Prior to the pandemic, hospitals were marching toward solutions that paid homage to the heads-and-beds model, with its tight margins. They were investing in specialists to bring elective surgeries in-house. They were becoming more efficient on the discharge side by moving care beyond their four walls with skilled nursing and transitioning to home health.
Then came Covid-19.
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Pooja Goel Pooja Goel is Managing Director at Virgo Investment Group where she oversees healthcare. She is responsible for creating portfolio investment strategies and seeks out new opportunities for partnership.
Suddenly, hospitals were awash with acute care patients staying for weeks at a time. They were forced to shut down elective surgeries to preserve resources, with patients often afraid to enter their buildings anyway. Those tight margins contracted further still.
Now, as the pandemic begins to recede, executives are at a crossroads. After bearing the brunt of Covid-19, they must decide how to rebuild, get more lucrative business flowing again, and take advantage of all that’s changed.
The good news is that a window of opportunity has opened. If someone wants to capitalize on the moment, the floor is theirs.
Major pivots at hand
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
In all but the smaller markets, bringing elective surgeries in-house may no longer make sense. As in-patient codes move off-site, and payers push for lower costs, ambulatory surgery centers (ASCs) have grabbed an increasing share of the elective business. That’s likely to continue. With lower overhead and fixed costs, their cost advantage can be as high as 50 percent.
In response, we’re already seeing a massive consolidation among ASCs, with hospitals purchasing outside centers to regain market share and use as feeder systems. In December, for example, Tenet HealthCare, a 65-hospital system centered in Dallas, said it would acquire up to 45 ASCs from SurgCenter Development. A month later, it announced plans to buy up to 40 more.
There’s also been a renewed march toward value-based care, where the commitment of both government and payers has never been higher. This is especially true in the management of chronic diseases, which can easily mutate into larger problems if left unchecked.
Some systems are moving dialysis in-house, motivated by the incentives of the Comprehensive Kidney Care Contracting (CKCC) program. Others are taking the flip side, contracting with companies like Strive Health. Strive uses artificial intelligence to predict kidney disease progression, offer advanced care planning, and encourage the use of home dialysis. The ultimate goal: To prevent hospital admissions while simultaneously cutting costs by up to 30 percent.
Perhaps the greatest lesson from the pandemic was how successful the transition to home care could be. During the height of the crisis systems met the urgent need to free up beds with innovations such as hospital-at-home models for non-Covid-19 patients. Now, the key is to retain that sense of invention, applying it to the mission of efficiency from pre-pandemic days, especially in regard to length of stays.
We’re already seeing greater investment in wound care. Hospitals are becoming more focused on reducing poor outcomes and more quickly transitioning patients back home — with no loss in quality of care. As Covid-19 taught us, this outlook can be applied to a host of afflictions. It’s simply a matter of taking stock of how your system is performing, deciding where it can be improved, and applying the same sense of urgency and innovation that carried you through the pandemic.
The capital quandary
As a former hospital executive, I know all this is easier said than done. Hospitals are a unique species. Their importance to a community makes for an expansive roster of stakeholders; consensus is slow to build. And when you’re dealing with a very sick population, a fear of disruption is naturally baked into the process.
There’s also the very real matter of limited capital. Any move will cost you, and surgery centers don’t come cheap. For most hospitals, there’s not a lot of room to play.
Yet it would be a mistake to simply look at the list price without scrutinizing the opportunity costs behind it. Buying an ASC is cheaper than building multiple OR rooms onsite, especially with the reimbursement changes we’re seeing. And partnerships with companies like Strive require less capital, bringing shared savings you can take back from the vendor.
These decisions come with some immediacy. Preparations for a post-Covid world are unleashing a flurry of activity. The window of opportunity is expected to shut over the next 12-18 months. If a hospital hopes to take advantage, the time is near.
It may not be a comfortable position for executives to find themselves in. In the past, hospitals had the luxury of having deals brought to them, rather than the other way around. The need to be proactive wasn’t as pressing. For many, this will be uncharted territory.
For those with limited experience in mergers and acquisitions, now would be the time to partner with an M&A advisor who can help generate an integration strategy and access to capital. Any decision will require some analytical horsepower and a strong strategic mindset to envision what a better, value-based system might look like.
Even if conditions preclude an immediate move, it’s wise to begin those discussions now. The field of play is shifting rapidly. And in this unique moment in time, hospitals’ traditional wait-and-see approach could soon come with unwanted costs.
Picture: Getty Images, Mykyta Dolmatov
Pooja Goel is Managing Director at Virgo Investment Group where she oversees healthcare. She is responsible for creating portfolio investment strategies and seeks out new opportunities for partnership.
