 2019, illustrating the growth of private equity’s presence in recent years, as well as the shift towards more negative outcomes.
The fate of three Connecticut hospitals remains up in the air.
Yale New Haven Health is suing Prospect Medical Holdings to exit its acquisition of three Connecticut hospitals, alleging that a breach of contract has changed aspects of the deal.
If the transaction passes, trio of hospitals—Manchester Memorial, Rockville General, and Waterbury—would return to nonprofit status and gain financial stability. However, Yale is arguing that Prospect has failed to hold up its end of a purchasing agreement signed in October 2022 that was contingent on certain commitments.
Those requirements included protecting patient and employee personal data, remaining current on all payment obligations, and meeting all state and federal regulations.
Instead, Prospect allegedly hasn’t paid physicians and vendors, struggled with cybersecurity, neglected the upkeep of facilities, and more.
“Prospect and the Selling Entities have subjected the Businesses to a pattern of irresponsible financial practices, severe neglect and general mismanagement,” the complaint said.
After initially agreeing to a sale for $435 million, the two sides had been working on a revised figure following Prospect’s breaches.
“Prospect has refused to negotiate in good faith,” Dana Marnane, a Yale spokesperson, told the CT Mirror in a statement. “Yale New Haven Health has remained committed to the success of the transaction, cooperating with the Office of Health Strategy and engaging in good faith discussions to attempt to reach an agreement with Prospect. Despite numerous notifications by Yale New Haven Health that Prospect has failed to uphold the [contractual] obligations and closing conditions, Prospect has refused to acknowledge and address these breaches.”
In response, Prospect claims that it offered Yale a “good-faith price reduction” after the purchasing the party couldn’t secure a $80 million grant from the state. Prospect also stated that its hospitals’ patient volumes and finances have greatly improved.
"This lawsuit is a blatant, 11th hour attempt by Yale Health to back out of the commitment they made more than two years ago to the communities served by Prospect's Eastern Connecticut Health Network facilities and Waterbury Hospital," Prospect’s statement said. "Prospect believes Yale is in breach of the asset purchase agreement that was signed by both parties more than two years ago, and we will be seeking legal remedies, including completion of the transaction, to ensure Yale keeps its word to our communities."
Reducing labor expenses remains a point of emphasis for hospital leaders.
UPMC is laying off around 1,000 employees, or approximately 1% of its workforce, as the Pittsburgh-based health system aims to slash expenses and improve its bottom line.
As rising labor costs continue to plague hospitals, many operators are downsizing staff, particularly on the non-clinical side.
That’s where UPMC’s layoffs will be focused with the nonprofit mostly cutting non-clinical and administrative staff, UPMC chief communications officer Paul Wood said in a statement. The reductions also entail closing unfilled positions through attrition and eliminating redundancies.
“The entire health care industry continues to face the realities of a still evolving, post-pandemic marketplace,” Wood said.
The 40-hospital system experienced an increase in labor costs by 6.4% to $9.7 billion in 2023, contributing to a $198 million operation loss. It was a significant downturn from the $162.1 million in operating gain UPMC reported for 2022.
One of the primary strategies hospital decision-makers are utilizing to bolster finances is attacking labor expenses. A recent report from the Healthcare Financial Management Association and Eliciting Insights found that of 135 surveyed health system CFOs, 96% said lowering expenses associated with the workforce remains a priority.
However, those costs are still heading in the wrong direction. Kaufman Hall’s latest Physician Flash Report revealed that staffing accounted for 84% of expenses in the first quarter of the year.
The unfortunate reality for hospitals right now is that finding the balance between reducing staff to an efficient level while avoiding workforce turnover is a constant challenge.
When considering layoffs, CEOs must weigh the value of specific roles and understand the impact to the organization of eliminating certain position altogether.
'Lack of profitability' is causing the company to retreat from the healthcare space.
Walmart's plans to disrupt healthcare ended abruptly this week as the company announced the shuttering of its health clinics and virtual care business, representing a significant step back for retailers.
Executives of the retail giant said that their healthcare offerings were "not a sustainable business model for us to continue" as they ran into challenges with reimbursement and profitability—problems that aren't unique to Walmart as retailers struggle to scale up.
While the company's decision to close all 51 of its health centers across five states and end its virtual care services is somewhat unexpected and a U-turn from its plans for expansion, there were signs of the retailer running into roadblocks. This past month, Walmart announced that it was delaying the opening of six health centers in Phoenix and four locations in Oklahoma City to next year.
The health centers strived to give patients a lower-cost option to primary care, dental, behavioral health, labs, x-ray, community health, and telehealth.
Retailers are finding immense headwinds in the primary care space and those challenges have only picked up in recent years, according to Arielle Trzcinski, principal analyst at market research firm Forrester.
“Primary care is often a loss leader for larger health systems but serves a critical role as a feeder of patients and customers for specialty care and procedures,” she said. “Without those higher revenue opportunities, retailers must achieve high levels of adoption and volume to unlock profitability.”
Walgreens has also found tough sledding in primary care, choosing to close 160 VillageMD clinics after investing billions. The result has been $6 billion in net loss for the company in the second quarter.
The same pain points that are weighing heavily on hospitals and other traditional providers are also affecting retailers.
“Labor costs have risen and providers have been leaving the industry in droves, resulting in a capacity calculus that restricts retailers' ability to deliver convenient, highly accessible care—their key value proposition for consumers,” Trzcinski said. “Administrative burden and costs from health insurers have also increased, with some large health systems dropping major insurers and plans in response. Consumers are being left to search for a new provider that is in-network mid-plan year. Retailers that bill insurance are not insulated from these additional issues.”
Other retailers, however, are persisting in their efforts to disrupt primary care.
Amazon purchased One Medical for $3.9 billion last year and remains committed to expanding the venture, while CVS scooped up Oak Street Health for $10.6 billion in 2023 and plans to open up 50 to 60 clinics this year.
Walmart and Walgreens’ shortcomings will serve as both a warning and lesson for other retailers in the space, showing that the strategy for scaling requires a more nuanced approach.
Walmart especially can serve as a test case for why size isn’t everything when it comes to scaling in healthcare. As the largest company by revenue in the country, Walmart has no shortage of resources to throw at the problem, but for whatever reason failed to build out its footprint and connect with potential patients.
The need for virtual care remains though and retailers wanting to fill the void have an opportunity to serve patients in rural areas.
“As medical deserts continue to expand, other retailers operating in healthcare should take action now to reassure patients of their long-term strategy to protect customer retention,” Trzcinski said.
Pictured: Top hospital leaders are currently meeting at the CEO Exchange to talk workforce and more.
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