Rob Gerberry, Senior Vice President and General Counsel, Summa Health, explores some of the disruptors that hospitals and health systems are facing as the industry grapples with the effects of the pandemic, as well as strategies to evolve and address the challenges ahead. Some of the disruptors discussed include the growth of telehealth, new market entrants to health care and the role of private equity, the shift to alternative structures that are different from the traditional inpatient service model, and changing M&A strategies.
Rob’s panel includes Mike Englehart, Senior Vice President of Medical Groups and Ambulatory Strategy, Trinity Health, Andre Maksimow, Senior Vice President, Kaufman Hall, and Ben Sutton, Chief Strategy Officer and President of Ambulatory Services, Summa Health.
From AHLA’s Hospitals and Health Systems Practice Group.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Rob Gerberry, Senior Vice President and General Counsel, Summa Health, explores some of the disruptors that hospitals and health systems are facing as the industry grapples with the effects of the pandemic, as well as strategies to evolve and address the challenges ahead. Some of the disruptors discussed include the growth of telehealth, new market entrants to health care and the role of private equity, the shift to alternative structures that are different from the traditional inpatient service model, and changing M&A strategies.
Rob’s panel includes Mike Englehart, Senior Vice President of Medical Groups and Ambulatory Strategy, Trinity Health, Andre Maksimow, Senior Vice President, Kaufman Hall, and Ben Sutton, Chief Strategy Officer and President of Ambulatory Services, Summa Health.
From AHLA’s Hospitals and Health Systems Practice Group.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Thank you for joining us for h l a's initial C-Suite Roundtable Podcast, brought to you by HLAs Hospitals and Health Systems Practice Group. I am Rob Gerber, senior Vice President and General counsel at Tuma Health, and also a board member of the American Health Law Association. I am privileged today to have three guests joining me to kick off for this series, and I wanna thank them for their time and efforts. First, we have Mike Engelhart, who is the Senior Vice President of medical groups and ambulatory strategy at Trinity Health. Next we have Andre Maximo. Andre is the Senior Vice President at Kaufman Hall. And finally we have Ben Sutton. Ben is the Chief Strategy Officer and President of Ambulatory Services at Suma Health. I wanna thank Mike, Andre and Ben for joining us today to share their thoughts on the evolving industry dynamics and healthcare. So, to kick us off, uh, we all know that our industry has been, uh, severely impacted by Covid. Wanted to ask our panelists just their thoughts on some of the changing industry dynamics that they're seeing, some of the pressures that all hospitals and health systems are facing as we try to navigate this pandemic. So maybe I'll start again, alphabetic way with just with Mike.
Speaker 2:Sure. Well, first of all, it's great to be here. Um, you know, walking into this conversation, I went back and looked at some of the, um, the data of Trinity Health. And what we are seeing is, um, uh, substantial reduction in emergency room visits. I think that, um, we're down about 20 to 25% and we're trying to get our heads around it. Where did this volume go? Um, we'll talk about that, I'm sure, as we kind of progress. I think the other is, um, because of the start stop nature of what we've been going through with the pandemic, um, oftentimes we've had to shift all of our attention, uh, to the medical care of the pandemic patients, the covid patients, and it's caused, um, a slowdown of surgical cases. And oftentimes we're seeing more and more of those cases move out of the hospital. So, um, we're trying to, um, get our arms around, um, is this the new norm, which we hate using that term, but it is something we've gotta ask. And, um, we're not sure. We, we think that, um, there are some substantial changes that have occurred and we don't think we will return to where we were pre the pandemic. And if we were being honest, most health systems, unless you're in a growing marketplace, we're probably starting to see declines over the last two or three years. And so, um, it's really caused us to rethink the size of our, um, healthcare ministry and, uh, wants and needs. And, uh, how does the system office support our, um, our markets.
Speaker 1:Andre?
Speaker 3:Yeah, I, I agree with everything that Mike is saying, and thanks again, Rob, for inviting me to this panel. Um, I guess the one thing I would introduce is a, the one thing we're seeing for many of our clients is a real focus on the home, if you will, as a, the, the new site of care. Um, certainly from a, just a practical perspective, many of the discharges coming in the hospital, skilled nursing really wasn't an option for a variety of reasons, at least initially between, you know, confusion, inability to service covid patients, et cetera. And home health really became the, uh, alternative site. And we're starting to see that home health is continuing along those patterns, but I think it's also kind of causing a, a bigger, uh, kind of question to be asked is that if we could do many of the skilled nursing services in the home, can we do other things in the home? And recently, I know with, with our clients have seen, and a little bit more attention right now, is the hospital home concept. Uh, c m s currently, uh, has a waiver going on right now for a hospital home. We're effectively assuming that a, uh, health system meets certain criteria, then they're able to, uh, receive dr r g payments for those patients that are provided services in the home versus the hospital. And, uh, at least from our perspective, we think that this might have some real traction given the fact that there's some real reimbursement in Medicare behind this to see where things shape up. So I think that's the one thing I would mainly add, is this whole notion of going into the home, getting out of the four walls.
