David Joyner will take over as the company heads in a new direction to stabilize its finances.
CVS Health’s reshuffling has reached the highest level of the organization, with the healthcare giant moving to replace its CEO as it searches for a new formula.
The national chain announced that Karen Lynch “stepped down from her position in agreement with the company’s Board of Directors,” giving way to David Joyner, who most recently served as president of CVS’ pharmacy benefit manager Caremark.
Lynch had held the role since 2021, joining the company when it acquired insurer Aetna. Joyner, who has been with CVS since 2023 and brings 37 years of healthcare and pharmacy benefit management experience, will also join the board of directors. Additionally, the current chair of the board, Roger Farah will now be executive chairman.
In a statement as part of the announcement, Farah expressed the board’s confidence in Joyner and that he “believes this is the right time to make a change.”
“CVS Health is responsible for improving health for millions of people across the U.S., and our integrated businesses work together to deliver on our purpose and mission every day,” Farah said in a statement. “To build on our position of strength, we believe David and his deep understanding of our integrated business can help us more directly address the challenges our industry faces, more rapidly advance the operational improvements our company requires, and fully realize the value we can uniquely create.”
Coming in the wake of several significant strategic moves by CVS to kick-start its struggling performance, the decision to oust Lynch isn’t entirely unexpected.
Earlier this month, there were multiple reports that CVS was conducting a strategic review and considering splitting up its retail and insurance businesses. The turbulent financial performance of Aetna, which suffered a 39% decrease in operating income in the second quarter, caused the company to let go of the insurer’s president, Brian Kane, and pursue a $2 billion cost-cutting plan.
In its retail business, CVS has doubled down on Oak Street Health, which it acquired for $10.6 billion last year. The company said it would open 25 more Oak Street clinics by the end of 2024 despite other retailers pulling back or exiting the primary care market due to its lack of profitability.
Alongside announcing the CEO change, CVS also cautioned against relying on its guidance that it provided in the previous quarter. The company is projecting its medical loss ratio to be approximately 95.2% in the third quarter, which will include a $1.1 billion charge for a premium deficiency reserve due to its Medicare and Individual Exchange businesses.
CVS will update investors on its earnings call, scheduled for November 6.
Terry Shaw shares with HealthLeaders his approach to navigating past the forces that resist transformation.
Innovating as a hospital or health system CEO can feel like a tall task thanks to all the mechanisms in place that maintain the status quo.
It’s easier to survive and keep moving forward than to innovate and walk a different path, but without the willingness to transform, organizations will find it harder to push the boundaries on operational and financial efficiencies while improving care for patients.
AdventHealth CEO Terry Shaw recognizes the reasons for pushing back against change, whether it’s a ‘if it ain’t broke, don’t fix it’ mentality or an ‘it’s too hard’ argument, and believes that every CEO will face them at some point during their career.
“Every organization has inertia and the inertia of the organization happens every day, day in and day out, and you as the CEO have to be willing to push through that inertia in order to get the organization to understand that we need to do something different,” Shaw told HealthLeaders. “Innovation is doing something different. And most big organizations, small organizations, whatever they are, are not wired to do things different. They're wired to do things the way they did them yesterday.
“As the CEO, you have to be willing to talk through your own message and push through the inertia of the organization to get to where you can do that. Then you have to provide a safe place for the innovation to take place.”
Pictured: Terry Shaw, AdventHealth CEO.
One of the ways AdventHealth aims for innovation is through its AdventHealth Design Center, which allows the hospital operator to find solutions for its most pressing problems. As Shaw put it, the facility’s team is made up of people that know how to break systems down and put them back together.
He compared the process at the Design Center to deconstructing a Ferrari Formula One race car and rebuilding it to optimize its performance.
“My question to my team is always, ‘Okay, you think you're running a Ferrari, but what can you take apart and put back together and make that car or to make our organization function better than it ever has in the past,’” Shaw said.
“You have to have a mindset. You have to have a methodology. You have to have a safe place and you have to have the expectation that not everything's going to work and it's okay. You have to allow your team to fail fast and then recover from that failure.”
When COVID hit, Shaw took several of his team members out of the day-to-day fight and sat down to figure out the system’s “no-lose propositions” once the pandemic ended. The result was an understanding that the way AdventHealth interfaces with its communities as it relates to primary care needed an overhaul, with reinvention needed in the outpatient arena.
The system then designed its Primary Health division, running primary care in four different models: traditional primary care, Primary Care+, urgent care, and senior care.
