NEW YORK CITY — During the past week, both Moody's Investor Service and Standard & Poor's Ratings Services have offered up reports taking stark assessments of the changing health care landscape:
"Hospitals that cannot navigate the payment reductions or reduce their expense structures quickly enough to mitigate the impact may see negative rating pressure," Lisa Goldstein, author of the new Moody's report, said in a press release.
"The greatest challenge identified by the rating agency will be the need for hospitals to focus on costs and outcomes while still being paid under the old reimbursement model that rewards volume. This is further compounded by a drop in patient volumes since the start of the recession, some of which is likely to remain," according to the statement. Goldstein added that "robust financial planning and flawless execution will be key to success."
Meanwhile, S&P's Liz Sweeney noted that since the health care model is still evolving and the future largely unknown, "management teams have found it difficult to plan their strategies." She added that "organizational structure, culture, strategies and work flows that health care organizations will need to be successful under a new delivery system are likely to be different from the characteristics needed to be successful today."
Well, as it just so happens, I'm in the Big Apple today and tomorrow listening to executives from 30 of the top-performing nonprofit health systems explain how their "robust" financial plans and "flawless" execution will help them leap to health care's so-called second curve. The 13th Annual Nonprofit Health Care Investor Conference, sponsored by the AHA, HFMA and Citi, boasts some of the biggest brand names in the field: Advocate, Christus, Geisinger, Intermountain, Sentara, Trinity and more. CEOs, CFOs, COOs, CMOs and other execs from these institutions present their financial and strategic plans to a room packed with analysts from rating agencies and the investment community. It's a unique and fascinating look into the interplay between bond issuers and the buy side.
"The rating agencies have focused on the transition from volume to value, and more and more the buy side is gaining insight and understanding," Fred Hessler, managing director, Citigroup Global Markets, told me earlier in the week.
Hessler expects the health system executives gathered here to not only talk broadly about their plans for transitioning to a value-based model, but to also detail their strategies for physician alignment, integration, health IT and, ultimately, the big prize of population health.
It's also likely that we'll hear more news about mergers, acquisitions and partnerships between large and small hospitals. "We are seeing as much M&A activity as I have ever seen," Hessler says, adding that there are also a slew of partnerships with for-profit entities that are changing the health care landscape. Those partnerships come in a variety of shapes and sizes — from joint ventures to straight out acquisitions.
And while for-profit often conjures up negative connotations, Hessler says that it can actually have a positive impact. "More capital is coming into the industry beyond tax-exempt debt funding. That is a positive development," he says. "We are seeing for-profits bring in competencies in terms of developing, operating and managing these joint ventures. That is a net plus."