Overview: The rapid expansion of American non-acute providers is happening during a simultaneously dawning age of healthcare consumerism. This perfect storm for disruption is being driven by an unusual combination of trends and events morphing non-acute care into a new era of hyper-competition where the standards of clinical and financial performance is rapidly changing for providers, payers, and investors. In turn, this shift strongly challenges the dominant logic that non-acute providers will perpetually exist in a world of comfortable margin as they take on a more meaningful market share and presence as an American healthcare provider.

Introduction: Non-Acute Healthcare – The Dawn of a New Era
There has been a well-established enduring aspiration by virtually all players in the healthcare value delivery chain—patients, physicians, insurers, investors, even hospitals themselves—to take non-profitable non-acute hospital service lines outside of hospitals. That ambition is now reality. Witness the growing markets of non-acute providers across diverse subsegments like hospice, home-health, urgent care, radiology, physician and surgical groups, backed by soaring levels of investment from private equity aimed at making these businesses profitable channels replacing hospital-provided care.

At the eye of this perfect storm of growth and disruption are a confluence of converging trends and factors that are generating an unprecedented demand for non-hospital patient care. An aging baby boom populous, combined with COVID which turbocharged virtual care and telehealth options, along with the rapidly growing web of failing rural and socio-economically challenged hospitals—this unique combination of events exacerbates this exponentially building demand for care happening outside of hospitals. Set to drive this further upward and onward is the dawning age of healthcare consumerism.

Out-pocket-healthcare expenses have increased sharply the last 5 decades, crushing the capability of many families to afford them, much less reliably pay them. This has pushed consumers to seek the most cost-effective care by researching providers, payment plans and options, spawning a shift to risk and value-based care and demands for cost transparency. Consumers will soon “shop” for a variety of healthcare services, with digital technologies enabling data-driven buying decisions that will span their entire healthcare journey.

What does this ultimately mean (and what’s it worth)? The more cost-effective, patient-centric providers will survive, others won’t. What is the financial threshold of this future standard? The savviest large non-acute providers ($1B+ annual revenue) are targeting eight-figure EDITDA improvements and up to $1B+ in new shareholder value creation (based on 10-15X EBITDA multiples).

Call to Action: The need for leadership to take preemptive action to preserve the financial advantage of their non-acute healthcare businesses while safeguarding clinical performance in this landscape.

The margin advantage that non-acute healthcare providers currently maintain isn’t guaranteed forever. It must be preserved actively and near-term while rigidly protecting clinical outcomes, especially as patient consumerism continues to rise. Customary pathways to preserve financial viability have tradeoffs in this landscape. Revenue growth requires investment in telehealth and digital that can cut into near-term margin and impact is speculative. Labor reduction goes direct to bottom-line, but can negatively impact clinical outcomes in today’s tight labor market. Procurement cost management, a long-time value lever in other industries, is one of few areas where cost can be controlled with minimal investment and without patient impact.

Challenges: While strategic sourcing and procurement cost management is a preferred value lever, the “Easy Button” for margin is harder than expected due to these sources of inertia that block success.

1. More vendor-reliant supply chains and operational functions: Most of the companies operating in non-acute care are grown out of local or regional businesses that must ultimately scale to meet long term ROI goals. Compounding this problem is that non-acute providers don’t carry massive inventory, nor do they typically maintain warehouses (or any matter of internal supply chain distribution chain). Non-acute providers rely much more heavily on their vendors for supply chain reliability, resiliency, and overall operational capability. A bad contract, or portfolio of bad contracts (in a rapid merger) can have massive impact on supply chain (and cost) and most importantly, clinical outcomes. These characteristics underscore the importance of having optimal/scalable commercial partnerships and contracts, especially within the operational functions non-acute relies on (GPO, EHR/EMR, Pharma, Clinical Equipment, etc.).
2. Hyper-regional businesses do not integrate easily: Many larger non-acute care companies that are “hyper-regional” in reality have an operational backbone built for a single state. Many of these enterprises have yet to conduct assessments to discern which of their vendors can scale nationally and won’t put clinical outcomes at risk in doing so. They need help structuring viable vendor contracts to meet these goals. The end-result is that current attempts by most companies to merge regional operating chains to gain leverage and scale nationally are inefficient and risky. Understanding what spend categories are at risk and managing more scalable options in the future is critical.
3. Under-gunned operational and analytical capabilities: Non-procurement staff who often take on procurement tasks in these companies are under-hired and under-staffed. Their lack of clinical procurement acumen results in ops and financial leadership ignoring cost saving opportunities in over half of their addressable spend. Many enterprises have poor data quality and no centralized data repository. Data is not enterprise-ready and extensive data transformation work is needed to collect, clean, aggregate and leverage the data, limiting what these businesses can do digitally. These problems only exacerbate with growth.

Solutions: Here are 3 imperatives that non-acute care enterprises and their leadership should take action on now to preserve the ‘Easy Button for Margin’ within a changing landscape.

1. Take your commercial (vendor) operational partnerships more seriously: Establish partnership contracts that allow your growing company to control costs without impacting clinical performance. Create these partnerships with strategic vendors collaboratively, appropriately sharing current and future requirements in meaningful detail. Especially ensure future performance and resiliency guidelines have built-in agility for future scale.
2. Transition to national vendor support where possible: Building a national vendor supply chain and operating function requires national vendors. To compete for the future, many non-acute businesses must rationalize their lineup of many regional vendors by assessing which vendors in their base are truly prepared to scale nationally and can do so successfully. Design and negotiate contract relationships with these national vendors that explicitly consider supply chain and clinical performance outcomes at a national scale. In aggregate, use as many national vendor partners as possible, especially as the business continues to grow.
3. Invest in procurement and analytics capabilities and diligently track ROI: This is one of the most important executional capabilities required to succeed in an era of healthcare consumerism where cost-effective services and digital transparency are table stakes to play in the new-game. Getting to enterprise-ready data, enterprise data integration and a central data repository that can be continuously mined by analytics to pinpoint opportunities for cost-savings that don’t trade-off clinical outcomes will not happen without supplemental investment. Make that investment count.

About Impendi: If your non-acute care enterprise is like many and doesn’t have skill sets in-house to take on these imperatives, Impendi is a proven partner to accelerate and capture this scale, possessing a unique combination of executional capabilities and ecosystem partnerships to address the challenges across all subsegments spanning hospice, home health, urgent care, physician and surgical groups. Click the link to contact Rick Conlin at [email protected]