Les Granow, CFO Longevity Health Interview

May 24, 2024 | Interview

Read the transcript below:

Les, thank you so, so, so much for taking some time to chat with us. We appreciate you willing to share your wisdom with us and our broader audience. We’re just gonna dive right in.

First question: you’ve seen a lot of provider group M&A deals through your work. We’re curious to know, what are the handful of metrics that you really hone in on to assess performance at a high level when you qualify these deals, especially given the current climate? How do you know that a group is performing really well?

Thanks, glad to dig in on it. I’ll start with some higher-level factors that I wouldn’t even call metrics. I start with some higher-level criteria. Here they are in a couple of buckets. When we sit with the leaders of an organization, we look for the depth of the leadership. There’s a visionary at the top and execution in the middle. It’s one thing to have an idea, but another to get it done. Having great execution with no direction about where you’re going isn’t enough. There needs to be a combination of these things. Then, we have to make sure there’s a command of the detail.

Sometimes we’ll go in and not say, “Here are the metrics.” We’ll ask them, “What are the metrics?” In some respects, we don’t know. At least we think we do, but we really are testing to see if they understand their domain. We’re looking for domain knowledge, an understanding of the macro drivers of the niche in the industry, and the connection to the micro—how do you execute and scale. Different types of businesses fall into different buckets. Some are high growth, and some are low growth. Low growth does not necessarily mean a bad thing if it has a good margin, sustainability, durability, and protection against competition.

I’m making a bid on one right now. They’ve grown as big as they can get geographically and are as dominant as they can be. We’ll still make a really good offer to them. In the diligence area, we say to them that we really are testing if people care. There are some who do not, based on where they are in life and all that. We make sure we’ve got people who are proud of what they’re doing, understand the macro and the micro, can connect the dots, and make sure it’s scalable if there’s a growth component. They have that fire in the belly and care about how it’s going to perform.

Once we’ve understood the metrics, we connect the dots on the P&L side. We guide the cash—how much cash does it take to move it from point A to point B? We looked at one about a month ago with a great P&L, but the cash flows showed that more than half of the earnings needed to go back into capex. It was a very capital-intensive business. This helped us understand why the P&L was what it was. We looked out for five years, and they were not generating cash; they were consuming cash. You had a great balance sheet, but that was about it.

Does that help? Do you want to drill into any of those aspects?

So many questions! In many ways, it reminds me of some of my venture capital experience in early pre-seed deals, where you’re kind of taking a look at the entrepreneur and trying to determine if this person has the willpower and passion. I love it.

Second question, and this is around Medicare Advantage reimbursement trends. There’s no secret there’s a squeeze on that, but we always like to think there are opportunities there still. So, where do you think the biggest pockets of opportunity are that you can influence operationally? Are there any tactical tips for navigating that squeeze?

It’ll be a bit of an advertisement for what we’re working on now. In the managed care Medicare Advantage world, it’s a huge population—tens of millions of people. Half of the Medicare population is now in Medicare Advantage. It’s very competitive, which is one of the reasons you’re seeing fighting over enrollment. This last couple of quarters, they were not meeting their growth expectations. There’s a lot of competition, so you have to distinguish and differentiate. Figure out what you are really good at. It might be diabetes, COPD, dialysis, or something else. There’s a diagnostic aspect to it, a geographic aspect. You may have the best clinicians in a particular geography, which means you can take the best care of people.

For us, institutionalized seniors—a super small subset of about a million and a half people in the country—are very frail. Then you start to think about what else you can focus on. We look at the high proportion of those with mental health issues, which is a very high proportion of senior citizens who have depression. They should be depressed in the sense that if you were in a nursing home and couldn’t get out, even if you were completely of sound mind, you would be depressed. It takes a really good nursing home to overcome that. We try to overcome it with skills, music therapy, and companion benefits, rather than pharmacological solutions.

