Ken Misch is president and CFO of Medhost of Franklin, TN.
Tell me about yourself and the company.
I began my career on a traditional finance and accounting track with Price Waterhouse in Cleveland in the late 1980s. After going back for my MBA in the early 1990s, I determined that I wanted to do something other than just auditing.
For the last 20 years, I’ve worked with smaller, growth-oriented, private equity-backed companies, either in the technology or the healthcare space. After a personal health issue surfaced about 15 years ago, I decided I wanted to spend the rest of my career in the healthcare industry. Obviously since Medhost is a healthcare IT company, I’m fortunate that I can combine my interest in tech with my passion for healthcare.
Medhost serves over 1,000 facilities. We provide these facilities with inpatient electronic health record systems, related implementation, revenue cycle, patient engagement, and hosting and other managed services as well.
How would you characterize the market that you serve?
Medhost mainly serves what we would consider to be the community or the rural healthcare market, which is a different market than the traditional tertiary care market. The urban academic, large research healthcare facilities that you find in very large cities, is a different space than the healthcare facilities that we’re serving, those out in rural America. Those facilities are really challenged. Maybe all of healthcare is challenged to some degree right now, but rural healthcare probably more than others. Rural America is shrinking, but there’s still a need for providing healthcare in those communities.
Al the IT vendors that serve the healthcare space have been challenged recently by the increased regulation that’s been coming out of DC with respect to Meaningful Use, interoperability, et cetera. All of us have had to spend and invest significant dollars in upgrading the systems. Not only to comply with increased regulation, but hopefully provide better optimization and efficiency for our customers.
How has the move of Epic and Cerner into smaller facilities as well as Meditech’s efforts to rejuvenate its business changed the dynamic?
Certainly competition is increasing and is getting more intense every day. Epic and Cerner have tried to provide offerings to come downstream. They’ve had different degrees of success with that. We’ve had customers that have tried both and have come back to Medhost. We’ve had customers that have been forced to do one or the other through a health system connection. We typically get feedback on how that’s going.
We think we provide the right solution with the right level of functionality at the right price point for these community facilities.It’s hard for these larger systems to come downstream to de-feature those systems at a price point that makes sense for these community hospitals without cannibalizing their existing base. It’s challenging for those facilities to come downstream.
Meditech is is trying to do more with some of their current offerings, but they still have three basic platforms out there that they’re supporting. Their SaaS offering might add a fourth to that mix.
The marketplace is competitive. We recently announced a large win with Quorum Health. Quorum was spun out of CHS. They needed to find their own standalone platform. They went out in a competitive and rigorous bid process and eventually selected Medhost to be their system of the future.
Why do investor-owned health systems almost never choose Epic or Cerner when their large, non-profit counterparts almost always do?
You’re touching on the basic point — it’s about who you answer to. The investor-owned facilities or the investor-owned providers are answering to a group of shareholders and stakeholders. A lot of their systems and their choices are being run by processes that look at return on investment or cost.
It’s hard to justify a return on investment in any IT space in healthcare right now, but looking at it from a cost perspective, those other systems are at a price point that might not make sense for an investor-owned provider organization, whereas the not-for-profits don’t exactly have that same mission. They both have a mission of taking care of patients, but the investor-owned providers probably have a little bit more of a financial hurdle, as they need to answer to their investor group.
Do hospitals worry more about their image in buying Epic or Cerner because their large competitors did instead of looking hard at return on investment?
In the urban communities, the bigger metropolitan areas across the US, that might be more relevant than in some of the spaces that we’re serving. We’re serving communities that probably only have one hospital and the next hospital is 50, 75, 100, or 150 miles away. There isn’t a lot of true provider competition in the markets that we’re serving.
I could certainly see when facilities are competing for talent in a large city that they might want to recognize that physicians seem to have a preference for one or the other. Physicians don’t like really any system from everything I can read and gather. They have more of a tolerance than a preference. Perhaps they have a tolerance for one more than another, and perhaps they’re getting training on one versus another as they come out of med school. That could be a decision for competing hospitals.
We have a large, investor-owned company here in Nashville that we talk to on a regular basis. A lot of what they talk about is providing the physicians with some tools. They may not need to invest in the largest system that’s out there, that may be run by some of large health systems in the country. They may choose to go a different route, but provide their physicians with robust tools that they need to do their job. But the back-end engine might be something a little bit different.
What are small health systems that are too successful to close yet aren’t being considered for acquisition doing to remain in business?