Speaker 1:And Ben, your thoughts?
Speaker 4:Yeah, I, you know, I, I don't know if I can add too much. I think, um, you know, both of what Mike and Andre said are, are right on and, and experiencing a lot of those similar things that summa, I, I think the question, you know, Mike, you, you said the new normal, right? And that's, I I share your frustration with that, uh, terminology in an industry that's always changing. We're, we're always dealing with a new normal. But I think that the practical question for most health systems is what of those changes do we think are going to be lasting, right? And, and what are, what are those things that are going to move forward? You know, at, at Suma, Rob, you know, we, we've been on this population health journey for, you know, seven or eight years with our A C O and others trying to look at things like pricing and utilization and, you know, how do we create more value? Um, that the, the reality is that the pandemic, um, you look at something like Ed Blinds, the pandemic did what we hadn't been able to do as a healthcare industry, uh, for a period of time. We'd all been working on things like reducing unnecessary ED visits. Uh, if you're working from a population health perspective, and, you know, we, we made marginal improvements in that, but we didn't make, you know, real meaningful improvements in that with the pandemic. 20% of ed volume essentially evaporated, um, overnight. And, and much of it being that sort of treat and release business that we might have categorized as potentially unnecessary before. So I don't know that that will come back. Right. And I think that's the, that's the question that we're all sort of struggling with. I think Andre's points around, um, side of of care really, really emphasized that, right? So we all very quickly pivoted to more robust telehealth strategy, uh, in the industry. I think we're all now exploring remote monitoring and ho and home different strategies for home care and hospital and home and all that in a way that we talked about theoretically and, and sort of worked around the margins on, uh, and now we're, we're sort of deep dive on that. And I think the one thing that is gonna be lasting, you know, regardless of sort of site of care, is that there is definitely a shift in sort of the, the fundamental payer dynamics, um, from, from an industry perspective, right? So, and not just commercial payers, but you know, Summa, 70% of our business is government payers, Medicare and Medicaid. They're out of money in a way that they've always, we've always talked about sort of, you know, Medicare, when are they gonna run out of money? Uh, those payers are seriously out of money now. And, and, and expanding coverage, right? As we look at what's happening with employers. And so I think we've got a, we've got a future of continual pressure from a reimbursement perspective in a way that we haven't had in the past, um, even though it's always been an issue as well as now a potentially utilization that is less than before. And so it really is gonna accelerate the pace of change around those things that, that Mike and Andre talked about.
Speaker 1:So when we look at that transition to telehealth, when we look at the advent of remote home monitoring, do you all see that occurring, uh, still within our local health systems? Or do you see these things starting to cross state lines? Do you see some of the bigger healthcare players, uh, in our industry, some of the larger brands being able to cross state lines now and take over that service? And for the lawyers on the calls, they look to structure these arrangements, you know, how do you see that playing out in the future? Maybe we'll start opposite, and we'll start with Ben this time.
Speaker 4:Well, I think, I think it's natural that it's gonna go across state lines, right? And I mean, I think we look at it from, from two perspectives. There's the one that is just, uh, think of it from a, you know, strategy person's perspective. It's a growth opportunity, right? So you can now potentially reach a population that you couldn't reach via telehealth. But I think there's also a continuity of care aspect to it. You know, as we think about population health and managing populations, if we start to be responsible for, uh, a group of individuals, you know, we have a lot of people in Ohio who, you know, maybe winter in Florida, for example, right? And so they, they spend time there. Um, the, the, the rules and regulations that exist today make it difficult to have a telehealth visit with that person, uh, for example, if you're not, you know, licensed in different ways across state lines. And so, um, I, I think from a practical perspective, uh, both, both for growth as well as for continuity of care, things are gonna have to, to, um, go across state lines. We're having that conversation now, as you know, it's new about how do we do that? And, and today it's difficult to do. Um, there there are a lot of regulations around, uh, providing care in different states. Pharmacy rules are different, and licensure rules are different. Everything is different, uh, as you cross state lines. Uh, and, and we're really gonna look to, you know, attorneys and regulators and others to help us through that. Both help us to do it today, but I think also over the long term, help us to, to advocate for things that are, that make sense and are are practical changes to help, to facilitate what, what will ultimately be better care for patients
Speaker 3:Object. Yeah, I mean, in terms of, I think the key word that Ben said was growth, right? Um, if you're dealing with the dynamics that we just talked about right now, decreased reimbursement, uh, un underlying population growth or just utilization growth is really not gonna be there. So wh where do you go next, so to speak? And, uh, you know, I think we're seeing, uh, health systems kind of do a variety of different things. Certainly those with the size and scale that have the resources to experiment, if you will, with other business lines and, and tackle other areas. You know, what we're starting to see, frankly, is that, which I'm welcome, the changes right now, is that there's more of a focus, frankly, on custodial care for, for seniors. And how could health systems really play a big part of that? You know, historically, the notion of, uh, blending senior care with health systems, I think Suma has done a great job of that, given the fact they have a Medicare advantage focus, but for large part, uh, that really has not been a focus area. And that's been industry, frankly, dominated by a very fragmented, uh, group of players. Uh, very few times was their healthcare integrated with the service offerings? And it would seem like it's a, it's a really nice space, if you will, for white space, for health systems to go after in a meaningful way. So that's some of the, again, that's one growth area of many, but I'll just add that to the conversation.
