Integrated banking systems help healthcare organizations thrive
From labor shortages and inflation to new competitors and value-based payment models, recent years have brought unprecedented challenges to the healthcare industry. While the economics are improving, headwinds remain. KeyBank is helping healthcare organizations thrive in today’s complex world by providing up-to-date banking technologies and expertise.
Yet, despite the headwinds, optimism is on the rise in the healthcare industry. In KeyBank leaders’ conversations with health system executives, one common theme is that the environment is improving.
That perspective is supported by data in KeyBank’s most recent Middle Market Sentiment report. Nearly three-quarters, or 72%, of healthcare executives surveyed see an excellent or very good outlook for their organizations in 2024, and 50% expect significant revenue increases in 2024.1
Another point of optimism is large anchor health systems are increasingly prioritizing health equity in their communities. Concurrently, the business of healthcare is becoming more regional, and the regions are growing larger, giving community-focused healthcare providers an opportunity to increase their impact on community health.
If you aren't thinking about how to deliver care to underserved communities where you operate, you are already behind. You can either invest alone or you can put your capital to work alongside community development financial institutions.
Agapito “Aga" Morgan, commercial healthcare leader,
Commercial Bank, KeyBank
To thrive, leading healthcare organizations are seeking new ways to increase efficiency in their administrative operations and position themselves for future success. These providers are investing in lean, efficient operations and collaborating with their banking providers to adopt technology-driven solutions that free up resources for patient care. With its team of dedicated experts, Key Healthcare® has been helping not only hospitals but a wide range of other healthcare providers, including healthcare insurers, to secure capital to modernize their technologies, streamline payments and cash conversion amidst the growing array of payment channels, and access growth capital.
Tackling the persistent headwinds
The curve has shifted on the expense side. Over the next few years, merger and acquisition activity and layoffs will pick up. Unfortunately, hospital bankruptcies will also increase.
Dave Morlock, managing director, co-head of health systems mergers and acquisitions,
Cain Brothers, a division of KeyBanc Capital Markets
Scale has become a critical strategy for capturing diverse revenue streams from as many patients as possible — but the benefits can only be realized when operational systems are successfully integrated.
“People have often said that healthcare is local, but that’s not true,” says Morlock. “Ultimately, we will end up with a relatively small number of large, regional players. The number of survivors in those regions will vary, depending on the markets. Regionalization is definitely happening and it’s going to continue. The key to being able to survive, thrive, and compete effectively is attaining scale within a regional market. This trend doesn’t bode well for independent provider organizations that lack scale yet are trying to go it alone. They will struggle to compete against regional players with greater scale.”
Another trend reshaping the market is that insurance companies are acquiring physician practices, leading to “payviders.” UnitedHealth Group has become the largest health insurance company in the country and, through Optum Care, it also owns the U.S.’s largest physician group. Humana is in the physician business, as well.
The emergence of nontraditional healthcare providers and alternative delivery models, including home healthcare and digital health, also are disrupting the traditional structure of the healthcare industry. Nontraditional providers like home healthcare, care delivered through telemedicine and wearable monitors, and digital health are growing significantly.
These disrupters have brought diverse payment channels, increasingly the complexity of payments — along with introducing potentially costly cybersecurity risks.
The shift to value-based reimbursement is one of the most profound forces reshaping the health industry. Medicare Advantage, in particular, is shifting from the fee-for-service model to a value-based model in which provider payments are linked to patient outcomes. Ultimately, Medicare’s shift may become the tipping point for value-based care in the United States — creating enormous pressure for healthcare providers to streamline both their care and administrative operations.
“Medicare Advantage could become the healthcare equivalent of 401(k) plans,” Morlock says. “It’s a shift from a defined benefit perspective to a defined contribution approach. Medicare Advantage will probably be the accelerant for value-based care.”
Significant labor shortages continue, contributing to rising costs. Many hospitals are unable to perform a full schedule of operations — a key driver of revenue — simply because staff is unavailable. “We are seeing less activity than before the pandemic and it's creating a lot of turmoil,” says Morlock.
