Our research has continually shown it’s those industries experiencing intrinsic and structural change to their very foundations, which are priming themselves for radical transformation of their business models.
Matamba Austin is a Managing Director at KPMG LLP’s Shared Services and Outsourcing Advisory group
This is especially the case when that change is imposed and heavily regulated – and there is no choice but to blow up the existing ways of doing business to survive. And there is no greater example in today’s environment than the US healthcare sector where the entire delivery model has frantically shifted from B2B to B2B+B2C and entirely new sets of regulations are in play, which are combining to create a maelstrom of disruption. And not to mention the fact it’s also being propped up by a faulty nationwide web infrastructure…
So we sought out probably the savviest of gentlemen to shed some light on what is going on, to learn how healthcare organizations can/should/are reacting to the secular impact.
Matamba Austin has worked with more life sciences, pharma and payer organizations than anyone I know, during his career with McKinsey, Everest, Alvarez and Marsal and today at KPMG, where he serves as a managing director in the firm’s SSOA group.
I got to know Matamba several years’ ago over some seriously decent authentic Mexican food near his home in Dallas and you’ll be hard-pressed to find a more understated, humble and genuinely nice guy – for someone so smart. Anyhow, I am delighted we got a chance to talk to Matamba about his healthcare experiences, even though am sure he would have loved to focus on politics, soccer and travel…
Phil Fersht (HfS): Good morning, Matamba. You have been one of the rising stars of sourcing, for several years now – I remember some of your earlier achievements during our “younger” years working together at Everest Group back in the day, where you were leading some major enterprise outsourcing engagements. Can you share with our readers a little bit about your background and how your career has developed?
Matamba Austin (KPMG): Sure, Phil. I started out actually as a Strategy Consultant at McKinsey. After working in various practices, including their healthcare practice for several years, I went to work in the outsourcing industry for what today would be called an IT cloud and disaster recovery services company, but, back then, it was simply called an IT infrastructure outsourcing company. That’s where I got my first exposure to what outsourcing was actually like. Shared services, outsourcing and offshoring have been part of my advisory and transactional work for clients ever since.
I’ve been working not just on their sourcing, shared services and offshoring, but also on clients’ operational transformations and strategic third party transactions. I still find myself today largely focused on the healthcare sector, where I have been absorbed helping KPMG clients with their healthcare reform transformation efforts.
Phil: What would you say then are the key issues in the healthcare industry today? Obviously there’s Obamacare, but what are you seeing as the broader issues really impacting the healthcare space on the providers side.
Matamba: Phil, at KPMG we believe that there is an unprecedented combination of business model changes, regulatory changes, technological changes and, quite frankly, consumer preference changes that are driving the industry to not only transform, but work together in ways that they haven’t worked together before in order to stay relevant and competitive in the new healthcare market space. We are calling it “Healthcare Convergence”. In many ways, the industry is being turned on its head and organizations are struggling to figure out how to survive as a result.
Phil: In a recent study that we conducted with you, M&A activity comes up very high on the agenda – is this convergence finally happening?
Matamba: For healthcare providers, consolidation has been something that industry analysts have been predicting for years, but for various reasons, has not really happened. We think this convergence phenomenon that I’ve been describing looks like it could be the catalyst that finally starts the large M&A wave that everyone has been expecting. What we have been seeing in the last 6 to 12 months suggests that in fact that there is significant activity underway. Some of the larger transactions have already been publicly reported. When you talk to specific healthcare providers, many of them are either in the process of pursuing a transaction or are in the midst of culminating one. Something is definitely happening.
Phil: Being right in the heart of the sector, what has been the impact of the Affordable Care Act so far, and how do you see this changing at all in the next 6 to 12 months?
Matamba: I think the Affordable Care Act has raised awareness and in some ways actually accelerated some of the sector changes that were already underway. Let me give you a couple of example of what I mean. Before the Affordable Care Act, significant players in particular the employer community, as well as the federal government through the Medicare and Medicaid programs were looking for ways to transition away from the traditional business model for healthcare and health insurance. As part of this the federal government started experimenting with alternative models for the Medicare program, one of which was a concept they called the Accountable Care Organization. One of the underlying objectives with that new model is to shift the payment model from paying for services to effectively paying for outcomes. The model is more broadly described by some as value based reimbursement. Before the ACA employers had already started transitioning more of their benefits programs from defined benefit to defined contribution.
So this trend of looking at new ways to make healthcare more effective and more financially sustainable was happening before the Affordable Care Act and the law is arguably helping the trend to gather speed. For example, the ACA’s requirement for some employers to provide insurance to their full time employers, and all the attention (for better or worse) on the public exchanges (or as they are officially known, the health insurance marketplaces) has increased awareness about private healthcare exchanges, and increased interest in transitioning from defined benefit programs to defined contribution programs.
I think one of the other impacts, again started before the Affordable Care Act through other pieces of legislation, is an increased sensitivity to the level of policy and regulatory compliance practiced by healthcare organizations. Healthcare organizations, in anticipation of increased regulator scrutiny, are trying to enhance their risk and compliance capabilities.
Phil: Do you see healthcare organizations focusing mainly on internal investments, at this point, to handle these compliance challenges? Or are you starting to see more focus on sourcing initiatives like shared services and outsourcing to augment their capabilities and create more scale?