Speaker 2:So for me, um, this is, uh, I think we've been on this journey towards value. And I think, um, the new norm is really what happened was we got, um, shocked. And once the consumer decides he or she or their family can use telehealth and get some good experience, um, we, we beg, borrowed and steel to try and get 3% of our visits via telehealth. Now, at its peak, we were around 33, 30 4%. What we wanna do is to set, um, what we think is, uh, a new leveling. And it's probably in the high teens, we absolutely agree that we have to break out and get across state lines to take advantage of scale, um, either inside Trinity or with other partners, because if we don't, someone else will. Um, and I, I just think that what we're gonna experience is what, um, we're experiencing in our own personal career. And that is, um, we don't all have to get into the office. Now, I, I'm, I'm a big fan of face-to-face meetings, but y I live in the Chicago market, and I'm telling you right now, it's a ghost town in Chicago, and it'll eventually come back, but I'm not sure that employers will take up as much, um, real estate in the future. And I believe that that was a byproduct and a learning from Covid. We all knew that we didn't need to do this. And I think that, um, patients and consumers are gonna act differently as a result of this, and it's gonna be an accelerator towards moving towards value. And, um, you know, health systems are gonna have to get really agile and, uh, you know, play offense, not just defense in this time of change.
Speaker 1:So as we look at the management of populations, some of these changing industry dynamics, um, maybe we'll start with Andre, you know, just your thoughts on some of the new market entrances. We look at, you know, Optum and their role in starting to aggregate physicians and then managing populations, other private equity entities, entities like cv, s's, health Hub, just your thoughts as those entities, uh, now are either competitors or potentially new partners for health systems.
Speaker 3:You know, I think largely they're competitors, and I think one of the things that's really fueling a lot of this is that there's a lot of easy, cheap access to capital. So in terms of where, where these folks would want to focus, most of their efforts on hospitals, give or take, probably comprise about 30 to 40% of the overall healthcare spend. Uh, there's over-utilization a lot of different markets. And when you think about where is there clear value that could be, uh, derived, it's kind of playing the arbitrage, if you will, not only in hospital pricing, but also on hospital utilization. So from where we sit right now in terms of market entrance and private equity fueling this, we see that continuing. And frankly, I think what's gonna be really interesting right now is, we haven't seen it quite yet, but we see some, uh, entities starting to do this, is starting to think about almost a, uh, a world, if you will, where perhaps networks are not really that important. And what I mean by that is aggregators and technology companies coming up with, you know, marrying the, uh, a concierge concept with, uh, with specialized bundled services, especially for the highest cost areas of surgery, kind of creating a, their own networks, if you will, aside from the insurance companies that divert volume to the highest value providers. Now, obviously with the recent changes in regulations, that's becoming a little bit more access accessible in terms of the pricing information. And frankly, I think it's gonna be disruptive to not only the health systems, but also the insurance companies really asking themselves, all right, where, where am I really adding value? Because the ultimate payer in this whole equation, not only is the government, but also employers, and employers have so far been relatively quiet on that front during the pandemic, not to disrupt things materially, but I think as we come out of this right now, I think there'll be more and more focus on that people, employers taking chances and saying, you know what, why don't we do this a little bit differently? Can we tap some, tap some technologies or different companies to offer different offerings and induce those consumers to utilize these tools, perhaps get cheaper, better healthcare
Speaker 1:Better. Mike, would you like to add to that?
