🏥 HCA's Grand Plan: Part 2

How HCA thinks about clinical innovation, nurse retention, physician alignment, financial projections, and challenges on the horizon for the hospital giant

PARTNERED WITH Happy Thursday, Hospitalogists.   Today we're diving back into HCA's recent investor day. If you missed Part 1, you can read both parts fully online here!   Part 2 today: Optimizing operations - What IT investment and digital transformation looks like for HCA A hyper focus on nurse and physician pipeline Tying HCA's grand strategy together Challenges on the horizon for HCA & Hospitals   This one took me - and is taking me - a while to put together, so if you find it valuable I'd appreciate you subscribing to Hospitalogy here!   Thanks so much to Navina for sponsoring today's send. They recently announced a partnership with Privia Health back in September and are doing some cool things. Check them out here. Was this email forwarded to you? Subscribe Here SPONSORED BY NAVINA A complete picture of a patient's health is crucial for accurate diagnosis capture and effective treatment.    But already overburdened clinicians spend way too much time sifting through fragmented and chaotic patient data rather than sitting in front of their patient.     Enter Navina.   The first AI model designed specifically for primary care, Navina's AI platform transforms complex data from EHRs, HIE, labs, and even scanned PDFs into a concise and timely patient portrait. It also delivers AI-powered diagnosis recommendations at the point of care, helping clinicians accurately capture patients' health status and improve value-based outcomes.   Navina is on a mission to reduce burnout and transform the primary care experience in a value-based world. Risk-bearing organizations like Privia Health and Tampa General Hospital have already joined in. Check them Out PART 2 Part 2: HCA Investor Day Breakdown - Resources HCA investor day presentation HCA initial pre-2024 business outlook Read in Browser What does IT Investment and Digital Transformation look like for HCA? Even an old, longstanding company like HCA recognizes the need for innovation and to continue to offer patients & clinicians better, more optimized experiences. I've touched on one such way HCA is exploring this in partnership with Augmedix and an ambient documentation pilot.   HCA wants to optimize its internal operations and existing market footprint through tech investment in various key areas. They've identified annual cost savings of $600M - $800M through these initiatives as small efficiencies found over time translate into huge value across an entire $60B portfolio: Reducing length of stay; smart capacity and workflow management The second is this idea of leveraging process improvement, technology and automation. Think about case management as a decentralized service, right? So we have these 3,000 people. They're embedded in 183 hospitals. In the past, this was a very not only decentralized but unstandardized process set. And so through process improvement and through the adoption and rolling out of technology and automation, we're able to take what is a decentralized function and produce support through standards and through investments, that elevates the performance of this across the company in a scalable way without having to centralize resources…Now what is the impact of that? The impact of that is the equivalent of building 500 beds of new capacity. Revenue cycle management & back-end optimization: Supply chain and purchased services optimization (HealthTrust) Advanced internal benchmarking and analytics to reduce performance variability and clinical variation:   I wanted to take a minute and use the hospital benchmark tool as one of the examples of this work. And this tool was rolled out company-wide last year. It's been very powerful. And what it does is this, it takes 169 key performance indicators across 7 domains of performance. So think labor management, human resources, physician cost, et cetera. Each of these domains have a landing page that looks like this.   And for every one of those metrics, the hospital management team knows how they rank in the company. So think about being a hospital C-suite member: a CEO, a CFO, a COO. And they are able to use this report, and they know where they rank in the company against their key performance indicators. And I mean literally, like they get a rank of I'm #1 of 183 or I'm #183 of 183. And no one really wants to be 183, right?   That's the anchor person. And so there's a lot of competition that we create in the field for people, and our teams are competitive of making sure they understand their performance gaps and then start taking action against them…This data updates daily, weekly and monthly depending on the metric. And our hospital management teams are using this tool to find their biggest performance gaps.     On RCM optimization and use of generative AI:   One of the ways that we're addressing denials is by unifying our data, layering on advanced technologies like generative AI and using that intelligence to transform our processes.   We have immense amounts of data from multiple systems and for seemingly different purposes that we're bringing together in the cloud. And that's harder than it sounds because you have to standardize and map all the data together, but it's so worth it. Imagine the power of having a patient's clinical information and financial information and payer contract details and language as well as details and time stamps on every activity all in one place.     HCA's digital transformation strategy revolves around two key partners: Google and Meditech.   As we envision the future health care delivery environment, two key technology partnerships will serve as our next-generation catalyst. First, we believe our partnership with Google will fundamentally improve our ability to use the cloud's best attributes, speed and elasticity. We also expect our close partnership will also provide us an accelerated glide path with both generative AI and our next generation of analytics.   