Matamba: I think with the payers, they are looking more aggressively at outsourcing for several reasons. Some are looking at shared services and outsourcing to try to mitigate the business model impact of these changes we’ve been discussing. Some, as a mechanism to help them with the operational transformation and modernization that they feel they need to remain competitive. Some, to a more limited extent, are looking at these models as a means of increasing the transparency inside their organization and by so doing improving the compliance of their organization. For the healthcare providers’ side, I think so far the effort to improve their compliance capabilities has been largely an internal effort, but even in that context shared services has been one of the tools some are using to accomplish that goal. If you broaden the question from compliance to enterprise risk mitigation (operational, technical etc.), then both types of organizations are more open to internal and external approaches.
Phil: Matamba, can you share your views on the current Healthcare.gov debacle. How critical this is, what should be done to fix the issue, and how we can avoid exchange disasters like this happening in the future?
Matamba: The Healthcare.gov debacle is very frustrating to those of us that help healthcare clients with transformations. The process and technical issues they had at the onset are all things that private industry solved years and years ago. I can only hope that this serves as a reminder to all of us that we’ve invested in third party governance and IT operations leading practices for a reason, and there are consequences when overriding them, for fear of holding leadership accountable. It will be critical that federal and state exchange leaders internalize this in time to work effectively with payers and providers to exchange accurate data to enable enrollment, and provide effective change management and customer service to help people through the transition. Then we can move on to the real Health Reform – payment and care delivery transformation.
Phil: When we ran our global business services study with KPMG, we saw that a lot of attention being centered around analytics and data governance, and this was especially the case for organizations within the healthcare sector. Is this something you are seeing? And how do you feel healthcare organizations need to go about improving their analytics capability in the future?
Matamba: Phil, here isn’t much debate about the notion that analytics is a critical enabler for all such sectors in healthcare. The changes we’ve been talking about have raised the stakes for these capabilities and many are ramping up their investments along those lines. I think again the payer community has been more open to looking at both internal shared services and outsourcing mechanisms to facilitate the expansion and modernization of that capability. In some areas of healthcare, healthcare providers have been using third parties to help with some of their analytics approaches. But in other areas they don’t have history. So it’s still a bit more of an internal focus. I think with healthcare providers, it’s a more nuanced approach because the broad term “analytics” used by other industries is a more complex field in healthcare, given the various forms of both clinical and non-clinical analytics that they have to contend with as well as the regulatory, technical and even scientific constraints on the use of the data.
Phil: So looking at all this seismic change the healthcare sector is going through, when you look out five years from now, what do you think it’s going to look like?
Matamba: So that’s a multi-billion dollar question. I am an optimist. So I believe we will see lots of changes, but in five years many of those changes will still be in the making because the changes that we are talking about are so encompassing and quite frankly so difficult. That being said, I think we will see certainly see a lot more consolidation in the industry not just within sub-sector across sub-sectors. I think we will see definitely more of a deployment of what used to be non-traditional operating models. So for example, we won’t just see more shared services, but we will see it deployed in scope areas that we haven’t seen in the past. I think we will see third party relationships that in some ways are outsourcing relationships but in other ways are much broader, in that they involve a level of care coordination and risk sharing that doesn’t exist today. I think we will see a lot more creative use of consumer-oriented interaction and analytics than we have seen before.
Again, I am an optimist. I look forward to these changes not just as an industry participant but as a healthcare consumer.
Phil: There’s been a lot of talk about new advisory models and the sourcing advice clients really need. How do you see that shifting in the future with how we are are helping clients transform their operational models? Are we on a cusp of disruption in this space?
Matamba: Well, I don’t know how quickly it’s going to change, but I think it is going to change significantly. I think that for traditional forms of sourcing, more clients across more sectors will develop the capabilities they need to do it themselves. The sourcing that’s going to be left for advisors or the sourcing where the advisors will be most active will be those initiatives that are so complex, and so risky, that they are going to require advisors that have the ability to help the clients address the sourcing challenge, not just operationally and from a pricing perspective, but also from the compliance, regulatory and tax perspective, given the changes across all those dimensions clients are facing.
So, as a result, I see sourcing advisors are able to touch on those dimensions either shifting the focus to other forms of advisory or becoming part of those that can.
Phil: In terms of clients receiving ongoing governance support services, where they can receive benchmarks and key data inputs, validation and “on-tap” consultative help, do you see potential for this in the healthcare sector or are we quite a way off that at this point?
Matamba: I think there is definitely potential and a need in the healthcare sector for that kind of model, although the adoption of vendor management capabilities and tools will differs somewhat between providers and payers. I think on the payers’ side, because payers have more of the scale and history of investing in vendor management organizations, I wouldn’t be surprised to see more of them as early adopters of some of the vendor management solutions like KPMG’s Managed Governance Services, that can be complimentary to their vendor management organization. Having said that, I think the healthcare provider sub-sector has a potentially even greater need that the payers. First, because they don’t have quite as much of a history of making large investments in the governance of services relationships that payers do since payers adopted sourcing models faster and more broadly than the providers. Second, I think the providers are going to depend on coordinated care relationships with the external third parties in a way that’s going to be very broad and very close to their core operations. As such, they are going to have so much third party exposure from an operations compliance and financial perspective, that the stakes will be higher for them to develop rigorous capabilities to manage those third party relationships. So as a result even though their adoption may be slower, I think their need is potentially greater.
Phil: Matamba Austin, you’re perspective on the dynamics in the healthcare industry has been most appreciated and am sure our readers will get a lot of value from this discussion.
Matamba: Thank you as well, Phil. Happy to field any more discussion on this and other topics!
Matamba Austin (pictured above) is a Managing Director at KPMG LLP’s Shared Services and Outsourcing Advisory group. You can access his full bio here.
(Cross-posted @ Horses for Sources)
