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Take Advantage of Your Crisatunity

Philip Betbeze, for HealthLeaders Media, February 2, 2009

Public companies announced more than 100,000 layoffs last week, and you can be sure that private companies are following, or have followed, suit. Not a day goes by that I don't read in HealthLeaders Media's daily e-newsletter about some hospital or health system laying off dozens, sometimes hundreds, of workers.

If you're reading this newsletter, you're likely among the decision-makers at these hospitals who are making these tough decisions. If you're taking the drastic step of laying off workers, clearly you don't think that your organization's financial health is going to improve anytime soon. But when you're being buffeted by the winds of increasing bad debt, declining volumes, drastically declining philanthropy, and an inability to access the capital markets, your hands are tied. Staffing reductions are the only place to make a quick impact on your rapidly deteriorating balance sheet.

When will things get better? Who knows? But as I pondered these thoughts during two days of listening to healthcare industry analysts at two events here in Nashville last week, I was reminded of Homer Simpson's wisdom during an episode in which his daughter Lisa reminded him that the Chinese use the same word for "crisis" and "opportunity."

"Yes," Homer says, jubilantly, "crisatunity!" I don't mean to trivialize the issues we're all facing in this depressed economy, but I couldn't help myself thinking of Homer's quip when Harry Jacobson, a healthcare entrepreneur and Vanderbilt University Medical Center's vice chancellor for health affairs, got up last Wednesday to moderate the Nashville Healthcare Council's annual Wall Street Analysts' Panel. Jacobson began his remarks by reminding the capacity crowd that with problems, come opportunities.

But you wouldn't know it from the flood of bad news these guys talked about. The Council's annual analyst session is where healthcare analysts make their predictions for the coming year. Safe to say very few saw the rapid destruction of credit coming at this time last year, nor did they see the cascade of negativity and value destruction that followed the credit crisis—which is still full steam ahead, by the way. Similarly, no one really sees a quick recovery on the horizon this year, but they did manage to point out some bright spots.

To wit:

  • The medical arms race has been flattened. With credit super-dear, no one's willing to go out on a limb with huge bricks and mortar or technology projects. That means you can shepherd your remaining capital for strategic acquisitions of the weak players.
  • The employment picture has brightened considerably. If you need physicians and nurses, there's certainly still a shortage, but for the rank-and-file, you don't have to worry about upward pressure on wages as unemployment reaches 8%-10%.
  • Valuations have come down sharply. Where strategic acquirers largely sat out the acquisition binge in recent years because they weren't willing or able to compete with levered up private equity shops paying unprecedented 10-12X multiples for healthcare acquisitions, now valuations are half that level, and strategic acquirers are more ready to participate in the fire sale.
  • Nonprofits that counted on easy access to cheap capital to remain solvent no longer can count on that, so they're acquisition targets.
  • Debt covenants coming due in the next few years will require harsh refinancing terms, if you can even refinance, meaning less debt-heavy players will have further discounts to look forward to.
  • As weaker players are eliminated, the stronger players have an opportunity to build their war chests for better times ahead.
  • Those who can afford to delay or go without heavy layoffs are making investments in perhaps the most valuable currency these days: human capital.
  • We're returning to an environment in which companies will be bought and sold based on fundamentals, not who can get the cheapest leverage by selling debt providers a "story."

So the silver linings mentioned here might be of cold comfort when you feel it's only prudent to lay off valued staff and cut back on needed investment. But you have to take your victories where you can get them in this environment. There will be better days ahead.

Just don't let your crisatunities pass you by while you're waiting for those days to come.


Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.
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