Ep 12  |  The Business Acumen Podcast

The Care Equation: Understanding the Business of Healthcare with Ben Cook & Kenny Snarr

Show Notes

Ben Cook and Kenny Snarr, senior leaders and executive consultants at Acumen Learning, dive deep into the economic realities, strategic tensions, and structural trade-offs reshaping the multi-trillion-dollar healthcare industry. Drawing from Acumen Learning's report, The Care Equation—which analyzes earnings transcripts across ten of the largest healthcare entities—Ben and Kenny break down how the five business drivers framework (Cash, Profit, Assets, Growth, and People) can foster better alignment and collaboration across the healthcare ecosystem.

The conversation explores the distinct financial models across healthcare sub-sectors: from payers operating on razor-thin net margins and leveraging investment income from floating premiums, to capital-intensive hospital systems battling severe labor shortages and shift-to-ambulatory trends, to drug innovators navigating 12-year development timelines with sub-10% success rates. Ben and Kenny also highlight how modern AI tools, policy shifts like the Inflation Reduction Act, and new biopharma partnerships are reshaping the future of care delivery and cost management.

Key Takeaways for Leaders

1.  The Fragmentation and Misunderstanding of "Healthcare"

Unlike tightly integrated corporate ecosystems, healthcare is a fragmented collection of sub-sectors—payers, pharmacy benefit managers (PBMs), hospital systems, distributors, med device manufacturers, and biopharma—that often lack shared economic incentives. While all parties share the overarching goal of improving patient outcomes, external observers often misinterpret their financial structures, leading to widespread public frustration over rising care costs.

2.  The Payer Reality: Thin Margins and Floating Investments

Despite public perceptions of healthcare payers as hyper-profitable conglomerates, average net profit margins across major payers have compressed from 5–6% down to 1% or less. Payer revenue is heavily governed by regulatory requirements like Medical Loss Ratios (MLR/MCR), which require 80–85% of collected premiums to be paid out directly in medical claims. Consequently, a substantial portion of a payer's net income often stems not from underwriting or claims administration, but from investment income earned on held premiums before claims are settled.

3.  Provider Economics: Capital Intensity vs. Specialized Efficiency

Hospital systems face severe margin pressure due to rising labor costs, retiring nursing staff, and fixed capital tied up in real estate and specialized equipment. To survive, the provider landscape is splitting between massive, highly standardized operators (such as HCA) that win on scale, and specialized operators (such as Tenet) that are pivoting away from traditional acute-care hospitals toward higher-margin, more efficient Ambulatory Surgery Centers (ASCs).

4.  The Innovator Risk Profile: Time, Capital, and Portfolio Scrutiny

Developing a single innovative pharmaceutical therapy requires an estimated 12 to 15 years and upwards of $2.2 to $2.5 billion in capital, with fewer than 10% of early-stage pipeline compounds reaching commercialization. To sustain these high-risk timelines, biopharma leaders are increasingly scrutinizing their pipelines—often cutting underperforming programs to concentrate capital on higher-probability therapies—and forming strategic licensing partnerships with early-stage biotechs rather than developing compounds entirely in-house.

5.  Leveraging the 5 Business Drivers for Ecosystem Alignment

Navigating healthcare requires viewing every organization through the lens of Cash, Profit, Assets, Growth, and People. While individual sub-sectors prioritize different drivers based on their immediate pressures—such as providers focusing heavily on short-term margin management while pharma focuses on long-term asset growth—the five drivers provide a universal language to help different healthcare entities understand each other, collaborate, and drive sustainable value.

Featured Tools & Resources

• The Molecule Moment
  

  Download Acumen Learning's complete report analyzing the earnings calls of 10 healthcare giants through the five business drivers framework.

• Acumen Intelligence AI Platform
  

  Fill out the waiting list form to get early access to Acumen Learning's specialized AI tool designed to automate company research, synthesize earnings calls, and generate strategic call plans for salespeople. 
  