Operating expenses beyond labor costs also are rising because of general inflation, supply chain challenges and the price of fuel needed to transport supplies. Relatively high interest rates have increased the cost of debt and the cost of borrowing for hospitals. In addition, the Medicare Hospital Insurance Trust Fund is on track for depletion in 2028 — creating a potential financial shock for hospitals unless Congress authorizes replenishment funding.2
Navigating a path to the future
KeyBank has found that some independent hospitals and larger health systems are adjusting quickly to this new world order and are acting nimbly. The ones that are best positioned for future success are running very lean organizations and leaning on their banking relationships to help them digitize financial management and capture revenues more efficiently.
First and foremost, KeyBank is advising clients to focus on their balance sheets. “Now is the time to think about adding liquidity to your balance sheet,” says Morgan. “It may be time to lessen the focus on independence and to think about merging with the right organization.”
Cain Brothers, a division of KeyBanc Capital Markets, has helped numerous healthcare organizations execute mergers and acquisitions. The firm also helps providers diversify their revenue streams through joint ventures with ambulatory surgery centers, behavioral health providers, home healthcare, or other organizations.
“From a strategic positioning perspective, you need scale to be a long-term survivor,” says Morlock, “but the new version of scale means the ability to compete for covered lives within a regional market. It goes beyond traditional economies of scale.”
How a banking relationship can help
U.S. healthcare spending grew 4.1% in 2022, reaching $4.5 trillion or $13,493 per person, representing 17.3% of U.S. domestic product.3 Given the importance of this sector from an economic and social perspective, efficient operations and are vital for healthcare providers — from revolving lines of credit, growth capital, and real estate and equipment financing to receivables and payments systems.
With its deep understanding of the healthcare market and its portfolio of diverse businesses, KeyBank is committed to helping health systems succeed in this challenging environment. Given the importance of this sector from an economic and social perspective, KeyBank views healthcare as one of its strategic pillars.
From a middle market, commercial banking perspective, KeyBank offers a broad range of solutions to healthcare businesses across the care spectrum. Its offerings include balance sheet support on the taxable side, with liquidity-supporting revolving lines of credit and more, as well as balance sheet support on the tax-exempt side, growth capital, equipment financing, and real-estate financing and refinancing.
For treasury and commercial payments, KeyBank helps digitize accounts receivable and accounts payable for hospitals, health systems, and other health businesses. The goal is to digitize the entire process and streamline patient engagement.
Cain Brothers, a division of KeyBanc Capital Markets, focuses exclusively on healthcare, offering comprehensive merger and acquisition advisory services to hospitals, providers, managed care service companies, healthcare IT, and other healthcare organizations. It is the leader in private equity-backed, middle market, and capital-raising transactions, and also supports healthcare capitalization and recapitalization transactions, underwriting, and access to debt capital markets.
Digital transformation can help healthcare providers protect against threats to its cybersecurity and to its margins by boosting efficiency and streamlining revenue capture. In fact, much of the improvement in healthcare financial results over the past year is the result of digital transformation efforts, according to McKinsey and Company research.4
Digitization and automation can help healthcare providers overcome labor shortages by eliminating or drastically reducing the amount of manual processing involved in the payment cycle, from deposits to invoice reconciliation.
With a digital payment strategy, a healthcare system can integrate multiple payment and receivables channels in a secure environment and streamline operations by automating invoicing and vendor payments, and digitizing workflows and purchase orders.
An urgent need for modernized payments processes
Leading healthcare organizations are realizing the benefits of digitizing the payments experience. Critical to any business, payments are particularly complex in healthcare. By leveraging automation, today’s digital payment systems provide a seamless and simple experience for hospital administrators and patients alike.
KeyBank has worked with specialized third parties to help manage the payment issues faced by hospitals and physician practices, such as assigning billing codes, accepting payments, and securing reimbursements in complex payment cycles. We help insurance companies and healthcare providers across the spectrum to integrate payment channels and manage their revenue cycles and payment workflows.
J.J. Blair, commercial payments leader, KeyBank
In fact, at least 25% of patients expect to receive and pay medical bills electronically, but only 8% actually are. Consumers want to pay with the touch of a button, whether they are ordering takeout, shopping online, or paying for healthcare. An efficient, automated payment system can collect, disperse, and accelerate patient payments while meeting consumer expectations.5
“A strong digital payments strategy addresses today’s challenges, delivering efficiencies in healthcare receivables and helping to reduce costs,” says Blair.
