A SAMPLING OF BDO THOUGHT LEADERSHIP IN THE MEDIA FOR Q1 2016

EXCERPTS OF RECENT MEDIA COVERAGE

THE BDO CENTER FOR HEALTHCARE EXCELLENCE & INNOVATION

BDO’s national team of professionals offers the hands-on experience and technical skill to address the distinctive business needs of our healthcare clients. We supplement our technical approach by analyzing and advising our clients on the many elements of running a successful healthcare organization.

THE JOURNAL OF CORPORATE RENEWAL

FALLOUT FROM HEALTHCARE REVOLUTION WILL CHALLENGE ALL STAKEHOLDERS

By David Friend and Patrick Pilch

…As providers, lenders, patients, payers, consumers, and investors watch the old world of fee for service disappear and a new world of value-based purchasing take hold, organizations that cannot adapt will perish while those that can adapt will thrive.

Investors in all kinds of healthcare companies, including investments “not in the direct care of patients,” will find that cash flows they projected based on future reimbursement expectations will fall short, forcing write-downs of their investments…

Entities that dismiss their “five-star ratings” as unimportant will soon be rejected by consumers and excluded from narrowing networks, severely curtailing their revenue…

Many hospitals are about to become permanently cash-flow negative, while others are only cash-flow positive because they won the geographical lottery of a strong payer mix…

Market Forces

Market forces are indeed at work. In fact, the impact of all these changes will create several trillion dollars in value over the next 10 years for companies, innovators, and organizations that successfully navigate the turbulence…

At the same time, trillions of dollars will be lost by companies and organizations that cannot adapt, reinvent, innovate or, in certain situations, restructure…

…The United States is witnessing something similar to what was last seen in the late 1990s, when the nursing home industry was virtually wiped out by regulatory changes, nontraditional competition, and changing economic models that altered investor and stakeholder expectations. This time, rather than being limited to nursing homes, these forces of change are being unleashed across the entire $3 trillion U.S. healthcare system…

Foundational Change

In the world of hospitals, physician groups, post-acute providers, and home health agencies, regulations that align outcomes with payment have sown seeds of change and a need for real innovation. The regulatory shift is a foundational change and therefore is possibly creating a number

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of black swan events, particularly for organizations whose capital structure, operating model and culture were not designed for the risk associated with proving clinical outcomes.

Challenging Times Ahead

Some who finance healthcare say that the sector has rarely underperformed or created meaningful losses in their loan portfolios. Healthcare is described as recession-proof and, therefore, more capital for deployment is needed. Frequently, these individuals disregard the need to understand the clinical and regulatory landscape, which only confirms that there are likely to be very challenging times ahead…

HEALTHCARE DIVE

HOW PHYSICIANS HANDLE PAYMENT REFORM

By Heather Caspi

While the physician burdens of payment reform vary depending on the type of practice, some of the stresses are fairly universal…

Dr. William Bithoney, Chief Physician Executive and Managing Director in BDO’s Healthcare Advisory practice, finds EHRs and the impacts of narrow networks to

be among the top stressors. He notes while EHRs can be “debilitatingly expensive” and force physicians to change the way they interact with patients, they are now undoubtedly necessary for the sake of capturing quality metrics.

“It’s one of the things driving people out of private practice,” Bithoney says.

Adding to that challenge is the financial uncertainly presented by payments that depend upon these quality metrics, whereas “it used to be you knew how much you were going to make,” Bithoney adds.

Perhaps one of the most serious physician concerns he sees is that of being left out of insurers’ narrow networks, particularly when there are only a few insurers in a given market. “Being excluded can be a disaster,” Bithoney says, and is contributing to more physicians giving up private practice to become employed.

Some of the solutions he sees include the increased use of scribes to manage documentation during patient visits, a trend moving from the ER to primary care. Physicians are also depending more on having other staff operate at the top of their license, utilizing care coordinators to help them hit their quality metrics, and using technology to maximize efficiency. While all the necessary changes may be difficult, “Opportunities do exist to become more efficient,” Bithoney says.

PRIVATE HEALTHCARE INVESTOR

CYBERCRIME: HOW THE HEALTHCARE SECTOR CAN PROTECT ITSELF

By Patrick Pilch and Shahryar Shaghaghi

The cyber attack on the Hollywood Presbyterian hospital in Los Angeles earlier this month was the latest in a string of incidents where hospitals and clinics have been targeted by hackers. BDO’s Patrick Pilch and Shahryar Shaghaghi discuss the repercussions, and what can be done to counter the security threat…

As different types of cyber threats create new risks, providers’ ability to defend themselves and their resilience after an attack are becoming more valuable collateral in an increasing networked healthcare industry.

It’s impossible to defend against every attack. Care providers will be hacked. The good news is that even as attacks proliferate, the ability to detect them and respond has increased.

Investors that understand how to integrate cybersecurity into a comprehensive due diligence process will be able to understand when cyber risks and hidden costs make a potential investment a bad one, and where the opportunities exist to increase the value of the investments they do make.

Why are providers vulnerable?

The healthcare industry has been slower to adopt technology than, for example, the financial services industry. Healthcare digital transformation was often undertaken with little thought to protecting the

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technology architecture. Hospitals are targets because they have both medical and financial data…

What are the risks?

Cyber damages vary depending on the type of attack and the information exposed: while the ransomware attack in the United States locked systems, for example, the hospital said patient data was never exposed. Data exposure itself raises additional questions and implications: Was patient or staff data stolen? Was the data in the system exposed to manipulation? Is the hospital entirely confident that every transfusion patient’s recorded blood type is accurate?