Find a population with higher risk and complexity. For us, the more complexity, the better. Not everybody is good at everything. In the health plan world, a CEO of a very large health plan said, “You can’t just be good at five things; you have to be good at a hundred things.” Managing utilization, managing providers who have to submit claims, handling claims questions, dealing with denials, conducting medical necessity reviews—these are all things that have to happen in a health plan. You need to find the right providers, keep the good ones on board, and get rid of the bad ones.

We look at behavior patterns, the number of visits, follow-up visits, hospitalizations, coding per visit, and CPT code complexity. We find patterns and identify people who should be seeing patients more or less frequently. During COVID, we had one guy who admitted he was creating revenue for himself by going to nursing homes to see people because nobody was coming to his office. We can detect that and take those people out of the network because they’re not doing members a favor.

Value-based care makes so much sense for the Medicare system. It alleviates low-value, dangerous procedures that affect beneficiaries. Just a couple of last lines are really powerful. Hearing that is really affirming. I don’t want to be clear—that’s a very small minority. But you have to look for it. The vast majority of providers mean well, do the right thing, and get the right outcomes and results. But there are some bad actors, and you have to find them.

The latest general trend reports show massive benefits and outcomes on the health side for patients in value-based care environments. We know it’s working, and that’s great.

Let’s dive into the last question, especially around longevity’s characteristics. We recognize longevity as one of these “payvider” type organizations. In that category, what we’ve seen pattern-wise is that often your CFO role has a lot of strong overlap with general operations. How does longevity review its own operational performance? Do you self-assess, peer review, or get outside auditors? What do you look for?

We think we’re a bit too small still. We’re a bit of a baby organization to get a ton of peer reviews or outside audits. We do the regular classic audits for fraud and adequate controls. But when you’re talking about performance, we’re lucky enough to have an excellent CEO and board leadership, bringing in very good, experienced talent that is mostly here for the mission, not the compensation. Most of our team has said, “If I want to have an impact in the healthcare system, where can I have the biggest impact? It’s in the post-acute sector, in the skilled nursing sector, where the quality of care delivered is the poorest.” So we think we can have the biggest impact there.

We’re blessed with high-caliber people. We don’t need to go outside. What they like, and what we give them, is enormous transparency. People that worked at other health plans say they never saw this data. So how do you manage it? You tell people what’s going on first, measure it, report it, and tell them here’s what’s going on in everything from enrollment. If there are 100 people ineligible in a building and only 40 are signed up for our plan, why? If there’s a disenrollment, we ask why. We’ll dig in and find out. We want to make sure we’ve got exactly the right diagnostic coding—not too much and not too little. It’s gotta be accurate and supportable.

We had a recent situation where combinations of COPD, CHF, ESRD all existed in a member. Some people said, “Well, I’m just going to code the highest one,” instead of all the conditions. If you don’t code the other conditions, you may not treat them, which can be dangerous. In the resource allocation world, there’s an interactivity in the way CMS contemplated it. It’s not 1 and 1 is 2; it’s 1 and 1 is 3 because there’s a hierarchical component. You have to get the right coding, which takes a lot of training and technology to track what’s missing.

We take a very detailed, granular view of all those criteria—the conditions, claims, medications, and lab results. Then we show people all the other criteria affecting the quality of life of members. It’s not good for a senior citizen to end up in a hospital. Some people think, “They need to go to the hospital,” but hospitals are places where you acquire infections. If you’re 85 and somewhat confused, it’s better to stay in a familiar place. We track all that—how many went to the ER, how many were admitted, what time it happened, did it happen on the weekend. We process and show that transparency.

We measure outpatient treatments to ensure they’re done correctly. We track follow-ups and minor surgeries. If someone is being seen two years after surgery for no good reason, we need data to track it and ask, “Is this medically necessary?” If not, it’s a waste. We

have physicians review that to ensure accurate assessment. It’s a continual learning process. The data isn’t perfect, but it’s getting there. Our team can do this due to their experience. We want to ensure what we’re doing is aligned with our mission, is scalable, and is producing positive outcomes for our members. We have the right team, process, and transparency. That’s our approach to operational performance.