Wednesday, April 24, 2024

The continued transformation of North Carolina’s health systems and hospitals


This is the thirtieth in a series of informative monthly articles for North Carolina businesses from PNC in collaboration with BUSINESS NORTH CAROLINA magazine.

Following a year when North Carolinians saw access to healthcare expand and regional M&A activity in the healthcare space tick upward, there is little question that 2024 will bring continued transformation to this inherently dynamic sector. And while labor pressures and rising costs continue to put a strain on providers’ operating margins, continued innovation and opportunities for strategic growth can be expected to help propel the state’s health systems and hospitals forward, says Charlotte-based Parker Marsh, senior vice president and senior relationship manager for PNC Healthcare.

“When we look at the landscape holistically, North Carolina is home to a robust network of health systems and hospitals, which supports the physical health of North Carolinians and contributes to the economic health of our communities and state more broadly,” says Marsh. “The industry continues to see new entrants challenge established business models, including non-traditional players entering the ecosystem, while healthcare professionals continue to search for new ways to improve the impact and efficiency of care.”

Parker Marsh

Trends shaping the evolution of corporate healthcare, says Marsh, include recent changes to state legislation, continued M&A activity, the adoption of AI-enabled technology to drive cost savings, payment and patient financing innovations and strategic efforts to manage profitability against the backdrop of workforce shortages, rising labor costs and a high interest rate environment.

As a result of the passage of House Bill 76, the legislation that expanded eligibility for Medicaid coverage to an additional 600,000+ North Carolinians in 2023, eligible hospitals in the state will receive payments through the Healthcare Access and Stabilization Program (HASP) – funding that will be critical for healthcare providers that are working through financial turnarounds of their organizations and planning strategic capital projects.

Additional developments per House Bill 76 have included several Certificate of Need (CON) changes, which will be phased in over several years. Among the most significant changes is the impending exemption of “qualified urban ambulatory surgical facilities” from CON review. This exemption may encourage new players to enter urban markets, which could drive competition for surgical procedures that historically have been provided by established providers.

In addition to these legislative changes, North Carolina’s population influx is creating its own set of growth opportunities. “Healthcare providers in our state are benefiting from population growth and the larger patient base that accompanies that growth, which can lead to increased revenue and opportunities,” says Marsh. “Additionally, population growth can attract more healthcare professionals to the state, improving access to care and the quality of services provided.”

Despite increased scrutiny of M&A transactions among healthcare organizations, consolidation is likely to continue in 2024 as hospitals and health systems look to gain efficiencies and pursue value-based care.

This proclivity is particularly evident in the acute care sub-sector, says Marsh, as increased wages and nurse-to-patient ratios may drive acute care entities to seek partners or larger providers in order to drive economies of scale in other areas of the business.

The adoption of AI-enabled technologies is prone to intensify as healthcare organizations continue to explore where AI can most effectively be deployed, both in clinical care and in cost-saving exercises. Business partners of hospitals and healthcare systems, in turn, are investing in platforms to automate and improve administrative functions, while also capturing value.

“One common pain point we often hear about from health system executives is the challenge of successfully submitting insurance claims, and how this leads to lost revenue, extended timelines for receiving payment and the diversion of critical resources,” says Marsh. “As a banking provider to hospitals and health systems, PNC evaluated how to leverage our in-house technology and innovation to deliver a solution to this efficiency drain.”

As a result, PNC developed PNC Claim Predictor, an AI- and machine learning-enabled solution that helps healthcare organizations to proactively identify inaccurate or insufficiently populated insurance claims prior to submission, resulting in time and expense savings and a reduction in lost revenue.

Just as providers have continued to deliver increasingly more options for accessing healthcare, they have steadily introduced additional patient financing and payment options, in collaboration with ecosystem partners and technology, to help consumers manage out-of-pocket healthcare costs.

For example, PNC Healthcare teams up with Charlotte-based AccessOne, a leading healthcare fintech company, to help healthcare providers develop customized payment plans for patients, resulting in more repayment tools and flexibility for consumers and more funding options for providers.

With cost structures remaining high and labor challenges persisting, hospitals and health systems will continue to face challenges in managing profitability.

The dilemma that many providers are facing is how to staff and run their existing entities profitably, while continuing to reinvest in their infrastructure to service the increased demand of patients. And due to the high interest rate environment, among other factors, many health systems have taken a wait-and-see approach to borrowing for new capital projects. “Because providers can’t put off these strategic priorities forever, we anticipate seeing the commencement of more capital projects in the next 12-24 months or sooner,” says Marsh.

Despite the challenges in today’s environment, Marsh is optimistic about the future for North Carolina’s healthcare industry in growing its reach, pace of innovation and pipeline of capital projects. “During the past year or so, many hospitals and health systems have taken a disciplined approach to cost reduction and driving operational efficiencies, while also planning for capital projects that will help fuel the continued success of a sector that contributes to North Carolina’s physical and economic health in
so many ways,” he says.

These materials are furnished for the use of PNC Bank and its clients and do not constitute the provision of investment, legal, or tax advice to any person. They are not prepared with respect to the specific investment objectives, financial situation, or particular needs of any person. Use of these materials is dependent upon the judgment and analysis applied by duly authorized investment personnel who consider a client’s individual account circumstances. Persons reading these materials should consult with their PNC account representative regarding the appropriateness of investing in any securities or adopting any investment strategies discussed or recommended herein and should understand that statements regarding future prospects may not be realized. The information contained herein was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy, timeliness, or completeness by PNC. The information contained and the opinions expressed herein are subject to change without notice. Past performance is no guarantee of future results. Neither the information presented nor any opinion expressed herein constitutes an offer to buy or sell, nor a recommendation to buy or sell, any security or financial instrument. Accounts managed by PNC and its affiliates may take positions from time to time in securities recommended and followed by PNC affiliates. Securities are not bank deposits, nor are they backed or guaranteed by PNC or any of its affiliates, and are not issued by, insured by, guaranteed by, or obligations of the FDIC or the Federal Reserve Board. Securities involve investment risks, including possible loss of principal.

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