Consulting and healthcare technology firm The Advisory Board announced Tuesday it will lay off about 220 employees, or 5.7 percent of its total workforce, and will close four offices by the end of 2017 due to a weak fourth quarter following the election of Donald Trump.
"For 2016, while contract renewal rates remained high – consistent with historical patterns – the company experienced a difficult health care sales environment across the second half of the year, which was especially pronounced in November and December following the election, as members reassessed their strategy and path forward," The Advisory Board said in a statement.
The Advisory Board said that as part of the restructuring plan, the company will exit certain products and services which do not fully align with its long-term strategy, including care management workflow, nursing workforce and infection control analytics, and two niche consulting practices.
"We believe a tighter focus on the core, perennial industry challenges will make our organization stronger, enable us to deliver even more value to our members, allow us to invest in opportunities to enhance our capabilities and competitiveness, and position our company for future growth," Chairman and CEO Robert Musslewhite said in a statement.
Consulting and risk collection revenue was also lower than expected in the fourth quarter, the company said by statement.
"These factors, in addition to the restructuring and program closure activity that commenced in the fourth quarter, contributed to lower-than-expected results in the company's healthcare business for 2016, and led to both revenue and adjusted EBITDA coming in below the previous guidance ranges," The Advisory Board said.
Under the restructuring plan, The Advisory Board plans to focus on products tied to driving health system growth, reducing care variation and optimizing the revenue cycle.
It expects to incur approximately $20 to $25 million of cash expenses and $25 to $30 million in non-cash charges in 2017 related to the restructuring. The workforce reduction and office closures are expected to result in over $25 million in reduced annualized operating expenses as well.
The education business will not be affected by the restructuring plan.
The Advisory Board Company serves 4,400 healthcare organizations and showed over $2 billion in documented annual return on investment provided to members in 2016.
"Each new Presidential administration, regardless of political party, brings a temporary period of strategic uncertainty for our member hospitals and health systems," The Advisory Board said. "This is the cyclical period between the election and the new cabinet members' announcement of major policy plans. While this period contributed to the firm's financial performance in 2016, the decision to restructure was based on longer-term market trends. The change in leadership and uncertainty around federal health program changes contributed to an already evolving market."
Paul Keckley of The Keckley Report said that since the election, there's not a health system in the country that's not stepping back from capital projects and looking for ways to cut costs.
The acute care system is The Advisory Board's biggest revenue driver too, Keckley said.
"It is probably is going to be under a lot of stress financially over the months and years. That's the only thing you can surmise from Nov. 8. They felt it was time to skinny down and protect their margins," Keckley said, "To the extent the Advisory Board's services are part of discretionary spending, that's part of the puzzle. The Advisory Board has made a substantial bet on alternative payment models such as bundled payments."
Trump's pick to lead Health and Human Services Secretary, U.S. Rep Tom Price is on record as being opposed to bundles, and it's unknown whether he'll direct Trump's pick to lead the Centers for Medicare and Medicaid Services, Seema Verma, to unbundle and disconnect from these alternative payment programs, Keckley said.
Price is an orthopedic surgeon and orthopedic bundles have shown success, Keckley said.
Value-based models will continue to be part of the puzzle moving forward, as payers, private insurers and to some extent, Medicare, promote these models, said Keckley.
"I think what's clear is that Tom Price is going to put his own approach to that into play," Keckley said.
Keckley said the election results and uncertainty over the direction of value-based care does not affect his company because he operates independently.
"I'm not a consultant, I do studies," Keckley said. "I think what will be impacted by the change in November is a lot of the big consulting contracts, the consulting firms that sell to hospitals, will be under a lot of pressure. It's hard to justify $600, $700-an-hour bills when operating in a cost containment mode."