Shaw highlighted that traditional primary care has been retooled with the addition of facilities and doctors, while Primary Care+ is built to provide comprehensive care with additional and convenient hours. On the urgent care side, the system currently has 55 locations and hoping to grow to 100, whereas AdventHealth Well 65+ for seniors is expected to reach 30 to 40 clinics in the next three to five years, according to Shaw.
“That's one big way that we're innovating around how to meet consumer needs in a marketplace that is very complicated for most people to access care,” he said.
Those types of significant changes take time and effort, but as Shaw advises, the wheels of innovation can only be put in motion when CEOs first commit to breaking the wheel.
A new report analyzes where and how funding flowed in the sector through the first eight months of the year.
Investments in healthcare technology are stabilizing once again after hitting a lull during the pandemic.
While lofty company valuations from 2021 are being recalibrated and continue to dampen the market, investors are showing an eagerness to revamp their portfolios, according to a report by Silicon Valley Bank.
Health tech investment through August in 2024 is sitting between $4 billion and $4.5 billion per quarter, which has already exceeded the total for all of 2019. Deal volume hit a record high in the second quarter, contributing to 728 health tech deals for the first half of the year.
"We are witnessing a transition from the inflated valuations of 2021 and 1H-2022 to more sustainable investment practices," Julie Betts Ebert, managing director of Life Sciences and Healthcare Banking at Silicon Valley Bank, said in a statement. "AI is playing a crucial role in streamlining administrative workflows, and companies that can demonstrate a clear return on investment are driving the sector forward."
Here are four investment trends from the report:
AI on the rise
Transactions involving AI have significantly increased, signifying the technology’s growing presence in the industry.
This year has already seen more investments in health tech companies leveraging AI than in any other year, with AI valuations up 50% from the pre-pandemic levels of 2019.
A little less than half of all health tech investment dollars (44%) have been funneled to AI companies so far, compared to 36% for the entirety of 2023.
Mega-deals lagging
On the opposite end of the spectrum, mega-deals, or transactions of $100 million or more, are drying up.
Only 2% of deal volume in 2024 has involved mega-deals, with the 22 transactions trailing the 24 from 2023, 51 from 2022, and 98 from 2021.
Of the companies that produced mega-deals in 2021, more have gone out of business than have gone public, the report noted.
Seed rounds fueling activity
So far this year, 42% of health tech investment rounds were seed rounds, doubling the 21% from 2021.
Seed funding is contributing to the median deal size of $3.8 million.
Exits getting scarce
One of the ramifications of so many health tech companies underperforming after hitting the public market in 2021 is the difficulty companies are having exiting now.
After a whopping 186 venture capital-backed health tech exits occurred in 2021, that figure has dropped to 79 this year.
Of that total, 76 involved M&A exits, but the report warned that with M&A activity slowing down, investors need to be more willing to invest more long term, around 10 to 15 years.
The nonprofit health system experienced an encouraging turnaround in operating performance this past year.
Trinity Health, like several of its Catholic nonprofit peers, is trending positively with its finances.
In its earnings report for the fiscal year ending June 30, the Livonia, Michigan-based hospital operator posted an operating income of $66 million (0.3% operating margin before other times), a reversal from the $288 million loss it suffered in the previous period. Operating cash flow also went up considerably, jumping to $1.2 billion for a growth of 47.9% year over year.
Trinity attributed the increases to multiple factors, including the management of expenses.
“Improvements were attained in payment rates, same facility patient care volume growth and several revenue and cost management initiatives that improved operations,” the system wrote its in report. “These improvements were partially offset by unfavorable service and payer mix shifts.”
Operating revenue grew by 10.5% to $23.9 billion, with the acquisitions of MercyOne, North Ottawa Community Health System, and Genesis Health System accounting for $1.1 billion of the increase. Acquisitions and divestitures aside, Trinity’s operating revenue climbed $1.2 billion, or 6.2%, year over year.
The system was able to control costs to the tune of an 8.8% increase to $23.8 billion, with an emphasis placed on bringing down labor expenses. Through investments in the FirstChoice internal staffing agency and TogetherTeam Virtual Connected Care model, Trinity was able to bring down contract labor costs by 25.5% to $81.4 million.
On a same facility basis, salaries and wages grew by 6.2% to $558.2 million as the system “continues to implement initiatives to address industry wide staffing shortages and wage inflation.”
Though Trinity’s operations fared well, its bottom line reflected a decline from $959.7 million in 2023 to $475.5 million for the past year. However, the system stated the drop was driven by the $754 million BayCare disaffiliation loss and reductions in contributions.
Some relief for Catholic systems
Like Trinity, other Catholic operators like CommonSpirit Health and Ascension reported improved earnings for 2024.