Speaker 4:Yeah, I, you know, and I, I'll, I'll pick up on something that Mike said. I think, you know, Andrea, when you said, you know, that, that private equity is fueling it and, and the capital that's out there, I agree, but Mike, I think you hit it on, on the head when you said, you know, that, that once the sort of the consumer gets a taste of something, right, as you said it, you know, relative to telehealth, I think that's the other thing that's fueling this disruption, right? I, I think as we look at payment models that are out there, you know, we, we have for a long time in healthcare as an industry, um, not really organized ourselves around consumers in a, in a traditional way that a, that a typical sort of consumer oriented, um, uh, you know, industry might do. We've organized ourselves around difficult resources like, you know, payer contracts. We've organized ourselves around our providers schedules. Uh, we've organized ourselves around the various sort of large capital investments we need to make, we needed to make historically to sort of bring patients to us. Um, now it's, it's more about how do we go to them? Um, and consumer expectations are completely different. And that's, I think, a lot of what is fueling, um, these disruptors. They're, they're looking at a, a market that they feel like is inefficient and not meeting consumer needs. And you've got all these companies now that are saying, I can meet the consumer needs and expectations better. And one of those expectations, um, is around price and the other ones around service. Um, and those are things that the healthcare industry hasn't been that great at, um, over, its over the, you know, the course of the last 20 to 30 years, we're starting to get better at it. And, and so we're doing it. And so now we're looking, as Andre said, as a lot of those disruptors as competitors. Uh, but I also think there's an opportunity to look at many of them as, as enablers, as enablers as well. Um, and think about how we partner with them if they've got expertise, um, around how to work with consumers or how to better interact with consumers. There's potentially opportunity there, uh, as well as competition.
Speaker 2:I would, um, compliment with Ben and Andre said, um, Andre's right, there's just an enormous amount of dry powder out there. Private equity is coming in, they see a tremendous, uh, opportunity inefficiency, and they read the cards and see that, uh, um, potentially half the battle has already, um, been won in that the consumer is now willing to change and has experienced this to Ben's point. And then if I'm an employer, why would you not try and, and get creative about, um, you know, pushing for value? So where we're stuck or trying to find our way forward is we have to earn, um, a lifelong relationship. And what we talk about at Trinity is we're not patients. We're trying to make them numbers. In order for them to be members, there's gotta be a stickiness, there's gotta be a value, there's gotta be an ease. And I don't think we can do everything that that member needs. Um, so you're gonna have to be very strategic about partnering with what used to be a year ago, 18 months ago, a competitor might, um, private equity, the boogeyman. You may have to find kind of win-win type of, um, scenarios because, um, that's how you're going to move faster in this, um, significant amount of change. I think we'll look back, um, in four or five years and say, that was a tremendous amount of change that occurred in a short period of time. Um, and, uh, we've made a significant change in the way healthcare is provided in the United States.
Speaker 4:You know, Rob, one of the things that, you know, as we, as we talk about the, the disruptors, right? I mean, one of the things that maybe we could, you know, explore, I I think, you know, you always run into this challenge of, with these disruptors, they come and they go in a lot of ways, right? And so, you know, there, there are, there's constantly an announcement of, you know, this is gonna change healthcare. And then, you know, a couple years later, quietly, we're not gonna change healthcare anymore, right? We, we decided to not do that. And, and you get a lot of that coming and going. So, you know, you have to strategically ask kind of two questions. It's, you know, what, what of these kinds of disruptions do we think will really be lasting, um, and, and will be permanent? Um, and then for those that aren't, you know, what, what kind of disruption is going to be created in the meantime? Because even a, even a, a startup or a disruptor that doesn't make it can still have really significant sort of short term impact to the, to the health system. If they carve out a, a profitable piece of business, uh, and then, you know, consumers, then maybe they like that experience even if the company doesn't make it. So you kind of, kind of ask those two questions. And I think ultimately maybe I'd be interested in sort of, you know, Mike and Andre's perspective on it. You know, the, the real question I think gets to be a build versus buy one, right? So as you think about all these partners, how do you think about your core business differently? These are the conversations we have at Suma a lot. Like, you think about something like ambulatory surgery, you see announcements all over the country about people partnering with others to build ambulatory surgery centers. I really question whether or not that's a, that's a good move, right? 10 years ago that maybe that made sense, but today doesn't make sense. If more and more surgery is going to be outpatient, maybe you can get to market faster, but is something that used to not be core competency now going to be sort of core competency and part of who you are as a health system. And so it's, there's, there's build versus buy from a strategic perspective, but then I think there's also a, a real discussion about sort of what's the core business of the health system, uh, and what are you willing to partner on versus what are you not willing to partner on?
