The Big Story: 5 takeaways from the 2023 J.P. Morgan Healthcare Conference
“Integrating services will be key for healthcare organizations this year, executives said. Health systems and insurers view it as long-term savings opportunity and a path toward higher-quality care.”
What we heard in San Francisco
By Anne Hancock Toomey, Hollie Adams and Crista Stark
Talk about headwinds. Literally, the weather at last week’s annual J.P. Morgan Healthcare Conference in San Francisco was tumultuous. Rainstorms. Wind. Falling trees. Wearables beeping alarms on the wrists of participants.
Everyone was anticipating a moment of sun. But, mmmm, not so much.
It was quite a metaphor for today’s healthcare industry.
The best description from the attendees about the industry: Watchful waiting and careful consideration.
Those of us who were in and around the conference see a healthcare investment landscape highlighted by fewer deals, smaller deals, a proportional increase in additive deals and a deep focus on organic growth and same store performance. As seen in CVS’ recent activity, it’s not that deals aren’t happening, but that there’s a laser-focus on finding the right one that will be well worth the work of getting it done.
We’re happy to share what we learned while holed up in hotel lobbies, random meeting spaces and sprinting to the next event – about what’s new and next for the industry. As always, we view this from the perspective of strategic communications. But first, a few of the storylines from the conference. We’ve broken them into two sets of highlights – one for health services companies and the other for health systems.
Outlook for Health Services Companies
Look for the reduced availability of capital and higher interest rates to dampen deal volume at least for the first half of 2023, then likely pick up for the second half. In the meantime, transactions will likely be easier for small- to mid-sized companies that aren’t highly levered.
- That early slowdown is expected to create an uptick in creative financing structures such as minority recapitalizations and co-investment. For example, where current sponsors may be tapped out, a co-investment group can bring new equity capital to the table and help drive growth in the interim.
- Some private equity firms are moving away from their traditional playbook of investing in companies that match their usual “themes” and areas of focus. Instead, they’re backing a proven entrepreneur or management team to build a company through multiple smaller transactions in a space where they have conviction about longer-term opportunity. They’re buying the parts and building the bike, rather than buying it pre-assembled.
- That may mean lining up the executive team now and working on a thesis before building or buying a platform. When deals ramp back up mid-year, these teams will be primed to move.
Strategies for interim value creation
Given this nuanced environment, healthcare companies, systems and PE firms alike aren’t sitting around doing nothing. There’s careful action, laying the groundwork for what’s next. They’re taking a hard inward look. They’re evaluating what changes need to be made to be better positioned for aggressive organic growth.
- Those who’ve been relying on a highly acquisitive roll-up strategy are now turning their attention to fully integrate new assets into the larger operation. Name of the game: Value Creation – much harder than accretive growth. Now’s the time to focus on the hard work of integrating to a single tech, ops, finance and brand platform – bringing with it all the people politics (read: physician pushback) that can work for you or against you when making hard change. Better be thinking about a communications strategy to bring your people along, friends.
Interest in thematic investments
Investors remain bullish on PPMs, although these models are very capital intensive and may not be feasible in all instances. The bullishness is particularly true for organizations with a focus on value-based care. For example, pairing primary care with attractive subspecialties like cardiovascular care and oncology.
- Cardio is the new ortho. There was palpable excitement among investors for the promise of cardio – and oncology. There are at least three cardiology platforms coming this year, and blue-chip PE firms are very interested in more. Why? 50% of cardiac cases can be done safely in the outpatient setting now, as long as there’s a backstop for acute intervention nearby.
- Don’t write off orthopedics just yet. It’s still very attractive, in large part because the privately backed orthopedic space is well developed. It remains a complicated specialty and business model but is a mature sector with a proven thesis.
- A caveat: Physician rollups are capital intensive. Pointing to the environment described above, that need for capital may make a deal tougher to get across the line.
- Behavioral health and tech-enabled services companies that help advance value-based care remain attractive. Why? Because some investors who’ve been all-in on physician practice management worry their portfolios are overexposed to reimbursement risk. For balance, they’re looking to tech that solves actual* problems. Revenue cycle and governance, risk management and compliance solutions to name two.
- *The important thing here is to have solid proof of concept and a clear line to solving well-defined problems. We heard talk that the relatively easy money for all things tech and digital health is a thing of the past. Vaporware got too much attention in recent years, and investors are recalibrating.