While CommonSpirit remains in the red, the Chicago-based organization slashed its operating loss from $1.2 billion to $875 million and pointed to struggles with payers on delays and denials for holding back greater gains.
In Ascension’s case, the ransomware attack it suffered in May also kept the system from a healthier bottom line.
Through the first 10 months of the fiscal year, the St. Louis-based company reported a loss from recurring operations of $79 million, which was a major improvement from the $1.2 billion it lost the previous year. After the ransomware attack led to a $1.1 billion net loss, Ascension finished with an operating loss of $1.8 billion.
Despite the challenges faced over the past year, Catholic systems have shown that they have reason for optimism heading forward.
The Hart-Scott-Rodino Act will be significantly amended for the first time in 46 years, requiring companies to provide more information.
The Federal Trade Commission (FTC) has finalized its rule altering the Hart-Scott-Rodino Act (HSR), putting more onus on merging parties.
The changes include requiring companies involved in M&A to disclose information about entities like private equity and minority holders that could influence decision-making post-merger, report vertical and non-horizontal business relationships, and inform the agency on acquisitions that closed with the last five years.
It marks the first time in 46 years that HSR has been overhauled after the program was passed in 1976.
The final rule, which was passed unanimously with a 5-0 vote by the commissioners, will take effect 90 days after it is published in the Federal Register, likely in January 2025.
“The new HSR Form marks a generational upgrade that will sharpen the antitrust agencies’ investigations and allow us to more effectively protect against mergers that may substantially lessen competition or tend to create a monopoly,” FTC Chair Lina Khan said in a statement.
The commission estimates the final rule will increase the time required to file an HSR filing by 68 hours on average and cost merger parties an additional $39,644 per filing on average. However, the commission said that it believes the costs will decline over time as companies get more familiar with the new requirements.
Alongside the changes to the final rule, the FTC stated it will resume its early termination of filings, which allow the agency to end the initial 30-day waiting period if it finds that the merging parties are complying with antitrust rules and don’t require enforcement.
Hospital mergers and acquisitions reached a seven-year high for third quarter activity, a new report finds.
One of the more measurable effects of the Steward Health Care bankruptcy on the industry is being seen in hospital dealmaking.
Steward hospitals were involved in 11 of the 27 M&A transactions in the third quarter, which was the most for a quarter this year and in line with pre-pandemic levels, according to a report by consulting firm Kaufman Hall.
The transaction volume also represented the most deals made from July through September since Q3 2017. When excluding the 11 Steward sales, the 16 remaining transactions are still around the same levels for Q3 in 2018 (18), 2020 (19), and 2023 (18).
In terms of total transacted revenue, the quarter brought in $13.3 billion, the highest figure Kaufman Hall has recorded for a Q3 over the past eight years. However, the sheer volume of deals brought down the average seller size from a historic $984 million in Q2 to $492 million in Q3, bringing it closer to recent year-end averages.
Four “mega mergers,” or deals in which the annual revenue of the seller or smaller party topped $1 billion, took place in the quarter. One of those featured Steward hospitals, with Health Care Systems of America acquiring eight facilities in Florida, Louisiana, and Texas.
The other three transactions that qualified were Orlando Health’s purchase of Alabama-based Brookwood Baptist Health from Tenet, Prime Healthcare’s acquisition of eight (and eventually nine) Ascension hospitals in Illinois, and the merger between Sanford Health and Marshfield Clinic.
Several of the deals completed in Q3, including many of the Steward sales, illustrate the impact market conditions have on completing transactions, Kaufman Hall stated. Whereas an acquisition like the one by Orlando Health represents an attractive asset going to a regional system eager for expansion, the sale of Prospect Medical Holdings’ Crozer Health to real estate firm CHA Partners highlights the difficulty of divesting in less favorable markets.
Other M&A trends continue to include portfolio realignment as larger systems exit unprofitable markets and refocus efforts in core regions, as well as systems expanding into new markets to widen their reach.
“While the increasing number of transactions in Q3 2024 is getting us back to a normal level of activity, we are observing various challenges and opportunities in the market,” Anu Singh, managing director and Mergers & Acquisitions practice leader for Kaufman Hall, said in a statement. “The motivations for entering into transactions and partnerships vary. As we are seeing the number of strategic transactions accelerate, we are also seeing some organizations that face financial challenges are struggling to find a partner.”
Investing in cybersecurity and being prepared is a must for CEOs wanting to avoid costly attacks.
Cybersecurity has become a major pain point for CEOs in 2024 as the number of incidents have gone up.
Ransomware attacks on healthcare organizations have hit a four-year high since 2021, with two-thirds of companies saying they were impacted in the past year, according to a survey by security solutions firm Sophos.