Speaker 2:Mm-hmm.<affirmative>, it's, I think that's a great point. I think one of the, there's a question above that, and that is how you are currently organized. The talent you have around the table is probably gonna need to evolve rather quickly if you want to, um, accelerate the change necessary. Because if you grew up running hospitals and we're gonna always need hospitals. So I, I wanna just preface that by saying that there's nothing wrong with, um, coming down your healthcare career, learning how to do that. But if you're really going to take control of ambulatory surgery centers and do'em extraordinarily efficient, you better bring some new skill sets to that executive team that might not be there currently because it's a brand new, um, opportunity. And I agree. The question is build buy-in, once we buy, then I'm going to potentially be giving up, you know, 40, 60 cents of that revenue. Um, but if I use that and accelerate in other areas, that's a worthy trade off. Um, but I think it also just goes upstream. And that is, do you have the right people now, um, in executive roles across, um, healthcare systems in order to evolve as fast as I think we're gonna need
Speaker 3:To. I completely agree with Ben and Mike's point of view. Um, you know, in terms of the, the dna, if you will, of some of these other disruptors and these other startup companies, when you think about it, um, the ultimate kind of motivation is not only to build a company, but there's also significant equity appreciation, if you will. That's the carrot, if you will, for each these parties to take on those degree of risks. Yeah. And, you know, for the health systems, it's, you know, the mission, the, the tax exempt infrastructure, et cetera. I'm wondering if that can coexist, if you will, with a, the right incubator, if you will, to accelerate some of these companies and get the right entrepreneurs, if you will, in here to do the things that you need to do. Uh, I think that's gonna take a bit of a, a, a mind shift, if you will. And also it's gonna take a, an ability to act a lot faster than you currently, you know, currently many health systems do. So my concluding thought would be, yes, uh, absolutely agree with Ben should some of these core competencies if you will be in-house, but what other structural changes do you really need to make? And then finally, do you have the requisite amount of scale, if you will, that enables you to really be good at what you're talking about right now? And certainly there's certain health systems right now that, uh, you know, have that degree of size and scale. I probably put Trinity as one of them right now where, you know, candidly with the ambulatory surgery centers, um, I would think, you know, what Trinity does have those capabilities, does have that size and scale. And, you know, that would be a very good strategic question to ask, is why wouldn't you try to make that a core competency?
Speaker 4:And, and Andre, I think from your perspective too, you know, you, I'd be interested in, in your thoughts on how you're helping people pick the right partners too, because that's, that's really what it's all about. You know, Mike talked about that trade off of if you can get into something faster, even if you think it's core, is it worth doing it? You know, we made that decision to summa around our home care business. We, but, but we feel like we've found the right partner that is aligned with us, that is invested in it. And we've seen, you know, really great results with that. We've all also had bad partnerships, right? And so that, that haven't gone well. And so, you know, with, with all of those decisions, you know, you're, you're advising folks like Mike Summa and Trinity, you know, how are you seeing people shift in their thinking around kind of who the right partner is?
Speaker 3:It's a very good question, Ben. I, I think the short answer right now is that there's probably not a lot of great infrastructure and health systems to make a lot of these decisions. What we're seeing more and more is actually, um, where we're kind of coming in, if you will, and acting as the pseudo corporate development function, if you will, to help a lot of these health systems kind of think through and say, all right, where should I place my bets? How will this be synergistic? How it will not be? And candidly, it's gonna be a different skillset also for us as we kind of evaluate this. Because obviously with a lot of these startups and these very operationally intensive companies, what you're really backing is management at the end of the day and having a real, you know, strong knowledge base of what management is, who will, who will succeed, who will not succeed. And so, to your point, I think, uh, you know, at Kaufman Hall, we, we have to adapt here as well and start improving some of our skill sets. And health systems will likely have to do the same in terms of pivoting and saying, okay, let's have a little bit more of a structured environment where we review opportunities where it's not so ad hoc in nature right now. Currently it's mostly ad hoc. It's, Hey, you know what? Someone called me right now and introduced a very interesting idea. It might come through the ceo, the cfo, f now let's go scramble and see what this is all about. Hey, call Coffman Hall. Maybe they know something about this. And then it goes from there. And that's frankly, you know, to be in that reactive mode right now, that's not where you wanna be, obviously. And, you know, for those health systems, I think there's certain ones right now that are being much more proactive in that and kind of putting up the necessary infrastructure. And, you know, like I said before, and even frankly, the governance necessary, if you will, to oversee that. Do you need a different governance structure to act much more quickly, have different skill sets on that governance to make these decisions? And I think all of that is true.
Speaker 2:I'll give you a real life example. We, um, about two years ago, we did an inventory of all of our urgent cares. What we found was these urgent cares, while well meaning, um, were 26 different flavors, some were inside the hospital, um, run under the hospital oversight, some under the medical group. And, um, the incentives were not aligned. And so after doing an assessment, we had 63, we decided that, um, approximately 13 were performing at a high enough level, and the rest, um, needed to be evaluated. We started a search at that time to say, this is something I think we're gonna need to buy the subject matter expertise. We went through a, uh, essentially an RFP process, evaluated, uh, north of 12 different urgent care companies, first to join Venture. Um, really came to like the, the gentleman, uh, that are running premiere or urgent care, uh, Steve Sellers and his team, Dr. D Benedetto and a, a partnership turned into us acquiring, cuz our thought process was one, these guys know how to partner with health systems. Um, approximately 45% of the people that show up are new to the system. And so this is another front door access. And um, they just had the secret sauce on how to run this well. And they incentivize the clinicians based upon the, uh, speed and accuracy and the quality of the care provided. And it just, they could get it up and running faster than we could. And let alone they brought an additional 50 plus sites that are outside of Trinity and they partner well with health systems. And we thought, all right, this is a good, um, type of partnership we want going forward, otherwise we've got less than, um, ideal performing urgent cares, and we gotta get it to another level. So we're pleased. And that's an example where we're glad we started the work before the pandemic, cuz we think it's gonna pay big dividends now, um, as we start to get back towards a little bit more normal life. Um, but they've been very busy, um, through the pandemic as a result of their access.