It’s tough for them. They’re facing a lot of challenges. A lot of those facilities are going to be more heavily Medicare and Medicaid versus commercial reimbursement. That’s been getting squeezed. There is more competition and some of their higher-value procedures are being siphoned off by the urban centers. They’re still being forced to comply with the same regulations as the large facilities. They still have to chin the bar on all the various regulatory items with respect to Meaningful Use and the other items that have come out of DC.
We’re seeing innovation starting to happen with some of our customers. How can they innovate their business model? How can they come up with strategies to help their communities? How can they engage a little bit more with those communities to help offset some of those challenges? It’s tough in the rural space right now.
We are seeing rural aggregators that are popping up and buying some of these facilities. They’re not going to be as big as a CHS or even a Quorum, which has about 25 facilities currently, but they’re acquiring maybe a handful to 10-12 facilities. They are realizing they can run those with scale. They can leverage some of the infrastructure and spread that investment across numerous facilities. We’re seeing some degree of private equity money coming into that, although most of that is an individual investors or small partnerships.
What vendor service offerings can help small hospitals gain some level of scaling?
We’ve been investing heavily in our service offerings. It started with the IT and hosting side and other managed services. As facilities were forced to upgrade their IT platforms, they were staring at either investing in hardware to put on-premise and then they would have to have the resources, both from a human and a capital perspective, to support those and maintain those technology resources. These small facilities realized that they would prefer to have somebody else do that, so we started to invest heavily in our hosting services about six or seven years ago. Now we’ve built a world-class hosting operation here at Medhost. Most of our standalone facilities have now elected to move into our hosting environment. In fact, we’ve had some of our recent corporate customers make that same decision.
More recently, we’ve started to expand our revenue cycle services, our back office services, and business office services. The smaller rural aggregators want us to do that for them because they don’t have the skillset that they need in the facilities. They don’t want to make the investment at the corporate location, so they are outsourcing that to companies like Medhost.
Is technology, specifically maintaining IT infrastructure or supporting regional interoperability, a big driver of small hospitals affiliating with larger ones?
At times. But technology replacement is a disruptive activity. A lot of the facilities, especially the inpatient facilities, have a system that they’ve chosen here over the last three to five years, maybe even longer than that. They have decided who their partner is going to be. They are looking for that partner to help optimize the system.
The government, with the 21st Century Cures Act and a lot of the regs that are coming out with respect to interoperability, are requiring vendors like Medhost and others to make their systems more open and to begin to share data. That it isn’t going to require significant investment on the facility side to just link up a similar system. The systems will be able to communicate with each other, so that they can get the largest return that they can on the existing investment that they’ve made.
Typically there has to be some type of triggering event for a customer to make a change with an EHR. Maybe they see an end-of-life coming at some point and they will need to make a different choice, so they may go out to bid. It could be through a merger and acquisition, where they’re becoming part of another entity that wants to consolidate on a single platform. It could be dissatisfaction. Certainly not all customers are always happy, and so they may just get fed up with the existing system. But it takes a lot to get to that point because of the disruption that rip-and-replace causes.
What is the demand for interoperability in your market?
We’re not seeing a lot of proactive demand. A lot of it will be reactive to what regulations comes out to make sure that they can comply.
As these community facilities evolve, being able to capture some information from other providers, other avenues, and other platforms will be helpful for them. They’re going to have to evolve from the traditional episodic care center that they’ve been in the past. The community hospital of the past will certainly change into the future and will need to provide different kind of tools and services for the residents of that community. Opening up the systems to enable them to capture patient data — or resident data, let’s call it — from other systems will be helpful for them. In the mean time, what they’re thinking about right now is just, how are we going to be able to comply with this?
Do you have any final thoughts?
I mentioned that I had a personal health issue surface about 15 years ago. It presented again about three and a half years ago. I have an extreme case of coronary artery disease. After receiving all the best possible surgeries and treatments from the best possible physicians and facilities, my symptoms continued to present, even with the smallest exertion, so I was forced to look for alternatives and to think differently.
I was fortunate to get connected to thought leaders and researchers who suggested a significant lifestyle modification. It involved a complete overhaul of how I thought about nutrition, fitness, and stress management. After three years of adopting this lifestyle, I’m off all medications. I have no symptoms, and I have a vigorous daily exercise routine that serves as a stress test for me.
It might be a stretch, but I look at the challenges that are facing rural healthcare today in a similar fashion. Traditional strategies, business operations, and the wonderful clinicians at these facilities are being stressed every day. It will take innovation led by the residents and employers within these communities, in partnership with local civic and government leaders, to identify business models that can help these organizations not only survive, but hopefully to evolve and thrive in the future.