While ransomware attacks tracked by Sophos across all sectors dropped from 66% in 2023 to 59% in 2024, healthcare trended in the opposite direction as 67% of organizations reported being affected this year versus 60% in 2023. For comparison, only 34% of companies were hit by an attack in the firm’s 2021 report.
This year’s survey is based on responses from 402 healthcare organizations across 14 countries, conducted from January to February.
The findings also revealed that the recovery time for companies after suffering a ransomware attack is getting longer. Fully recovering in a week or less was only possible for 22% of respondents, which was a significant decline from 47% in 2023 and 54% in 2022. More than a third of organizations (37%) needed more than a month to recover, an increase from 28% in 2023.
“The highly sensitive nature of healthcare information and need for accessibility will always place a bullseye on the healthcare industry from cybercriminals,” John Shier, Sophos field chief technology officer, said in a statement. “Unfortunately, cybercriminals have learned that few healthcare organizations are prepared to respond to these attacks, demonstrated by increasingly longer recovery times.”
It's getting costlier for companies to be vulnerable to cyberattacks. Even excluding ransom payments, respondents reported a mean cost of $2.57 million to recover from a ransomware incident, nearly doubling the cost of $1.27 million from 2021. The mean cost has steadily climbed since then, hitting $1.85 million in 2022 and $2.2 million in 2023.
CEO perspective
With the pressure rising expenses are putting on bottom lines, CEOs can ill afford to be unprepared for a cyberattack.
Yet 37% of respondents working at healthcare organizations report not having a cybersecurity response plan in place, a recent survey by Software Advice found.
Preventative measures like having the right people with relevant knowledge and experience in positions to oversee security is necessary, but so is having a response plan to deal with the fallout of an attack.
New Cedars-Sinai CEO Peter Slavin recently highlighted why cybersecurity should be firmly on the radar of executives on the HealthLeaders Podcast.
“It's incumbent on all CEOs in healthcare and other industries to be vigilant on this front, to make sure that there are tons of people in place managing that vigilance on a day-to-day basis, and that function is appropriately resourced,” Slavin said. “All organizations just need to do their best to try to prevent such a catastrophe from happening.”
The Catholic nonprofit managed to slash its operating loss by nearly $400 million for fiscal year 2024.
CommonSpirit Health's finances are heading in the right direction, but continue to be inhibited by challenges with payers, the health system said in its fiscal year 2024 earnings report.
Higher patient volume and reduced expenses allowed the Chicago-based nonprofit to trim its operating loss year over year, while claim denials and payment delays kept its bottom line from looking even better.
For the fiscal year that ended June 30, CommonSpirit reported an operating loss of $875 million, a marked improvement from the $1.2 billion loss suffered in the previous year. The system's excess revenue over expenses as adjusted was $503 million, compared to a $82 million net loss for 2023.
Revenue increased 8.2% year over year to $37 billion as expenses jumped 7% to $37.8 billion. Volume growth drove much of the revenue, with the system experiencing improvements in adjusted admissions (6.6%), acute admissions (6.4%), acute inpatient days (2.5%), adjusted patient days (2.4%), outpatient visits (6.9%), and emergency department visits (4%).
However, CommonSpirit pointed to difficulties with payers for holding back greater improvement.
"CommonSpirit's modest revenue increases were offset by continued challenges with payers on denials and timely payment," the system said. "CommonSpirit has taken a firm stance on contract renewals so payers absorb a share of inflation, and processes and terms are improved to ensure providers get paid for the care they deliver."
Denials have been a constant source of frustration for providers. In a recent survey conducted by Experian, more than 75% of revenue cycle management executives said denials are increasing, compared to 42% in 2022.
As hospitals and health systems attempt to push care to lower acuity settings, CommonSpirit also highlighted its ambulatory care expansion, with nearly 60 sites added in the past year.
However, the revenue gains are mostly due to price increases and a reduction in staff, a study finds.
Being acquired by a health system can be a fruitful outcome for independent hospitals, but often comes with sacrifices to realize improved profitability.
Specifically, acquired hospitals increased profitability by around $14 million per year, largely driven by cutting nonclinical staff and passing on increased prices to consumers, according to a study published in the Journal of Political Economy Microeconomics.
Researchers at the University of Pennsylvania’s Leonard Davis Institute of Health Economics analyzed 101 hospital acquisitions from 2013 to 2017 for independent and system-owned hospitals to estimate the conditions under acquisitions.
Though acquired hospitals were more profitable, much of their net gain stemmed from cutting expenses. Of the $11.2 million in annual reduced expenses, 60% were from eliminating jobs mainly in administrative, maintenance and supply, medical records, and pharmacy departments.