Speaker 1:I know during the pandemic, uh, Kaufman Hall has done a lot of really good work around the margin pressures that, uh, health systems are facing and highlighting the decreasing volumes. So as you all look to diversify your revenue streams, you know, again, maybe for the lawyers on the call, if you could highlight where you think we are in kind of the shift to alternative structures, creating retail entities, creating ambulatory strategies that are different than the traditional inpatient services that are allowing hospitals to diversify the revenue streams, uh, and kind of reinvent themselves.
Speaker 2:I'll take a swing. Um, I think any health system worth its weight and salt is going through a diversification analysis. And I, I think it's important to say it's not the hospital that needs to diversify, it's the health system. And I think what needs to happen is, um, you need to look at how much you're in value right now and how fast you think the market's going to move. In the past, we hoped people would move towards value. Every year we would go through cost cutting at the system office level, we're gonna take 5% off, now we have to do it. And so it's a combination of how much of our revenue now will come from new partnerships and new areas that we had not tapped into. How fast will we move to value? And then you have to resize the chassis. The chassis is the support services areas, and in the past we arbitrarily say it's 5%. Now we're saying we have to redesign our chassis so that it actually is better positioned for the next 10 to 15 years. And so let's not marry ourselves to a number, let's get the right chassis for the future in value and in new revenue streams.
Speaker 4:Yeah, I I think that's, I think that's right. And I, and I Mike would pick up on kind of what you said it, we, we probably aren't organized to do it today, right? In the, in the sort of traditional way that, uh, we've organized the health system and we are, we are scrambling, as Andre said, to do that now, right? And to, and to get sort of, um, up and running different, you know, we, you used to be able to count on, you know, annual increases from a payer perspective, right? And so you would, you would plan, you know, if you looked at, at any health system sort of long-term financial plan a decade ago, it would've included, you know, 3%, 5%, whatever, percent increase, you know, on an annual basis. That's pretty much gone, right? I mean, even though you might, you might see increases from certain payers, et cetera. If you counterbalance that with what's going on with, with government payers and everything else, and, and volume declines, um, you know, we are, we aren't forecasting that we are on an annual basis, as you said, forecasting a gap, whatever, whatever that gap is every year, 10, 10 million, 20 million that we've gotta find through performance improvement, growth and everything else. And so, uh, we, we, we have to do that. And most of that is coming now on the ambulatory side or on the outpatient side, or in these non-traditional businesses. Um, it's not necessarily coming, um, on the hospital side. And so we aren't, we aren't organized to do that today. Um, in the traditional sense, we started at Suma, sort of an ambulatory line of business, uh, about five or six years ago. But, but we just sort of, it was sort of a, a pretend business in some ways, right? It was just sort of a carve out of functions from within other budgets. We're just now starting to really establish those as, as entities in and to themselves. Uh, and we're doing it really quickly. Rob, Rob sent me an email the other day. It said, Hey, you opened an ambulatory entity and it doesn't have a, a president or a board or anything else. Can we, can we talk about the governance of that? I'm like, well, we probably open too, right? I mean, we're, we're just, we're, we're moving really quick. And so, uh, I think a lot of health systems are struggling with that. How do you get yourselves sort of reorganized around, um, what is going to be not just the future of the way that consumers expect here to be delivered, but the future really have your revenue streams and, and what, what amounted most of the growth revenue streams, uh, for the health system?