Our second key partnership is with MEDITECH. We believe our enterprise adoption of a new foundational electronic health record will not only serve as our transactional clinical system of record, but will increasingly become the method by which insights identified by the HCA Healthcare Intelligence Net, which we are developing with Google, will be delivered into the clinical workflow real time, providing our care teams access to profoundly differentiating clinical decision support.   Some ways that HCA is targeting care delivery and administrative transformation through tech: Reducing administrative burden for clinicians Labor force management - staffing and scheduling automation (a platform called Timpani, live in 9 HCA hospitals) Documentation burden: And so what we're building with a partner called Augmedix is an ambient speech-driven technology where you can put the phone in between you and the patient, and we're doing this in our emergency rooms, that's Dr. Alex Stinard. He's our Chief of Emergency Medicine at UCF Lake Nona in Orlando. And you can interview the patient and the patient responds and the AI is listening, transcribing that entire event, and then natural language processing and large language models break that transcription down into the structured documentation that we need that can then be fed back into the electronic health record. So this system is live in 4 emergency rooms. Right now, we have a human in the loop, so we have a medical scribe that's in the middle of that process that helps sort of clean up the note because the AI is still learning, but it's continuously getting better. And large language models have massively accelerated this work. So right now, we have a target of the AI being able to completely independently build this structured note, 60% of the content being completed by the AI by January of 2024. And then the more users we can expand it to, the faster it will get smarter as it learns from all of those encounters. We started with the emergency room because it's basically the hardest place to do this. It's chaotic. It's noisy. It's asynchronous care. And so we know if we can do it there, we can take it to all the other areas of our acute care frame. You've probably heard about this in other spaces, right? Maybe part of like Nuance and [ DACs ] and some of these other systems that Microsoft is working on. But one key differentiator for us is that we are focused on structured data. We don't want to go backwards and just have AI create free text notes that then drops into the record because the structured data is what's going to power this entire Intelligence Net. So it's maybe taking us a few minutes more to get this done because we're focused on that key outcome. Redesigning care processes from the ground up with new innovation in mind Moving to Meditech's nextgen EHR - MEDITECH Expanse, an interoperable cloud-based system And the last thing, which I mentioned in the beginning, was interoperability. And this does make MEDITECH stand out as a little bit unique in the industry in that they're building a system that they don't see as the be all, end all clinical system. They don't want to be all things to all people. They want to do what they do well, which is that core electronic health record, but then they want to partner with folks like us to be able to bring innovations alongside or even incorporate it into their system. So they built it such that it has APIs and FHIR interfaces, so that if we build a really interesting algorithm inside Google, inside GCP, we can feed that data back into MEDITECH and they can get right into the workflow of our providers. So as Marty mentioned, it's a really important partnership as we work together to understand what are we going to do inside with MEDITECH and then where are we going to innovate alongside them. Standardizing workflows across hospitals Other generative AI initiatives: Shifting patient handoffs for nurses from a manual to an automated process Building upon existing prompts to generate more sophisticated use cases (discharge summaries, ER to inpatient handoffs, etc)   On scalability, security of using LLMs like ChatGPT: The key thing about this is the scalability. So you can do this in ChatGPT if you grabbed a bunch of documents and just dropped it in there. We would never do that because they don't protect our patient information if we do that. We have pipes into these large language models where all the information is protected. But to do it at scale, to do it in a scaled reproducible way where you continuously monitor the output, is actually the challenge. And that's the innovation that really our teams have created here is the ability to do this in a scaled way.   A Hyper Focus on Nurses   Nurses are the heart of any hospital, and HCA recognizes that - particularly post-pandemic. From a business standpoint, nurses are also key to capacity growth in HCA hospitals. For that reason, HCA is prioritizing its nursing strategy given current labor dynamics for most hospitals:   From a national supply perspective, 100,000 nurses left the profession in 2021 and 2022. And if you couple that with the 6% projected RN job opening growth over the next 10 years, you can see that supply gap just continues to grow. Additionally, the nursing workforce is aging. Today, the average age of the nurse is 52 years old, and 20% of those nurses are expected to retire in the next 5 years. From a pipeline perspective, there's currently not enough graduating nurses to backfill the nurses that are leaving.   HCA has (correctly) identified nursing - and nurse happiness - as key to organizational success, and to that end, noted a laundry list of initiatives to support its nurses: Connection with our nurses is critical to our success. Nurses want to learn and grow and in HCA Healthcare, they have that ability. Whether a nurse wants to stay at the bedside as an expert clinician, we need that. Or if they want to take a leadership path, we need that as well. The dialogue is interesting to me considering that HCA doesn't seem to have the best track record among clinicians for those they employ - for instance, if you look on the r/nursing subreddit, or look at social discourse on the hospital giant. Perhaps this is a vocal minority, but it's another datapoint that HCA didn't touch on in this presentation (for obvious reasons).   