Outlook for Hospitals and Health Systems
Admittedly, JPM is less focused on the hospital and health system piece of the industry, so our takes are a bit lighter here. In short: It’s a combo of defense and offense for the nation’s largest players.
- Health systems are challenged by the economic environment and aftermath of COVID. These organizations don’t have the luxury of watchful waiting as they need to take cost out of their systems now. A gear shift into performance improvement mode is consistent across the board.
- In some cases, performance improvement won’t be enough. More consolidation is predicted across the acute care landscape, creating safety in scale and partnership. Will state AG’s stand in the way? Well, they won’t make it easy.
- The well-earned healthcare hero halo effect for health systems seems to have largely subsided. Health systems find themselves squarely in the crosshairs of media, unions, and regulators alike. Many are frustrated by the narrative building against them and the lack of advocacy from state and national associations. (We hear your cry.)
- On the flipside, health systems are more open to partnership with private capital. There’s a proliferation of PE firms that include health systems as their primary LPs with a mandate to invest in companies that bring real solutions to common challenges. Much more expeditious than in-house R&D.
- Smart health systems also recognize that private capital isn’t – or doesn’t have to be – competition. It’s not a zero-sum game. For example, the physician carveout is picking up steam. Systems are working with PE firms and backed companies to move employed physicians into an independent practice model – particularly ortho, cardiac and primary care. A word of advice from our experience: This requires deft change management. While often beneficial for all parties, transitioning physicians from one model to another requires intentional engagement and communication to successfully work through the process putting people at the heart of it all.
Takeaways for Communications Leaders
Our experiences and conversations at the J.P. Morgan Healthcare Conference underpinned the point that telling a clear story about what you’re trying to accomplish and what your brand is about carries more weight now than ever.
Given the widespread focus on integration and performance improvement, effective physician and employee engagement will be table stakes in order to not lose precious talent or time in executing change. Especially true of a tenuous healthcare workforce (see the sidebar for more on that).
At the same time, healthcare consumers are more discerning, worried about cost of care – especially in this economy. Our soon-to-be-published Jarrard Inc. National Consumer Healthcare Survey shows that nearly half of the American public put finances and the economy as the top issues facing the country. At the same time, people still aren’t entirely sold on non-healthcare companies like Amazon jumping in to deliver care. That means they’re still looking to provider organizations to offer good care at a manageable cost.
What happens if your story is unclear or unpersuasive? Your organization risks getting lost in the noise. A deal will be harder to do, a partnership tougher to create, patient acquisition marketing less effective, strong employee retention a pipe dream.
So, in this moment of watchful waiting and careful consideration, take the time to evaluate your story. Refine it. Sharpen it. Connect it to your mission and your future.
Because even when you’re hunkered down, waiting for the storm to clear so you can move to the next thing, there’s work you can do to get ready.
The Elephant in the Room
You didn’t really think healthcare’s biggest event passed without a mention of workforce challenges, did you? It didn’t. Anecdotally, workforce ranked consistently among the top three issues facing provider organizations today. No surprise. We didn’t hear a silver bullet solution, but there’s widespread appreciation for the need to address burnout, administrative burden, and overall shortages of clinicians.
Creative Solution: The PE-darling Shiftkey is a healthcare worker scheduling platform now used by 10,000 facilities nationwide. It’s Uber meets Priceline, for healthcare workers, allowing nurses, CNAs, therapists and even dental hygienists to find available shifts in their area and schedule PRN – while bidding for a preferred rate. Shiftkey and solutions like it are a clever response to the workforce shortage, giving healthcare workers more control while plugging holes for the provider organizations. But it also indicates a deeper “shift,” if you will: These platforms will mean that hospitals will be going head-to-head on culture and employee experience. Nurses and others who use Shiftkey will all be talking to each other even more than they are now, seeing firsthand where the good places to work are and the shifts that aren’t worth picking up.
That cultural element doesn’t directly affect, say an investor’s approach to their portfolio, or even a health system’s strategic plan. But, trust us, without a solid, satisfied and engaged workforce, none of the work discussed above will matter in the end. Closing deals and finding new partners to expand services and drive growth mean nothing if there aren’t people to deliver the vital care that sits at the heart of it all.