Speaker 3:Mm-hmm.<affirmative>, you know, I, I'll touch on what I said before. I mean, we, we have a real problem in this country coming with the, you know, the silver tsunami here, if you will. There's not enough infrastructure out there really to take care of the, the residents, at least when you look at conventional wisdom and how it's been done here to four. And, uh, you know, from a health system perspective, when you think about what is the true differentiators, what are the true competitive advantages of a health system at any given market? I'd argue probably the number one thing should be is the brand itself. And, you know, can you leverage that brand, if you will, and start to gr get into some of these growth areas that might be more lucrative and frankly kind of tie into your overall strategy. So we've talked about before about Medicare and value. Um, you know, what a great opportunity right now when you have the, you know, home care business right now, I think that on average, I think it's about a hundred to$200 billion a year, and it's growing significantly in terms of home care and home health. Uh, what's not being noticed right now is the private duty side of things, and it's typically reimbursed by Medicaid. It's really not reimbursed privately for the most part. What can be done? I mean, can a value-based orientation be applied to that so that it is a win-win, if you will, for the consumer, the patient, the health system and others. Um, you know, that that's, I think the, some of the thought process that really has to go on in the health systems to truly understand what are we really good at? What are our real strategic assets, and how do we leverage those assets to springboard to other areas where we can really succeed? And I think you have to take a real careful view of what the industry looks like, what the industry capabilities are, and, you know, say, do I want to jump in here, here or here? And that's the real question. You know, my sense would be that I probably would wanna jump into a fragmented industry, not one that's consolidated or, or, you know, taken on by, you know, huge behemoths, if you will, and, and out there to kind of consider where the next area of opportunity is.
Speaker 1:So as Andre mentioned, uh, you all serve as that corporate development arm, not only for boards, but for CEOs that are relying on, uh, either an investment bank like Kaufman Hall or guys like Mike and Ben who are chief strategy officers. As you look into your crystal ball coming through the pandemic, how do you see m and a or partnership strategies changing? You know, we had historically seen a lot of small players maybe doing, uh, deals with larger systems, kind of desperation deals. How do you see transformational deals maybe leading us, uh, into the future?
Speaker 3:Well, I don't know if I should take a first stab at that, but, uh, from KA hall's perspective, uh, here's what we're generally seeing. Uh, you know, m and a will still continue, but the composition of m and a I think will change pretty significantly. First is we're seeing more, you know, larger systems, if you will, coming together. And it's not about some of the typical synergies that one thinks about, it's about some of these new order type situations or things that you really need to succeed for the future i e scale, but scale for intellectual capital scale for, you know, having the ability to incubate various companies and various initiatives scale as it relates to just overall advocacy and relevance here in the market, not necessarily local market, but just on a broader national stage. And we're seeing more of that, uh, in terms of the smaller health systems being acquired by the larger or the hospitals. What we're seeing, frankly, is, uh, a lot of first time in my career at least, you're seeing that some hospitals, uh, frankly, are irrelevant and they may not see any partnership opportunities. Uh, when I first started, it was just a matter of, you know, call the various partners or the I, uh, the various, uh, players in the market, call them up, show them a book. Here it is, you're gonna have three, four bids, and here we go. That's completely changed right now. And for those players that are kind of caught in a death spiral, so to speak, and they are irrelevant and they have no other prospects, you know, many times I think health system clients are saying, well, you know what? We don't need to lend a life lifeline because frankly, we're not gonna be able to add much value, and perhaps the market's just overall better for not not having that player in there. So I think that's just two fundamental shifts. One, smaller players, I mean, I think, uh, closure into our bankruptcy are things are, they're gonna be more options. And for larger players, different types of partnerships, really more mergers frankly, than the traditional, uh, you know, takeover or change in member sub or otherwise.
Speaker 2:I would agree with what Andre said. I I just think the deals are going to be of a higher quality because no, not even a healthy health system can afford to take a risk and to tap into the capital that they need to then pivot and spend more in ambulatory and in these new ventures. So it really becomes kind of a one we've seen with very few exceptions, a decrease in the number of patients that are in our hospitals, pull the pandemic off to the side. The trend has not been positive. We know that c m s changed how ortho cases can be handled, so more of that volume is going to ASCs. So if you do deals now, the hospitals are not necessarily what they, what they once were as far as the treasure in the deal, they could be the burden and you have to, uh, make significant capital investments to keep those up to date and to position them for the next 25 years while you're simultaneously trying to grow primary care, ambulatory surgery, and then any other interesting joint venture opportunity that's on your doorstep. So the deals will be really interesting. And I do, uh, think that hospitals will close. My hope is that, um, medical homes are, are left behind and people better understand that, that in many cases is the better alternative.
Speaker 4:Yeah, I think there, there will absolutely, I think as we go forward, there will be deals that don't happen, right? And, and, and that's, that's gonna be new for the industry, right? I mean, it, it pretty much, you look back historically, much, much fewer hospitals closed than eventually just sort of got consumed or picked up, uh, by, by a larger health system. Uh, there were always those deals, and I think it was always sort of in the back of, of everyone's mind in the industry, while if, if we get distressed, then you know, someone will pick us up, right? There's, there was always sort of that someone coming in to, to scoop it up. I, I don't think that will happen going forward to Mike's point, you won't be able to afford it and people won't be able to sort of carry that, that burden or that liability or make the investments that need to be made in something that hadn't been maintained, um, for many years as well as make all of the growth investments. And so I think there, you know, we're gonna see a lot more, um, of those smaller deals. We're gonna see a lot more things close, see things that don't happen because, uh, people just can't take that risk anymore. And, and quite frankly, I think to Mike's point of question about whether or not that's, that maybe that should happen, right? And I think as things move away from inpatient to outpatient, uh, as more things can happen in the home, as Andrea's talked about, the need for all of that inpatient capacity, uh, probably will be different in the future.