On investment in its nursing college pipeline (Galen College of Nursing):   Our majority ownership in Galen College of Nursing will continue to increase our capacity and our supply of future nurses. Our vision is that we have a Galen College of Nursing on the front end of each of our provider systems. Galen is an integral part of our overall system. Our current focus is on nursing, but in the future, we would explore the opportunity to leverage Galen for Allied Health.   Since our acquisition of Galen in 2019, we have grown our campus sizes from 5 to 20, with a projection to add 10 additional campuses by 2026. Student enrollment in our markets is strong and is projected to be at 29,000 students in 2026. This will position us as 1 of the largest providers of undergraduate nursing education in the country. Emphasizing recruitment and retention - down to 17% turnover from a high of 28% Advocating for nurse leadership; formalized leadership training and nurse career advancement Our nurses have endless career opportunities. Nurses want to learn and grow. They do not have to leave our company to be able to accomplish that. We're leveraging our assets to shape the future of nursing. Providing nurses with the right tools & support resources to reduce burnout & emphasize communication - assigning unlicensed or other non essential personnel for duties not at the top of the license for that nurse, documentation solutions for charting & handoff, etc. Leveraging technology to extend nurses - e.g., virtual nursing programs that complete discharge / admission processes; better equipment management   How HCA's Grand Strategy comes together   All of these tactical decisions and investments come together into a cohesive hospital-wide strategy for HCA. Given its insights into its local markets, overall healthcare spending trends, and specific growth prospects, HCA plans to expand its enterprise-wide market share to 29%:     Population growth, aging baby boomers, in chronic conditions, yes, such as diabetes, obesity and so forth, put pressure on the demand curve. We estimate that the total inpatient market will grow in excess of 10% over the next 7 years to an estimated 8.3 million inpatient admissions in HCA's markets. This is a slightly accelerated rate of growth over the past period that we've studied.   On the outpatient side, we expect demand to be even greater than what we see on the inpatient side. And this is especially true for our emergency room services and outpatient surgical services. As I previously mentioned, we've had success in growing market share. We set a new target for 2030 of 29%, which is continuing the path of growth.     How does HCA's strategy culminate into financial outperformance among hospitals? HCA didn't provide much (yet) in its expectation for 2024, other than to say in its 2024 preview it'll hit 4-6% Adjusted EBITDA growth and 8-12% diluted EPS growth. Here's what that might look like over the next 5 years if we assume HCA maintains its 20% adj. EBITDA margin and 5% midpoint growth:     This financial outperformance among hospitals has resulted in impressive shareholder value over the past decade+:     Challenges on the Horizon for HCA & Hospitals.   HCA is not immune to the secular headwinds facing the hospital industry. For instance, the shift to Medicare Advantage and swelling owned care delivery asset bases of the largest insurers is another growing 800-pound gorilla in healthcare. Labor and clinical talent - particularly physician alignment - will always be a problem. Well capitalized startups aim to snatch outpatient market share away from hospitals, threatening the networks of these sprawling systems. But time and time again, HCA has stood fast against ongoing hospital operating challenges.   Finally, despite its business acumen and stellar track record of returns, HCA is not without rebuke. For instance, the publicly traded health system has been accused of questionable ED admissions, aggressive hospice discharges and billing practices, and most recently, anticompetitive practices in its recent takeover of Mission. Many issues affecting healthcare organizations in the future will come from people. Labor shortages. Physicians feeling as if their voice is squashed in the Corporate Machine.   In 2024 and beyond, HCA and others will need to double down on communication efforts, both internally and externally, as hospital costs, hospital CEO pay, hospital billing practices, and other anti-hospital rhetoric remain in policymaker crosshairs. Otherwise, trust in a traditionally steadfast institution will continue to degrade. And as that degradation occurs, strategy and execution will follow suit - M&A gets harder, recruitment of clinical talent gets worse, and growing patient mistrust in an industry that requires relationships will create financial headwinds.   "The U.S. the health industry is composed of good and bad actors in each of its sectors:  none owns the moral high ground exclusively though some believe and act as if they do. The health economy has been good to investors and entrepreneurs, especially those who sell products and services to hospitals, medical groups, and long-term care providers and the adjudicators of their transactions.   Shareholder values for these increased 5.9% between 2013 and 2018 compared with 3.6% for the S&P 500 as a whole. Accolades, facility names and scholarships memorialize the financial successes of these while those who provide care—hospitals, nursing homes, public health providers—struggle as their operating costs soar and margins erode.    But that's noise to consumers: they see a system that's big, profitable and self-serving. And, in popular media, they hear it has failed to improve life expectancy, imposed medical debt on 2 in 5 households and addicted a generation to harmful drugs." - Paul Keckley   If you got all the way here, thanks so much for reading. This was a doozy. Feel free to reply with any thoughts!   JOBS IN HEALTHCARE Here are some jobs that I'm curating for the healthcare industry. You can see the full list of jobs I've curated here. If you're looking to hire, use the promo code HOSPITALOGY to get your first job listing free on my curated job board. Thanks for the read! 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