NEW YORK CITY — As our 16th Annual Non-Profit Health Care Investor Conference in New York on June 11-12 approaches, we would like to set the stage for the always-dynamic conversation between the leading health systems and their debt investors. This year’s theme is “Preparing for Population Health and Consumerism.”
As a refresher, executives from 30 of the nation’s leading non-profit health systems will spend two days briefing investors on their strategic and financial plans at this one-of-a-kind event. We expect speakers to highlight a variety of models and growing divergence in population health strategies, and to a lesser degree, the preparation around the increasing role of the patient as a consumer.
Last year, we homed in on the transition to value-based care, which obviously remains a primary industry focus. The next phase in health care’s transformation is the move from volume to value to population health management. This final transition is in a much more nascent stage, as is the move towards consumerism. Thus the strategies that systems are undertaking are still evolving, and differ dramatically.
This provides an interesting dilemma for investors, who must attempt to evaluate both the systems’ level of preparation for this environment, as well as the degree and speed at which individual markets will transition in order to make successful implementation of these strategies financially rewarding. Thus far it has been difficult for investors to assess the financial impact of population health and consumerism.
Based on discussions with large institutional investors, it is apparent that many are struggling with both the degree of importance to attribute to these items in their investment decisions, as well as how to evaluate individual strategies and measure their impact. Investors continue to wrestle with determining what metrics are meaningful in the new paradigm; the search for consistent data with which to compare systems continues. Investors find Medicare data difficult to use and hard to connect to financial performance, and continue the search for something better.
The most important thing to investors is that providers communicate their strategy clearly in the context of their local market characteristics. One investor summed it all up this way: “I want them to be able to articulate how their system fits in the new paradigm and the actions they are taking to get to where they need to be.”
The inability to articulate a clear vision in this regard seems to be the biggest red flag to investors. If management feels they are immune to the changes going on in the industry, they are viewed as having their head in the sand. There remains a healthy skepticism regarding the payback on investments in physician integration and information systems, and there is definitely hesitation regarding big bets on insurance products. Management’s track record, depth and expertise buy a lot of leeway with regard to concern over the investment in and transition to population health.
Eventually, health systems will fail or succeed based upon their ability to manage the health and wellness of a population rather than by simply providing episodic care. A significant factor is the insurance function. The divergence in strategies among large, well-run health systems related to their future role in insurance is perhaps the largest ever. Some systems are starting their own health plans; others believe that it should remain a separate business. While insurance becomes more of a financing vehicle or administrative function as providers assume more risk, having this capability in certain markets can be an important determinant of the ability to move upstream on the premium dollar. Hearing systems articulate their insurance strategies at this year’s conference is sure to provide a lot to consider.
The impact of consumerism to date has been minimal, but is sure to accelerate with the growth of high deductible plans and investments being made by large corporations and savvy investors in new (and potentially disruptive) technologies. With huge leaps being made in these areas and the growing comfort of society with using these tools, it should be expected that there will eventually be breakthroughs that affect the purchase of health care to the same degree that Uber has changed the taxi and limousine businesses. The fact that Atul Gawande’s “Being Mortal” is on The New York Times best seller list is indicative of an increased interest in being informed and more engaged health care consumers.
Again this year I feel fortunate to be in a business that remains dynamic, and materially impacts the individual people that form the communities in which we live. Last week I sat in a business meeting with a group of health system CEO’s, one of which brought an expert in hospice and palliative care to discuss end-of-life care. The subsequent discussion and exercise was excellent and instantly turned a business discussion into one that became intensely personal and meaningful. It served as a reminder of the important work that is done by my clients every day, adding a sense of purpose by playing a role in their progress and success. I look forward to seeing many of you at our conference in a few weeks, and remind you to take the time to effectively communicate your accomplishments and challenges to those who invest in your organizations — they can be meaningful and helpful partners in your future.
James M. Molloy is managing director, Citigroup Global Markets Inc.