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 Today in Health IT, we're discussing HHS warns of new and unique risks of private equity in healthcare. My name is Kate Gamble. I'm Managing Editor at This Week Health, where we host a set of channels and events dedicated to transforming healthcare One connection at a time.

Today's episode is brought to you by Chrome OS. Imagine a healthcare system where technology works seamlessly in the background, keeping your data secure, your teams connected, and your patients at the center of care. Visit ThisWeekHealth. com slash Google Chrome OS to learn more. Today we're talking about HHS's warning of the new and unique risks of private equity in healthcare.

And I'm joined by Sarah Richardson, President of This Week Health 229 Executive Development Community. Sarah, thank you for being here.

Hi, Kate.

So let's dive in. The Department of Health and Human Services has issued a warning regarding the risks posed by private equity ownership in healthcare.

The report highlights how profit driven strategies can potentially lead to compromised patient care, reduced staffing levels, and financial instability in critical services. This comes amidst growing concerns about the increasing influence of private equity in the sector. including the impact on patient care, financial risks, reduced transparency, staffing challenges, and regulatory scrutiny.

So a lot there, and I know that this is such huge important issue, so want to get your thoughts on this report and what this means for CIOs.

So what I find fascinating is how many CIOs are now in the universe of being owned by or influenced by private equity. I was part of a transaction where we were publicly traded, we went private equity owned us.

And I've also been in scenarios where that has happened, and we've even gone through the exit component of some of those perspectives or the re IPO that could be available. When you're the CIO, and this is happening in the organization, the technology investment decisions. will change. They will want immediate ROI and potentially sidelining some of the longer term IT projects that are critical for patient care and operational efficiency.

What's really important to be able to lean into is explaining what the ROI is on some of these longer term projects, because they may have quality regulatory security components attached to them. So it doesn't mean that your portfolio is going to get thrown out. It means you're going to need to share the story of some of the why's in your portfolio.

differently and honestly put the financial lens on first. CIOs today have to put the financial, operational, compliance, security, like so many hats that are a part of it. Not that we didn't always have to do that, but now you have a different stakeholder. It's like writing a paper in college. One teacher is going to give you an A and the next person is going to give you a C on the same type of content.

You have to learn what that specific person is looking for. So your data transparency elements. The data transparency and compliance with health care regulations under private equity ownership may change for you as well. And you may hear, Oh, we don't have to report on SOX anymore. And I'm like, here's my, here's.

My recommendation to you, keep doing it. Keep doing all the things that you had to do when you were publicly traded, or you had reporting elements that were required. Because if you sell again, or if you guess what? You're going to have to do those things again. Keep some of those protocols in place and just be honest about what it takes to maintain that level of compliance because it'll come up in due diligence if you go down the other side of the path again anyway.

Staffing cuts can, and likely will, increase The strain on IT teams. It's going to make it harder to support some of these critical, it's going to make it harder to support some of these critical technology systems, because you may have to do it with a leaner team. That's where you've got conversations about insourcing, about outsourcing, about automation, about different efficiencies that don't just affect IT.

So if you're a CIO, and you've said, hey, I have found a solution that can help the pharmacy. As an example, the pharmacy does not want it, and yet it's actually the right thing to do for the health system. That's where you're creating those nuanced relationships around not only having a trust base with people in the organization, but also the operational and organizational change management elements of what it means to influence some of the things we've always known we needed to do.

But maybe we didn't want to for myriad reasons. That high debt model that's associated with private equity can result in frequent organizational changes, which are also going to impact IT strategies and continuity. I've been in scenarios where we've cycled through two CEOs in 18 months because of the Expectations or the cultural and strategic alignment that perhaps the CEO wanted that the private equity firm did or did not.

And if there's a massive amount of change, it's going to continue to be happening. Sometimes, Kate, when the PE firm comes in and you're super excited about the fact that, hey, we're actually going to be more financially stable. The answer may be yes, and you have a totally different set of financial expectations, obligations, and even implications to maintain.

So if this is part of your universe, make sure you educate yourself on all aspects of what IoT is. The PE firm is looking to achieve. How long are they holding you in their portfolio? How often do they exit? When they exit, do they IPO or do they sell or do they combine? So many factors to be aware of. Use it as a time of learning and growth while you still are looking to manage your organization effectively.

Wow, that was a really valuable perspective. And I cannot imagine what it's like to go through this. But as we know, the reality is that a lot of organizations and a lot of leaders are, and if not they are, if not now, then they will. Given what you described, It's so important to strike that balance between private equities, financial goals, and ethical patient care priorities, and that's got to mean creating strategies to ensure that private equity firms, healthcare leaders, and clinicians work to align financial goals with patient centered care defining metrics for success beyond financial performance such as quality of care, patient satisfaction, and community aspect.

Those things cannot get lost. Those, they're extremely important. And of course, having ethical frameworks that prioritize care quality over cost cutting, and showing examples of private equity backed organizations that have successfully balanced financial goals with ethical care delivery.

Yes, and I do believe it's important to touch on the fact that if a PE firm is running your healthcare organization or advise you, it doesn't mean that they're going to ask you not to be ethical.

It may mean, though, that they ask you to increase your level of coding or review certain aspects of care that's being provided. Understand the intent behind which they're asking for certain deliverables and also what that means to either the change in workflow or operations for your organization.

And this is where technology can And the oversight of technology is such a huge component. Think about data analytics. This can provide insights into care quality, financial performance, patient outcomes. It ensures that private equity investments are driving the improvements that have been identified.

It also, and you and I talk about data governance and data lineage and quality and all the aspects of how hard it is to really have a data driven organization. Remember we covered make everybody good at data. This is actually a plug for why that's so important and how they can lean in to that area for you.