Speaker 1:Well, I really appreciate all your thoughts as we went through this today. I guess in conclusion, I would ask you off of Mike's comment about, you know, reinventing our corporate functions, you know, to our, our legal partners. What would you say is something that, um, you would see, uh, be a key focus for them as they look to partner with you on executing these visions going forward?
Speaker 4:I would, I would say two things. You know, Rob, from my perspective, I think, um, the, with with the focus on the consumer, right? I think we're, we are gonna be looking for, um, our, our legal partners to help us build in a, in a what is a highly regulated environment, right? And there are all these rules around, you know, really esoteric things around signage and things like that that, you know, are, are, and, and crossing state lines and all of that. But as we put the consumer first, I think that corporate development folks are gonna be pushing on sort of pushing the boundaries on things that have been traditionally very rigid. Um, and so we're, you know, we're gonna need help both navigating that and figuring out solutions for it while we stay within the rules. But also I think, you know, a lot of our legal partners help from an advocacy perspective as well. And so, you know, helping, you know, to, to advocate for changes that make sense. And then I think the other things is we talk about all of the, uh, as we're sort of restructuring our organizations to, you know, think differently for the future and, and our corporate structures, our boards have to evolve as well. And so to the extent that, you know, people are playing a role in governance and helping from a board perspective, our boards, much like our, our industry is organized around hospitals, our boards experience typically is organized around hospitals. And so thinking about, um, how we better educate our boards around future strategy, how we think about board succession planning, um, as it relates to much like we need to bring in new talent from a, from a leadership perspective, a lot of times we, we need to evolve sort of the compositions of our boards as well to focus on areas that might be, you know, gaps or might be opportunities for improvement. And so I think partnering with our, with, uh, uh, you know, our, our attorneys on helping us to do that work, uh, both from a, our, our day-to-day work as well as from a governance and advocacy perspective,
Speaker 2:I would just say Ben nailed it. It's, uh, start with the consumer. We've gotta change our chassis. Our board has to, uh, come with us on the journey and we're gonna, um, always, we're always adding new talent to our boards. Um, but they largely grew out of that hospital mindset. So I think everything he said is spot on. I've been blessed to work with strategic legal counsel. Um, they'll always tell you, um, you know, you're up against the line here, uh, but when there's gray, they, they go with you on the journey to try and find a path because I can assure you, uh, private equity and other players are trying to figure this out and they are not encumbered, uh, by, um, the past. They're just thinking about where is the puck going and that's where we need to be.
Speaker 1:Andre, from your perspective, anything you would add?
Speaker 3:No, I think Mike and Ben really nailed most of the thoughts. And I think the thing I'll just reemphasize with what Mike was saying was, legal counsel really has to be a strategic partner and helping to get to, yes, so to speak. That's really gotta be the focal point. And, you know, we all done transactions before and there's always areas where you have, you have push pull and you know what the, the level of judgment, the business judgment and kind of the overall strategic context has to be applied when making certain decisions. There can't be absolute, there's no such thing as absolutes in this world. And making sure that, you know, what balanced judgments are made and moving forward to, to kind of look at everything on a risk adjusted basis is probably my best advice.
Speaker 4:And Rob, I, I fail to add, I mean, there's really, I don't have any improvements for you. I mean, the legal department at Suma is top notch, no improvements, but I think what, what, you know, what Andrea said is something that, that you've personally advocated at Suma, I think for a long time. And I think it, we would be, I think, wise for others to think about Ed and, and Mike said it as well, that concept of legal as a strategic partner, uh, as opposed to, you know, someone that you check with or someone that reviews the contracts or, or, or in some cases a barrier. Um, you know, you and I work hand in hand on these kinds of corporate development things, and you have to have that relationship between strategy and legal and, and, and, and other folks along the way, finance as well. If it's not, if it's not a team effort and everybody isn't at the table at the same time, uh, you, you can't get to those right kind of partnerships and the right kind of deals for the organization. So I think, you know, promoting that, that sort of strategic partner aspect of what you do, I think, um, uh, you know, that that should be a focus of, of um, sort of in-house council everywhere, uh, at all health systems.
Speaker 1:Great. Well, Ben, I really appreciate the comment and on behalf of our membership, I really appreciate y'all sharing your expertise and your insights. Uh, it's been a very turbulent year, but I think you've provided a lot of good insights and focus for us to think about going forward. So thank you all for your time and for kicking off the initial C-Suite podcast. Thank you.
Speaker 4:Thank you.
Speaker 3:Thank you. Take care.
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