Evaluating cybersecurity risk and opportunities:

Cybersecurity must be part of any investor’s due diligence, and it must be integrated with clinical, financial, operational and other risk diligence…

Investing in an integrated approach gives a 360-degree perspective of not just individual risks, but the ramifications of reimbursement changes, IT mandates, cybersecurity breaches and other factors across the enterprise. Such analysis can often expose “red flags” earlier in the due diligence process, allowing investors to move on from bad investments and turn quickly to more lucrative opportunities.

WHARTON: THE PULSE

MEDICARE’S CJR BUNDLED PAYMENT PROGRAM: THE BEGINNING OF WHOLESALE CHANGE IN PROVIDERLAND

By Christian Pena

Medicare’s Comprehensive Care for Joint Replacement Model signifies a change in how a narrow set of healthcare services are paid for and delivered. Dr. Friend explains the details and ramifications of this program, which are especially acute for SNFs, as well as why he sees it as “the camel’s nose in the tent,” merely the

beginning of wholesale change for acute and post-acute care providers.

PULSE: Please provide a brief explanation of the changes that will come about as a result of the…CJR bundled payment program that goes into effect April 1, 2016?

DR. DAVID FRIEND: Medicare is rolling out this payment program in 67 metropolitan statistical areas (MSAs) nationally… It is intended to apply only where people have traditional Medicare insurance… And the purpose really is to begin the process by which hospitals will become accountable for providing care, not only while the patient is initially hospitalized, but also upon discharge to skilled nursing or home health.

The CJR program gathers together all of the services for a total joint procedure for the initial hospitalization and for 90 days of subsequent care…

One of the big provisions is that there is currently something called a three-day rule, or three-night rule, which basically says that for a patient to leave a hospital and to go to a nursing home in order for Medicare to provide coverage, the patient has to have been hospitalized for three days. Hospitals are allowed to waive the three-day stay requirement if the patient is sent to a skilled facility with a three star or better rating…

PULSE: Can you provide a little more detail on the five-star ratings system and how it comes into play?

DR. FRIEND: …The system is going to start rewarding providers, including SNFs, to provide better care. This also reduces the variation that we see currently in care, particularly in SNFs where you can see the price of for a hip replacement procedure ranging from $10,000 to $80,000 all in, with arguably, no difference in quality…

All of the post-acute care providers are impacted by this move to payment based on quality. Nursing homes are particularly impacted because while this impacts the hospitals and everyone in the chain, for the hospitals, at least in the first year or two, it’s a relatively small amount of money. However, for SNFs… even the slightest reduction in the Medicare census or in the amount of money they’re receiving per patient can dramatically impact their operating results…

PULSE: So do you anticipate that the reimbursement levels are going to go down due to the negotiating power of the bundle recipients?

DR. FRIEND: It’s already happening. It’s going both up and down. If you are a quality SNF that offers the ability to prevent readmissions and provides good care,

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many of those facilities are in position to negotiate rate increases. There are other facilities that are either going to see fewer patients or receive lower rates.

ACCOUNTING TODAY

PRIVATE EQUITY FIRMS GETTING MORE CONSERVATIVE

By Michael Cohn

Private equity fund managers are looking to act conservatively in the coming year as investors continue to fret about the economy, according to a new survey by BDO USA.

Ninety-five percent of the PE firms surveyed by BDO plan to close five deals or less in 2016, and investment levels are similarly conservative…

Sixty-five percent of those surveyed believe the international environment will be favorable for PE firms looking to invest in 2016, but only 35 percent of respondents anticipate pursuing more cross-border transactions this year…

…A 57 percent majority of PE leaders said they specialize in an industry or region in order to identify and successfully execute deals, using their capital to focus on key industries and markets.

The technology and healthcare sectors are expected to experience increased valuations. With 65 percent of fund managers predicting the tech sector will experience increased valuations in the coming year, while 63 percent cite the healthcare/biotech sector.

“While PE interest in some healthcare segments, such as hospital and inpatient services, has been tempered up to this point, PE funds continue to be active in specialty areas such as behavioral health, dermatology and pain management, where they can leverage their operational expertise through a buy-and-build strategy and scale,” said Patrick Pilch, managing director and healthcare advisory practice leader with the BDO Center for Healthcare Excellence & Innovation.

CONTACT:

CHRISTOPHER J. ORELLAPartner – Healthcare LeaderNew York, N.Y.212-885-8310 / corella@bdo.com

STEVEN SHILLPartner – Healthcare LeaderOrange County, Calif.714-668-7370 / sshill@bdo.com

PATRICK PILCHManaging Director – Healthcare LeaderBDO ConsultingNew York, N.Y.212-885-8006 / ppilch@bdo.com

ABOUT THE BDO CENTER FOR HEALTHCARE EXCELLENCE & INNOVATION The BDO Center for Healthcare Excellence & Innovation unites recognized industry thought leaders to provide sustainable solutions across the full spectrum of healthcare challenges facing organizations, stakeholders and communities. Leveraging deep healthcare experience in financial, clinical, data analytics and regulatory disciplines, we deliver research-based insights, innovative approaches and value-driven services to help guide efficient healthcare transformation to improve the quality and lower the cost of care.

ABOUT BDOBDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 63 offices and more than 450 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,408 offices in 154 countries.

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Material discussed in this article is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.