Capital One Healthcare is a unit within Capital One, one of the largest financial institutions in the United States. The division is a lead arranger of healthcare-leveraged loans for credit facilities. Pulse 2.0 interviewed Capital One Healthcare Analyst Don Hooker to learn more about his professional background, his perspective on current sector trends, and Capital One’s role as a leading lender to middle-market healthcare companies.
Don Hooker’s Background
Hooker has worked as an investment analyst for over 25 years across various Wall Street firms, including Morgan Stanley, UBS, and KeyBanc Capital Markets. Most of that time was spent in equity research with a particular focus on digital health and healthcare IT companies.
Don Hooker: I joined Capital One last year to focus on business development and financial approvals in these areas. As the lead digital health and healthcare IT analyst for Capital One’s Leveraged Finance Group, it is my responsibility to collaborate with the business development teams to evaluate prospective and existing borrowers in these areas. I also contribute to the broader business strategies at Capital One by identifying and fleshing out how emerging trends and issues are affecting the broader healthcare industry. Finally, I help organize and execute a number of Capital One industry events, including our Annual Healthcare Leadership Summit (this year in November).
Capital One’s Role In Healthcare IT
Pulse 2.0: What is Capital One’s role in the healthcare IT sector?
Don Hooker: Capital One Healthcare specializes in 40-plus sub-sectors, and we are a lead arranger of healthcare-leveraged loans for credit facilities of up to $1 billion. Also, Capital One’s full-service capital markets and corporate banking capabilities drive a broader positive impact to achieve significant outcomes for a wide range of healthcare clients. Personally, what attracted me to leave the investment banking/equity research world and come to Capital One was Capital One’s reputation for really understanding its customers in healthcare. We are focused on supporting our healthcare relationships with both best-in-class services and trusted counsel backed by a commitment to deep industry expertise.
AI Being Used To Address Healthcare Labor Shortages
Pulse 2.0: How are AI and automation being deployed to alleviate persistent healthcare labor shortages? Hooker noted:
Don Hooker: Over the past year, we have been consistently hearing how labor costs and shortages are forcing healthcare providers to finally get serious about finding efficiencies through the use of artificial intelligence (AI) software and automation.”
Nowhere is this more relevant than revenue cycle management. The healthcare revenue cycle is very labor intensive. It costs, on average, $0.05 to $0.10 to collect $1.00 of revenue in healthcare and 70% of these costs are labor. For instance, in our view, the ‘middle’ of the revenue cycle is probably one of the most human capital-intensive parts of revenue cycle management. This includes activities such as medical coding and denial management, among others.
For instance, autonomous coding software uses AI to analyze structured and unstructured data to accelerate the medical coding process and reduce costs.
We have seen case studies in which this type of software can automate the coding of 70%+ of medical encounters, thereby taking significant pressure off of overworked medical coding staff. Also, we hear a lot of optimism from healthcare providers for the use of generative AI to draft appeals letters on denied medical claims. Finally, prior authorizations are consistently a major pain point for healthcare providers, with many providers having to hire staff exclusively to work on prior authorization documentation requests. Here again, we see a significant opportunity for healthcare providers to benefit from AI and automation.
Another area where we see significant disruptive technology/innovation is patient engagement.
In almost every survey that we have been involved in, patients consistently report that ‘self-service online scheduling’ as a top priority when selecting a healthcare provider. The adoption of online scheduling technologies has increased dramatically over the past few years, but the use of this software varies greatly from provider to provider, given different views on what are best practices. Also, since COVID, two-way texting software solutions are being used to remind patients of appointments, and there are an increasing number of AI applications coming to market that help providers automatically fill gaps in a provider’s schedule due to patient no-shows.
Finally, we hear that price transparency is a major area of interest for providers since patients who do not know their financial obligations up-front are less likely to pay, and, sometimes, uncertainty on the cost of a healthcare encounter can dissuade patients from seeking care. Key solution areas here include propensity-to-pay and insurance discovery software.
Pursuing Innovation In Digital Health
Hooker believes implementing and pursuing innovation in digital health and healthcare IT should be a priority for all U.S. healthcare providers and payers. Why?
Don Hooker: Implementing and pursuing innovation in digital health and healthcare IT should be a priority for all U.S. healthcare providers and payers given the ongoing rise of value-based reimbursement models coupled with the increasing personalization of medical care. Value-based reimbursement models essentially require providers (and payers) to stay digitally connected with patients outside of the “four walls of the clinic” in order to ensure good clinical outcomes.
Also, Americans are increasingly acting more and more like “consumers” who are willing to shop for healthcare providers based on price and/or consumer experiences–just like consumers in other industries. This has been attracting large consumer tech companies into healthcare, such as Amazon, Walmart, and Walgreens, among others. The reality is that we are steadily moving into a more consumer healthcare environment and traditional healthcare providers need to modernize their patient experiences or risk gradually getting disintermediated over time.”
Pricing Trends
Pulse 2.0: Can you discuss the latest pricing trends and how they impact healthcare systems of various sizes?
Don Hooker: The topic of ‘value-based reimbursement’ is not new. This is something that people have been talking about for many years, and there have been fits and starts in value-based reimbursement models over the years, which brings with it skepticism. But economically, it has to happen. Recent data suggests that the Medicare Trust Fund is projected to be depleted in the next five to ten years. And, I certainly do not think hospitals and physicians are overpaid in Medicare, right? So, simply reducing reimbursement rates (and/or rationing healthcare) is not a sustainable solution.
So, what’s the only alternative? Payers have to pay “smarter”–rewarding innovation and good results and penalizing inefficiency. This is value-based reimbursement, and it is a major catalyst for the adoption of digital health and healthcare IT. Also, aligning reimbursement with patient outcomes and population health indirectly encourages greater interoperability within healthcare IT as well.
