This Week Health

January 21, 2022: Rob DeMichiei, Board Director, Strategic Advisor and Former CFO is back with Bill to break down J.P. Morgan 2022. Healthcare is becoming as much about the for-profits, the IPO's and the private equity investors as it is the non-profits. These worlds are really converging. Providers are realizing that they can't survive just being a fee for service, acute care hub. They need to expand their offerings and acquire assets for the whole continuum of care. Baby boomers are aging which means 10,000 new consumers of Medicare every day. Labor inflation is going to be around for a while. Bon Secours Mercy talked about diversifying. Ascension has 55 different EMRs running in 140 different hospitals. Advent spent $750 million on their Epic install. And the critical battlefield of the future? Owning and unifying your digital front door.

Key Points:

00:00:00 - Intro

00:12:50 - How are you changing your care delivery to deal with the nursing shortage?

00:16:40 - Being heavy in labor assets and infrastructure is a really bad formula for the traditional healthcare provider

00:25:00 - The stimulus dollars would have been better used on the struggling health systems because they're still struggling

Transcript
cial Outlook of Healthcare in:,:

This transcription is provided by artificial intelligence. We believe in technology but understand that even the smartest robots can sometimes get speech recognition wrong.

Bill Russell: [:livery, which are less labor [:e, Transcarent, Press Ganey, [:nvest in developing the next [:

Today we are joined by guest Rob DeMichiei, retired CFO for UPMC and Strategic Advisor to several companies within healthcare. Good morning, Rob. Welcome back to the show.

Rob DeMichiei: Morning Bill. Great to be here. Always look forward to our JP Morgan debrief every year.

[:this industry is becoming as [:

So in terms of strategy, it was interesting. What I saw from the providers Bill is in the past, we've talked a lot about insurers acquiring provider assets and kind of moving into that space and becoming payviders. And one of the macro themes that I saw really emphasized with all the nonprofit presentations was a convergence of the strategy.

[:that they can't survive just [:hey have close to gosh, like [:

And and yeah, 2.3 billion in care in that is being provided through their payer arm. You had Bon Secours Mercy also talked about really diversifying. They're, they're all talking about diversifying. Is that the drive here? Is it diversification primarily?

care and there's some really [:o that whole thing Bill, not [:nd that to have an insurance [:nsion, I would look to maybe [:he other side of their mouth [:

But completely different strategies. They're not looking to break out of the geography by acquiring more health systems. They're looking to break out of the geography by embracing digital. Embracing new products. New ways of going to market. I throw that out really, I guess, to get your comment of how you might be thinking about this thing if you were the CFO.

ound creating national scale [:ge either payer contracts or [:

So I think that's some of what maybe those large systems, those large Catholic systems are facing with their dispersed. When you hear others talking about look we're going to focus on core markets where we have basically a tipping point of scale and size and market presence. So I think that is the future Bill.

k, make a presence with your [:

So I think in the future, they probably will. And they have to some extent looked at their footprint and rationalized, but that's probably something that you're going to see more of in the future. Absolutely.

with outposts as opposed to [:DeMichiei: That's a big, big [:re entering the markets, the [:egionally, very difficult to [:

Bill Russell: Small, regional. We talked about Prisma last year. The Prisma presentation is interesting to me. I mean, I look at their geography. It's mostly rural except for Columbia, South Carolina and South Carolina health system. And really impressive results and their strategies is really impressive given their geography.

ark again this year, a great [:ot necessarily with a health [:

So I think it's a combination. They do a good job there with their slides and their presentation, but also the underlying messages is very, very strong and the right ones. So I think they're headed in the right path and the results have been improved the last few years.

strategy and then I got into [:Rob DeMichiei: [:one of the problems is yes, [:this nursing shortage? And I [:risis and your hospitals are [:

So it's really hard to be strategic and think about these things when you're in the midst of a tactical crisis. So but you heard mostly about the supply issues Bill and the reaction and the creative responses to the supply, but think longer term, this becomes a demand discussion. How do you reduce the demand for nursing or deliver care differently?

bor in from other countries. [:ericans basically from that. [:alized talent. Inflation. Is [:a solution in terms of with [:ct the cost of care to go up [:

Rob DeMichiei: Well, so the, these interesting market dynamics, right. You have inflation with labor, you have inflation with some supplies, especially ones driven by different commodities where those prices are increasing.

pricing where the market I'm [:placement, construction. And [:o has kind of franchised out [:uip you and your staff in the:e. And they're going to walk [:PM Eastern time or:

We heard at Baylor Scott and White last year talked about their asset light strategy to go into, I think it was Austin. And it was really fascinating. It was really effectively done. And they have since shored that up with some additional infrastructure around that Austin market.

t with really an asset light [:

Rob DeMichiei: You've hit on another issue is that while the traditional providers have talked about expanding horizontally into different areas away from acute, right. The front end, also the backend post-acute home. So they've talked about expanding to go where that demand is to own that full continuum of care.

t that you're growing in the [:rofits for thought leadership[:interesting statistic between:s back to our Common Spirit, [:e question is, can the other [:one. The question is who can [:

They're looking at this outpatient surgery market. Now, the CMS has kind of backtracked on this inpatient only list thing. There was just a ruling where they were going to be eliminating a bunch of procedures from the inpatient only list that was going to be a boom for the the ASC industry.

hat got walked back a bit by [:is can they execute on that [:

Bill Russell: Let's talk about the CFO portion of the presentation. So the CFO's got up there. The investment returns this year had to be astronomical I would imagine because it would indicate that all their balance sheets looked pretty strong. All the ratios look pretty strong. I would assume that's a result of the investment returns .

tion of things. Some of them [:the stimulus dollars, but in [:

The ones that have an insurance arm actually did better. The question is we think about stimulus and we were all thinking about how do we maintain care? And this is a crisis and let's get funds immediately to, to where care's being delivered. But in hindsight, those stimulus dollars probably would have been better used on the struggling systems because they're still struggling.

olios, which had significant [:

But again, it's unfortunately it's dwarfed by the capacity of the insurers and some of the large retailers as we go into another tangent. Just one statistic, CVS in their presentation, they said that about 50% of their free cash flow was going to be available for either M&A activities, dividends to shareholders or stock buybacks.

and [:rs and these retailers have. [:

Bill Russell: It sounds like you, I sat in on the nonprofit track. Sounds like you hit a lot of the for-profit track as well.

Rob DeMichiei: So the beauty of a virtual conference is everything's recorded. So my strategy with this coverage thing, as I listened live to the non-profits on Monday and Tuesday, and then in the evening I go back and I watched the virtual presentations and then.

I use Wednesday and Thursday [:tive to think about the need [:

Bill Russell: You brought this up and at JPM we're primarily, I think the smallest system we're listening to is maybe a billion. Maybe 2 billion, maybe even 3 billion at this point. So those are fairly sizeable. And if they're at JPM, they generally have a market short up that they're serving.

the smaller ones. Prisma is [:ger provider partner who can [:e. I think it was, trying to [:

so these new technologies providing for rural areas that this will become available to them. So what do you need? What do you need in your community? Certainly like an emergency department or some kind of capability. But do you now have to move to a hub model where you need to travel a bit for surgery of some type.

It's [:to face the same competition [:pic analyst in a small town. [:

Rob DeMichiei: They have the same weapon available to them, right? It's going to be at a higher price point. So there's going to be labor inflation, but you know, they can hire a person from New York city to work in a rural Pennsylvania community basically, right that they couldn't do before, when they had to get them to relocate to their town.

Bill Russell: Yeah. Other presentations have now, we've gone through the financials a little bit. We've gone through the strategies. Are there any other presentations that sort of jumped out?

Rob DeMichiei: Well, it was [:r system, but that is if you [:turn on investment for that. [:

Bill Russell: I've heard that conversation. I've had that conversation in several different levels. It's interesting to me, because they're going from Cerner to Epic. It's it's not like they're going from disparate systems and whatnot. I think they have a consolidated system already.

ncern on these things is the [:

Rob DeMichiei: Well, that's just it. If this was Denovo or Greenfield where you had no EMR understands there's initial investment, but to switch from one vendor to another.

Epic suite and I'm a fan of [:other, again, not a specific [:critical battlefield of the [:

I go back to the retail as well. Right. Anyone who's had a COVID test at CVS, but I think we probably all have you need to register with them on their platform. My CVS or whatever it's called. So everybody's creating these front doors. And the benefit to that is from a steerage and a quarterbacking standpoint.

e a real benefit in steering [:point solution, right? They [:ting kind of a virtual first [:rimary care as a way to feed [:

And they want to expand to have other offerings across the continuum. And what the insurers and the retailers are doing instead, Bill is they're saying, look, we're going to control primary care. We're investing in primary care and we're partnering in primary care and we're creating this high touch, high NPS, consumer digital experience.

r it's virtual, whether it's [:

But ultimately if you need it, I'm going to have inpatient, acute care as a point of service solution. So the war to me, the worst primary care in digital, and I think it's going to be tough for providers to win in that space.

you up on a couple of other [:th systems believe that that [:ral stimulus dollars kind of [:een these do is really they, [:any of these investments are [:

Bill Russell: That was Bon Secours.

, whether it's revenue cycle [:ng entity, a new division of [:community from a governance [:

But to me, Bill, it's not a new revenue stream in terms of recurring revenue. It's usually a monetization event that gets reinvested in the organization.

s almost every year now. And [:

Who's going to pay for this. Oh, the consumer. No, they're not. Who's going to pay for it. I don't know. I and you just sort of look at that and there's, there's a lot of those out there that I think when the tide rolls back and if you have as much gray hair as you and I do, you know that the tide comes in, tide goes back.

hat idea of having oversight [:

Rob DeMichiei: So this cycle, right? We, never learn, right. The markets never learn. So we had irrational exuberance for several years and you're already seeing things start to pull back.

that was a theme. We've been [:st restaurant closed and buy [:

There's great technology out there. The ideas are great ideas. They are game changers. They will become part of the future. I think it's just evaluation and pricing issue, and there's still a ton of money looking for return. So I don't know that the and healthcare is still a very, very lucrative space for them to play in.

lked before about those with [:

So M and A will continue. This will be a consolidation space. They'll still be new entrants but I think you're going to see much more consolidation Bill in the, certainly this year and the years to come.

days cash [:

Rob DeMichiei: A lot of dry powder and great. The rating agencies love it. And every year Burke puts a slide out where he shows their ratings and and they're proud of them. And rightfully so, that's a well-run system. And they've got this figured out in terms of delivering care.

o much and what is the right [:tioned of all these systems, [:'t understand why it doesn't [:how that goes for, I imagine [:dard or previous levels, but [:could keep this conversation [:

Rob DeMichiei: Always a great conversation and always enjoy the time Bill. So thanks.

veryone on my team listening [:

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