Hospitals and health systems across the U.S. are facing a tough financial year as revenue and margins dipped to historic lows in recent months. Staffing and supply shortages coupled with the increasing cost of doing business are driving healthcare executives to consider innovative strategies and investments, including private equity partnerships.
Concord is a healthcare-focused investment firm with a strategic model to align health system investors with portfolio companies to support companies with innovative technologies that optimize patient care. Tapping Brian Gragnolati, President and CEO of Atlantic Health System in Morristown, N.J., to serve as an Executive Partner demonstrates how the firm works with its strategic investors, which include the American Hospital Association.
The partnerships benefit the health systems as well, as Atlantic aims to partner with companies that can work alongside them to improve patient engagement, workforce management, value-based care, behavioral health services and more. The partnerships aim to capture value created through a return on investment to the health system, an opportunity Atlantic hasn't had with legacy vendors.
"Atlantic has put a lot of intellectual property into [legacy] systems and pays dearly to use them without seeing any real equity accretion in the organization because of it," said Mr. Gragnolati. "Partnering with Concord allows Atlantic and other provider organizations to reconsider the role they play in the ecosystem of investment by investing in innovative companies, and it becomes a win-win situation. It sets us up for significant success in helping companies mature and do what they need to do to help us, but also provide economic gain for the intellectual property and the commercial scale we bring to these companies."
There are several types of private equity in healthcare; some arrangements are now under scrutiny for their effect on patient care. Concord's approach is different. Through partnerships with health systems, Concord invests in companies with the potential to drive the development of innovative solutions that address major issues with healthcare delivery, including quality and access to care, as well as care affordability.
"Healthcare is a unique ecosystem that provides us the opportunity to partner with and align incentives of health systems and portfolio companies," said James Olsen, founder and managing partner of Concord. "In doing so, we can better identify key challenges facing the end users and accelerate adoption of innovative companies with technologies and solutions that address them. With our network of strategic partners and internal capabilities, we can help achieve operational efficiencies and improve quality and access to care."
Mr. Gragnolati's decision to link with Concord was easy because the financial circumstances health systems operate on today are much different than they were five years ago, before the COVID-19 pandemic.
"As an organization, Atlantic is continuing to double-down on investments we are making in this space, and Concord is a key part of that," said Mr. Gragnolati. "It starts with the portfolio approach. Many healthcare organizations as they look at their balance sheets really saw an opportunity to think about how to invest their resources differently."
Most health systems historically focused investments on endowment strategies after working through capital and short term financial needs. Then any alternative investments were in sectors the health systems had little experience in; executives relied on brokers and advisors to make savvy decisions. By partnering with Concord, the health systems can utilize their expertise and make strategic alternative investments in familiar areas that will achieve operational efficiencies and improve the quality of care for patients and communities they serve.
Health systems like Atlantic can partner with the companies on product development, and as the companies grow and bring products to market, investment dollars grow.
Workforce shortages are one current challenge Concord is tackling with automation and digital technologies. Just 11 percent of Atlantic's workforce are baby-boomers, down significantly from pre-pandemic levels.
"We need to work with companies to alleviate the burdens from these shortages," said Mr. Gragnolati. "When you start to think about how to use technology paired with labor to try to reduce the burden on the individual team member by augmenting technology, these are the companies and investments that make sense. If you think about areas like revenue cycle management, that sets up perfectly the use of artificial intelligence to guide the workforce to improve cash flow."
On the clinical side, Concord is searching for technologies to ease staff fatigue and reduce the time EHRs and documentation take away from face-to-face interactions between clinicians and patients. Concord is poised to support these endeavors; the firm closed the Concord Innovation Fund II with $150 million commitments in September and expanded its LP base to more than 50 investors.
For the next year, Mr. Gragnolati is excited about making progress toward taking on financial risk and value-based care. The health system has been able to improve quality and bend the cost curve on care by aligning incentives with payers and forging new partnerships.
"Healthcare is a team sport," he said. "If we can create partnerships with those who pay for care and improve different aspects of what we do through digital technologies, that is a good place to be."