Keenly aware of cybersecurity risks, KeyBank has designed its patient payments platform with built-in fraud protection and security to ensure personal payment information is not exposed to online threats.
“We work with a variety of innovative technology companies to offer a comprehensive payment program to healthcare organizations,” says Blair. “Given the conservative, risk-averse culture of healthcare, KeyBank deploys rigorous risk assessment when curating a tailored healthcare payments strategy.”
Streamlined payment systems also help healthcare organizations leverage the benefits of scale. Mergers and acquisitions continue to be a reliable strategy for capturing market share and bolstering balance sheets to improve liquidity.
Banking support that helps retain employees
Given the high cost of healthcare education, financial management tools can be valuable for helping employees feel valued and supported — and more likely to stay with their employer. With Laurel Road, KeyBank’s digital-first, healthcare-specific consumer banking platform, healthcare organizations can help employees manage their everyday finances and their sometimes-onerous student loan debt.
Laurel Road, as well as KeyBank’s recently acquired student loan forgiveness counseling services provider, GradFin, helps alleviate some of that burden. GradFin gives healthcare consumers access to no-cost consultations with student loan experts, helping them understand their options for student loan forgiveness, refinancing, or a combination of both. GradFin helps healthcare professionals navigate the complexities of the student loan forgiveness application process, so they can take full advantage of the program’s financial savings benefits while also having access to Laurel Road’s competitive refinancing rates.
The cost of education isn't coming down and the amount of time that people commit to healthcare education is huge. Large healthcare organizations must think creatively about how to attract and retain top talent. Since March 2020, the CARES Act has enabled organizations to pay up to $5,250 of an employee's student loans as a tax-free benefit. We think that benefit will become the norm, like a 401(k) plan.
Diana Welch, head of Laurel Road for Hospitals,
Laurel Road, a brand of KeyBank
By working with a healthcare employee-focused company like Laurel Road, a healthcare employer can provide employees with resources to make good financial decisions. “Healthcare professionals — particularly physicians — are like professional athletes,” says Welch. “Once they finish their training, they have a lot more responsibility and they come into a lot of money. But do they have the tools to manage that money properly?”
In addition to assisting with refinancing student loans, Laurel Road for Doctors enables providers to offer checking and savings accounts, mortgages, personal loans, and a credit card. In 2022, Laurel Road also launched tailored solutions for nurses, including a checking account that lets nurses earn monthly cash rewards.
“Healthcare organizations must take a holistic view and not just help employees get out of debt, but help them thrive with the money they have,” says Welch. “That’s where Laurel Road comes in.”
Helping healthcare organizations thrive
As healthcare organizations navigate today’s uncertainty, KeyBank is leveraging its healthcare expertise and broad range of solutions to help provides not just survive but thrive. Combined, its investment banking capabilities, Laurel Road services, commercial banking platforms, and treasury management expertise create a unique resource for healthcare providers. With flexible banking approaches that accelerate digital transformation and optimize efficiency, healthcare organizations can direct resources to patient outcomes — and thrive.
About Key Healthcare®
Key Healthcare provides a holistic approach and deep industry expertise customized to our clients’ needs. Key Healthcare’s comprehensive capabilities include investment banking, real estate, treasury management, and financing solutions. Nearly 10,000 clients rely on Key Healthcare to deliver strategic and innovative solutions that address today's healthcare challenges and opportunities. Visit key.com/healthcare to learn more.
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Centers for Medicare & Medicaid Services, 2022 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, June 2022
Centers for Medicare and Medicaid Services, National Health Expenditure Accounts, 2022
McKinsey & Company, What to expect in US healthcare in 2024 and beyond, January 5, 2024
KeyBank’s patient payments system is tackling healthcare’s most challenging pain points, April 2023
This article is for general information purposes only and does not consider the specific investment objectives, financial situation, and particular needs of any individual person or entity. Information included was prepared based on information from business leaders considered to be reliable, and an express disclaimer of warranty, express or implied, as to such information’s accuracy or completeness. KeyBank does not provide legal advice.
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