The Existential Crisis in Healthcare
A conversation with Rishi Sikka, M.D., Board Member, Presbyterian Healthcare Services, and Nathan Bays, Healthcare Investment Banking, Citi
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Nathan Bays: We're in Nashville this morning, and I'm with Dr. Rishi Sikka who is a board member at Presbyterian Health in New Mexico and a Venture Partner at Lifeforce Capital. But most importantly a great friend of a long time so it’s fun to be here in Nashville with Rishi at the Trilliant Health Economy Summit. Rishi, when you look ahead from your perch as a health system executive and health system board member who also spends time with healthcare technology and life sciences companies, what do you think are some of the major trends and themes that will drive the narrative and activity in the coming year?
Rishi Sikka, M.D.: Thank you, Nathan, and great to be here with you in your new hometown, too. That is very exciting. Speaking of exciting, I think 2023 is going to have some continuation of that excitement. Certainly, on the healthcare delivery system side and the not-for-profit healthcare delivery system side,I think we'll see a continuation of some of the trends and unfortunately, probably exacerbation of the underlying things that we've seen during this year, and even going back to 2021, whether you look at it clinically, operationally, or financially. I would say perhaps the number one issue is around, labor, staffing, whether you want to frame that as issues around culture, and retention, whether you want to frame that as issues around recruitment, whether you want to frame those as issues around the cost of labor and labor productivity. Those are probably going to be structural challenges that are going to persist for some time; I would anticipate, obviously continuing to 2023 and continuing to impact the ability to see patients.
The second issue is around the financial performance, certainly the cost of labor. If you zoom out, labor productivity is going to continue to challenge not-for-profit finances. I think we've all seen the numbers over the course of this year. In terms of the losses, those are both operating losses and, and losses on the investment portfolio. Probably, I think something that's going to continue for at least two to three more years, that is going to put a lot of strain on balance sheets. It could put a strain on debt covenants. For some organizations, it could be a time of trepidation. It would probably precipitate console additional dealmaking. That is questionable in the current climate. That's on the not-for-profit side; we can go deeper on that or talk about the startup piece.
Nathan Bays: When you think about the not-for-profit delivery systems with your background, how are organizations shifting strategy? How are they changing operations to deal with the challenges that they are seeing coming out of COVID?
Rishi Sikka, M.D.: That's a great question. Some of the tactics that have been used in the past are perhaps not as effective. On a short-term basis, looking at all the pieces around culture, and then fundamentally wages. Part of the reason why we have the staffing piece that is occurring, and why travelers were so popular. You had health systems where people were leaving, joining the traveling agency, and then just going back to work at the health system, right? You had a fundamental supply-demand mismatch in terms of what the wages were.
On a short-term basis, both issues about culture and the overall compensation package, including the opportunity for education and development and having parity with non-healthcare organizations are important. Unfortunately, on a longer-term basis, the challenge around productivity is going to take maybe five to ten years of intensity at work, to not just improve productivity, but that a lot of the manual processes that we have are no longer occurring and that the overlay of technology, particularly EMR is having real benefits.
One of the interesting things is, anecdotally, that at a lot of organizations, a lot of scheduling is still done manually, with sticky notes and Excel spreadsheets. It doesn't lend to the kind of sophistication that's needed in the new environment. That's just one example.
Nathan Bays: That makes a lot of sense. So, it's a challenging environment, it's going to continue to be challenging into 2023. Maybe some green sprouts of hope at least as we think about being able to shift focus from being only around COVID, or largely COVID, to moving out of that world and being able to adjust back. Is that a fair characterization of how you see the world?
Rishi Sikka, M.D.: I do think that's a fair characterization. The other issue that we're going to talk about tomorrow in the session, is that there's, at least on the health system side, a clear imperative for change. The question is, what is the nature of that change? I like to think about it as sort of an existential crisis. The drivers of the existential crisis are that the cross-subsidization business model, which has been eroding and continues to erode and is going to fail cross-subsidization, and that the margin from the commercial net commercial patients is subsidizing the loss on a government base.
But that's one cause of the existential crisis, the entrance both in the form of vertically integrated plans and retailers that are entering the space, again, taking largely that commercial market share is a second issue. I think the third issue for this existential crisis is that clearly healthcare systems are regarded as a cause of the high cost of healthcare. Affordability is a key topic right now. Health systems, I think, are really, for lack of a better word, kind of being blamed for that, in policy, media, and in government. So those three things are causing this existential crisis.
So with some kind of change has to occur, the challenge is, what is that change that needs to occur? Then, if you change too fast, you possibly risk becoming a nonviable business, right? If you change too slowly, you potentially have the risk of losing the license to trade in the marketplace. That makes it a very challenging time for leaders. That's the heart of this existential crisis what should you be changing to because of these threats? How quickly? How do you pace that between not being viable in the marketplace? Or not being viable financially?
Nathan Bays: Final question. What are you most excited about? When you look out across the next year? What gives you a lot of excitement and energy?
Rishi Sikka, M.D.: Yeah, you know, I still find a lot of excitement with the startups, with new entrants who are doing a lot of innovation. I think a lot of them are doing things to help improve the overall efficiency, and the cost of care. A lot of entrants that are doing things to take slices of specialties, you know, maybe a slice orthopedics or a slice of, of oncology, and they're focusing on that slice to reduce total cost of care, as opposed to, you know, one chassis or primary care exclusively being responsible for reducing the total cost of care, I think the sort of real laser focus on particular verticals of spend, and organizations that are tackling that are particularly exciting. I spent some time teaching and lecturing with undergraduates and graduate students. There is just no shortage of enthusiasm for folks who want to get into healthcare. That is great that there are people who are energetic, enthusiastic, and extremely bright, that are willing to get into the belly of the beast to make things better. That gives me not just a lot of energy and strength but a lot of hope, too.
Nathan Bays: Yeah, it's exciting to see. Rishi, thanks so much. It was great to chat with you. Thanks for sharing your thoughts and great seeing you today.