The efficiency boost was also only a one-time gain, with system-owned hospitals not showing any further reductions in operating costs after being acquired by a different system.
In addition to slashing jobs, acquired hospitals also raised prices to generate profit. Average inpatient prices after acquisition increased by up to 11%, with prices per hospital stay jumping $856 on average.
The study attempted to investigate the impact of acquisitions on quality, but only one of three measures—readmissions, mortality, and patient satisfaction—showed noteworthy change. Acquired hospitals higher 90-day readmission for commercially insurance cardiac care patients, pointing to quality suffering following corporatization.
“Increases in 90-day readmissions after corporatization signal the potential for reduced quality,” researchers wrote. “A possible mechanism is staff reductions, which could affect support services known to reduce readmissions such as coordinating, tracking, and following up on post-discharge patients.”
As hospitals pursue M&A to improve financial viability, patients are often disadvantaged. However, the study revealed that hospitals aren’t as incentivized to be acquired after the first time, meaning consolidation can have diminishing returns.
Ed Banos shares with HealthLeaders how the construction of two community hospitals will be a game-changer for the health system.
University Health is undergoing a transformation in more ways than one. In the coming years, the San Antonio-based health system will essentially double in size and at the helm of the expansion is a new but familiar face ready for growth.
Now three months into the job as president and CEO of University Health, Ed Banos recognizes that his biggest challenge is the extra volume the system has on its hands. In the short term, the focus is on hiring and managing additional staff to deal with the increased demand. Ultimately, the construction of two community hospitals will allow the system to better serve existing patients and care for additional areas.
The two new hospitals, expected to open in early 2027 in the South and North East sectors of Bexar County, will add to University Health’s two current hospitals and more than 30 clinic and outpatient locations. Significant expansion is on the way but the system has already been adding to its main teaching hospital, University Hospital in South Texas Medical Center, over the past decade.
In 2014, the hospital opened the doors to its 10-story Sky Tower, adding 420 acute care beds to the facility. This past December, the system opened the University Health Women’s and Children’s Hospital on the Main Campus, providing the community with a 12-story, 300-bed location.
“University Health has had a great history of growing the last 10 years and I would say our biggest challenge is the continued growth that we have,” Banos told HealthLeaders. “A lot of people use University Health, we've grown our physician practices, our partnership with UT Health has also put a lot of demand for more surgeries, operating room time. So capacity has been a big push for us because the demand is there and with demand comes the need to hire more staff.”
Pictured: Ed Banos, CEO, University Health.
Banos understands the appetite for expansion at University Health after being with the organization since 2015, when he was named chief operating officer and executive vice president.
On July 1, he replaced longtime CEO George Hernandez, who was with the system since 1983 and served as CEO since 2005.
Now, Banos is eager to see through the growth that his predecessor imagined for the system.
“The most exciting thing is that the vision the board and George had prior was that we cannot just be a one-hospital system,” Banos said. “We are here to serve all of Bexar County and all of South Texas from our specialty related programs and we were never going to be able to provide that service in the future if we were a one-hospital system that was so landlocked in beds.”
The upcoming hospitals in South Side and North East will serve collective purposes, as well as individual ones, Banos stated.
“On the South Side, it's going to be a huge economic generator,” he said. “Our South Side has not had a lot of infrastructure put into it from a community standpoint. Us putting in that hospital now and a couple of housing developments now, you're going to see a real economic development change on the South side, better infrastructure, better paying jobs, which will lead to a lot of other great things.
“On the North East side, it's just important because that's a huge fast-growing area that already has the infrastructure but doesn't have a real good University Health presence. For us, that will be a new market but it will also be a good market where we can take care of patients that had limited access to University Health.”
Both hospitals will also allow the system to integrate technology more seamlessly. Banos admitted the term ‘hospital of the future’ is all too common these days, but that’s what he envisions for the new facilities because technology will be more built into their fabric than at a hospital like the Medical Center.
“We'll be able to really put technology in there,” he said. “So we think of ourselves having what we consider smart rooms that might be able to do telehealth, monitoring, those types of things. We really believe these community hospitals will be much more technologically advanced and capable because they're going to have the infrastructure built in them. With the stuff we're doing in our main hospital, a lot of that is being added on. We're having to put it on right now. But a hospital that will be built with all that infrastructure and all that technology, we'll be able to monitor patients from far away, we'll be able to use artificial intelligence to do a lot of our work that is being done much easier in a hospital that was built that way than one that is retrofitted.”
Achieving growth as a health system right now can be a challenge in the current economic climate. For University Health and Banos, the opportunity is one they’re poised to meet.
