1. Growth in very-selective, low-cost transactions. “We have re-deployed a lot of due diligence folks over the last few months because we have seen a significant uptake in transactions services — mergers and acquisitions, joint ventures, etc.,” says Mr. Hickman. “But we are also seeing them being pretty selective. We are not seeing a lot of cash being paid opposed to a few years ago. Instead we are seeing transactions that include items like earn out and limited lease provisions. Affiliation agreements are being discussed.”
Hospitals and other healthcare facilities are not only being more cautious in regards to transactions, but more creative about what form those transactions take, he say.
“We are seeing a pretty robust trend on all sorts of ways to acquire a partner,” he says. “There is an uptake on these deals, as I said, but organizations are not spending a lot of money. These deals are primarily focused on creating sustainability not market share.”
2. Increased focus on capital. Mr. Hickman says the current economic challenges are forcing hospitals to be more cost-conscious than in the past.
“We are being held responsible for a lot of our dollar this time around,” he says. “Healthcare is being impacted by volume, so revenue is being impacted. Organizations are responding to this by getting serious about two things: one, optimizing their revenue cycle, and two, cost containment. Major organizations across the country are putting capital on a freeze unless it is for patient care — which would include items like surgical equipment. The area that is being impacted the most, as you can see from the news, is physical plans are being put on hold or cancelled forever.”
3. Cooperation and integration is critical. “Fixing healthcare is conceptually simple,” Mr. Hickman says, “but in practice is very hard. You have to get all these intelligent providers to agree that they want to work together, change things and get it right.”
Mr. Hickman suggests three areas healthcare needs to focus on to improve:
- Public policy — “We are in a public health crisis with smoking and obesity,” he says. “Healthcare needs to realize this and help individuals learn to lead a healthy life style.”
- Evidence based medicine and disease control — “Healthcare needs to get with the guidelines,” Mr. Hickman says. “We’ve researched it and it’s almost crazy that providers have not been forced to implement guidelines like those outlined by the American College of Cardiology. This is the next big thing outside of public policy. Providers in the industry should be encouraging rapid change in smoking and obesity and these guidelines should also affect how they deliver care. We need to use evidence-based medicine to be more effective and provide a better product.”
- Physician integration — “The third thing that healthcare needs to do is integrate with the physicians, especially primary care physicians, specialists and hospital-based physicians,” he says. “All of these need to be partnered.”
Mr. Hickman says that a major problem with our healthcare system is that it is fragmented. While we may have the best healthcare system in the world, it is run ineffectively. He says that there is a lot of duplicity in the system, with several hospitals offering the same service. Referencing hospitals in the New York metro area which were forced to consolidate under the Berger Commission (www.nyhealthcarecommission.org), he says it is perhaps a good initiative that the state government is undertaking by forcing unsustainable partners to combine with sustainable ones to offer more consolidated efficient services to patients.
4. Preparing for the future. Hospitals should have a pretty good sense of some of the initiatives that will be undertaken by the new presidential administration, Mr. Hickman says, such as those concerning bailouts and federal funding for healthcare. But he says that there are a number of major issues hospitals should watch closely that may affect their business going forward.
“One is our premium,” he says. “If we go to mandated coverage —like Massachusetts — and we know Obama will start with children, all that will happen is we will be taking money out of one side of the pocket and putting it in the other. Private payors are not going to maintain that. At the end of the day, burden is going to fall on the population that has commercial insurance. The providers are not going to make more money.
“Also, CMS has mandated value-based purchasing, which will lead to bundled payment,” Mr. Hickman says. “In that scenario, CMS makes one payment to an entire joint venture for all the services rendered. We have to keep our eye on how that is working. I think bundled payment may turn out to be a way for Medicare to manage itself. It may force providers to work together as well. If we get one payment, we not only need to have good outcomes and be cost effective — and actually make that happen together. That will force people to do continuum care, evidence-based medicine and integrate. We have to use science to provide better product at a better cost.”
Hospitals also need to become proactive in taking steps to fix problems plaguing their organizations.
“We have to look at the entire cost-side of the equation,” Mr. Hickman says. “We have to look at how healthcare should be run as a business. How do we standardize billings and collections? How do we eliminate duplication? How do we outsource effectively? We are oversaturated with certain medical equipment, how do we change that?
“We’ve got the tools to solve the crisis in healthcare,” he says. “I spend 150 percent of my time with clients trying to help them work together. They bring so much intellectual capital to the table which should and needs be shared. We can make this better. We have the best healthcare in the world. We just need to run it more effectively.”
Mr. Hickman (brett.m.hickman@us.pwc.com) is a partner in PricewaterhouseCoopers, which provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. (www.pwc.com). He is an expert on mergers and acquisitions, is a certified public accountant and has worked in healthcare for 19 years.