• Seeing the Big Picture

  Read Kevin Cope’s bestselling guide to mastering the five key drivers of business success to better analyze financial performance and strategic decision-making.

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The Care Equation: Understanding the Business of Healthcare with Ben Cook & Kenny Snarr

Host: Stephen H. Covey; Guests: Ben Cook (President), Kenny Snarr (Senior Consultant)

Ben Cook:

Hey, everybody. I'm Ben Cook, and I'm with Kenny Snarr. Both of us are with Acumen Learning, and I gotta tell you, I'm really excited about this conversation that we're going to have today. At Acumen Learning, we spend a lot of our time in healthcare. Kenny and I, alongside some of our other consultants, spend a great deal of time in this sector. What we really love about it is the real desire across the different constituent parts of healthcare to do good—to impact patients' lives positively and to shepherd resources in a way that really elevates the health and well-being of patients. But it's an interesting, challenging, and complex industry that's hard to get your arms around.

We wanted to spend some time today talking through the work we get to do and the experience we've gained across pharma, med device, hospital systems, payers, distributors, and retailers—all the sub-sectors of healthcare. Our goal is to illuminate some of the natural tensions, challenges, and trade-offs so that if you work in any part of healthcare, you can better appreciate everyone else at the table and understand each other.

So when we talk about healthcare, Kenny, why does the term "healthcare" underappreciate what this industry actually is, and why is it so hard to wrap your arms around?

Kenny Snarr:

That's a great question, Ben. As you said in your intro, it is a well-intended industry that is probably one of the most demonized in the world because there is a fundamental lack of understanding of the healthcare system—and I use the word "system" very loosely. When we think about systems, we think of closely integrated, commonly incentivized organizations working toward a shared goal or objective, and healthcare doesn't feel like that.

If you think of a Coca-Cola system, where independently owned bottlers operate in their local communities and The Coca-Cola Company drives demand through those businesses, that is a clearly integrated system with common goals—perhaps one of the best in the world. Healthcare is not that. People lack a general understanding of what the different parties in this system are trying to do. I do think there is a shared focus on patient outcomes, but the marketplace isn't seeing that alignment.

Ben Cook:

I love that. In our best effort, this is a bit of an "MBA in healthcare" in a short amount of time to capture these different parts. As an FYI for listeners, we've released a report capturing 10 of the largest players within healthcare. You have payers and health services like UnitedHealth and CVS, hospital systems like HCA and Tenet, distributors like McKesson, med device companies like Abbott and Medtronic, and pharma giants like Eli Lilly, AbbVie, and J&J.

You interact with executives across almost every part of those businesses. I spend a lot of time in med device, pharma, and hospital system economics, along with the payer side. When you look at the payer element versus the provider element, they are so distinct from each other. I'd love to hear your thoughts, Kenny, because you spend so much time in the payer, payer-provider, and payer-PBM worlds, which are really not well understood.

Kenny Snarr:

Ten years ago, a payer was an easier business to wrap your mind around. Today, these payers are much more integrated businesses. They are payers, PBMs, and providers with their own networks. The more integration there is in healthcare, the harder it is to break apart and understand how individual parties create value.

Broadly speaking, we have an aging demographic, utilization is dramatically increasing, and the cost of care is accelerating due to macroeconomic pressures—all inputs and labor are more expensive. On top of that, the actuarial role of pricing risk is difficult and lagging. As you gather data, you can make future adjustments, but it takes time to flow through financial statements. People misunderstand that payers are essentially predicting what the future will look like and operating within that guess.

When people pay their health insurance and medical bills, they ask, "Why is the payer gouging me?" There's a misunderstanding about their role. In reality, these businesses are breaking even at best in the current 2026 timeframe.

Ben Cook:

That's an interesting point. From a payer perspective, you're trying to set a price and appropriately account for risk, but the models change. If a GLP-1 enters the market and creates a spike in utilization, that likely wasn't part of the pricing model a year ago.