But when you highlight the role of the EHR, the dashboards, the reporting systems, maintaining transparency across operations and ensuring compliance with regulations is met. Your PE firm may not understand some of the intricacies of some of these regulatory and compliance and security measures. And so when you give them a full view of it and why it's important, it's this exchange of ideas and information.

Because if the PE firm is seasoned in healthcare, they may already know some of these things. If they aren't, then they too are learning how to do it better all of the time. And if you CIO can advocate For the inclusion of technology initiatives that align with the operational, financial, and care standards, even when the budgets are tight, that's where technology is the enabler.

And, I'm a fan of third party audits. I was even a fan of internal audits when I was in bigger organizations. The value of independent IT and compliance audits to ensure that the PE backed organizations are adhering to the standards is a checkbox. And one more measure of a way to ensure that the organization feels like they've made the right decision, and that they're aligned in not only the leadership of the team, but the leadership of the private equity form as well.

Sorry, my phone rang right in the middle of that. So I'm going to say that one more time. They can make sure that the alignment of the goals of the executive team are aligned with the goals of the PE firm, because you'll often have an independent board that's a part of running the organization. End of the day, the executive team that's in place is the one running the facility.

The PE firm has essentially become the board and is the one influencing how some of the decisions are made, but they may have a different level of involvement. than a standard board because of their financial investment in the organization as well.

Yeah, so I'm going to reiterate that really is a valuable perspective.

And for people who haven't gone through it, I think it's such a great idea to reach out to those who have and, try to get some of these insights that things that you might not see coming. And when we talk about this, we have to talk about the future of healthcare financing and how that can change.

You have innovative funding models. You have Alternative financing models like non profit partnerships, public private collaborations, or community based investments that prioritize long term health care sustainability and the need to really get into those discussions. And then there's also the rise of impact investing in health care, where we're, Financial returns are balanced with measurable social and health outcomes.

And then you need to look at innovative care delivery models that can attract investors, focus on efficiency and accessibility without compromising care quality. And just as we said before about reaching out to others, Also maybe look into other industries and how they've managed private equity investments while maintaining their core values and how those lessons can apply across healthcare.

Absolutely. And you are a partner with this PE firm. Your responsibility in IT is, we always love to say from Drex, is be and stay a little bit paranoid. When I've worked with private equity firms, I tell them, be proactive about your risk assessments. Understand how important it is to conduct regular assessments to identify vulnerabilities that may be introduced by high debt or cost cutting strategies.

So we'd say, if we do this, are we willing to accept this level of risk? Or here are some of our gaps. How important is it for us to be High trust certified or to have different types of reporting mechanisms for our payers or our patients as an example. The business continuity and disaster recovery planning should not be one of the things that is allowed to wane in terms of importance and the conversations at hand.

Those plans ensure operational stability during financial or organizational upheavals. And if you don't pay attention to them and you aren't keeping things like that in mind. BCDR, and your tech debt in check or known. It could be a huge reason why it takes longer to get to the desired outcomes of the PE firm.

And these staff retention strategies, when you have to retain IT and clinical staff amid. Private equity driven cost cutting is an example. Employee engagement and upskilling programs are often part of the conversation. I have had the experience of having to significantly reduce a team's size, not just because of PE.

The PE component fell into The time we were also modernizing the environment. So they came together at the same time. I understood those intricacies. The impact to the team in terms of engagement was pretty severe because most people aren't thinking about how PE is influencing decisions being made because they're still seeing the decisions being made by the executive team, even if the executive team is being influenced by the expectations of the PE firm.

And the whole regulatory advocacy component, you've got to be able to engage with regulators to ensure private equity backed organizations are complying with laws that protect patient care and operational integrity. All of these things are often, again, awareness factors in conversations and you say, what level of risk or what level of compliance or what level of maturity, do we want to be in any of these models, knowing that we're certainly not going to do anything that is illegal or unethical to be able to meet the desired objectives.

Here's the thing though, in the end, if you get bought by a PE firm, or you go to work for a PE firm, and it's too significantly different than how you're used to doing business, be aware of that aspect. And what it would look like or mean to move on to a different opportunity in health care. I do encourage everybody though to understand what it means to have PE influence or ownership within your organization.

Yeah, absolutely. There's, I feel like there's More and more we can get into with this. It's such a huge topic and it's a lot to absorb, but given the amount of M& A we're seeing, it's so important to understand what's happening and for CXOs to know how they can help guide their teams through it. So thank you for that.

Yeah. And it can be one of the best experiences you've ever had. My goodness, we had some of our PE groups or influencers in my universe at different times. Absolute geniuses at how to like, operationally make something super efficient and the quality improved. So the expectation that it gets worse or that it's going to be harder.

No, there's, there's some of these PE firms that when you're working with these teams, wow, the ideas that they're bringing in. And when you can mesh pretty much the status quo of healthcare, let's be honest, things don't change in healthcare very often with the ideation that comes with PE. That's where innovation, which may have been struggling in your organization, Gets a toehold and gets some of the work to be done.

So I've got to cut costs over here and do this, and this, but oh my gosh, now I get to innovate in some of the things that I wasn't able to do before. So there's always going to be a mixed bag of what the outcome is going to be. So look at it from the expectation of how it can be good, but be aware of how it may not be what you were expecting or what you were seeking as an example.

a great final thought. Keep an open mind and I think that's a good, that's a good thought for a lot of things, but yeah, keep an open mind. So don't forget, share this podcast with a friend or colleague. Use it as a foundation for daily or weekly discussions on the topics that are relevant to you and the industry.

They can subscribe wherever you listen to podcasts. Sarah, thank you for joining and thank you to everyone for listening. That's a wrap.