Most people misunderstand how payers view themselves. You often hear about the "big, bad insurance company." From their perspective, they look at their membership volume—the millions of people paying premiums. They use that scale much like Amazon or Walmart to negotiate down unit costs and pass those savings along to bend the cost curve.

They also see themselves as the stakeholder most incentivized to keep people healthy. Pharma, device, and hospital companies make money when therapeutic interventions and facilities are used. Payers make more money when everyone stays healthy. In fact, reimbursements back to hospital systems are increasingly tied to quality metrics and member satisfaction; if quality is poor or readmission rates rise, reimbursements are reduced. They view themselves as shepherds trying to drive quality up and cost down, operating on thin margins to coordinate care with doctors and networks.

Kenny Snarr:

Collectively, annual payer revenue is about $1.3 trillion, representing a massive chunk of our economy. Yet, as an industry, they generate around $20 billion in net income—a very low margin.

I agree that they are highly incentivized on patient outcomes, but one challenge is that they are less incentivized to own the raw cost of care, as they don't own the care delivery assets. Regulatory requirements, such as the Medical Loss Ratio (MLR/MCR), dictate that government-sponsored payers pay out a set percentage—typically 80% to 85%—of collected premiums directly in claims. As long as they hit that ratio, they meet regulatory obligations, but that structure doesn't necessarily incentivize driving down the foundational cost of care.

Furthermore, revenue comes from multiple sources: selling drugs through PBMs, providing direct care, and collecting premiums. Nobody fully owns driving costs out of the system for members.

Ben Cook:

What most people don't realize is that entities like UnitedHealth, Humana, CVS, Elevance, and Cigna aren't just handling financial transactions where they collect premiums and pay claims. They own home health agencies, infusion centers, and care facilities to coordinate care, similar to how Kaiser integrates hospital systems and payers.

Payers are facing a squeeze. With the MLR floor at 80% to 85%, rising utilization rates, an aging population, and expensive complex treatments are pushing MLRs to 90%, 95%, or 98%. Because they haven't appropriately priced for these spikes, operating a diversified portfolio helps them navigate and manage the member's journey.

Kenny Snarr:

Integration gives them valuable insight into the member's healthcare journey. The benefit of owning the whole pipeline is understanding what it takes to achieve better patient outcomes.

Additionally, their operating cost ratios (SG&A) are incredibly low. They are efficient, productive machines with very little waste in overhead.

One fascinating aspect of their business model is float: investing premium dollars before claims are paid out. Because of increasing medical benefit ratios and shrinking underwriting margins—which have dropped from 5–6% net margins down to 1% or less over the past five years—a huge chunk of a payer's profit comes entirely from investment income generated on held premiums. When financial markets do well, it creates significant value for them; when markets underperform, it creates major economic challenges. Costs are going up for consumers, while margins are shrinking for payers, providers, and innovators alike.

Ben Cook:

That explains much of the public frustration—costs are rising, but people don't know where to point the finger because profits across the system are under pressure.

Looking at the provider side, large entities like HCA, Tenet, CommonSpirit, and Ascension face a completely different business model. Average S&P 500 companies run SG&A at 25% to 35% of revenue, while payers operate at 8% to 15%. Providers also operate in an equally thin-margin environment, but their business is extremely capital-intensive—tied up in real estate, parking structures, facilities, and expensive equipment.

Healthcare providers went to medical school because they deeply care about patient care, but they are caught in economic vice grips. They face an aging population needing more care, reduced government reimbursements through Medicare and Medicaid, and severe labor shortages. Experienced nurses are retiring, and the incoming workforce isn't large enough to meet demand, prompting companies like HCA to build their own nursing universities.

HCA, the largest for-profit hospital system in the country, manages these pressures through massive scale, extreme discipline, and standardized operations. Conversely, Tenet has pivoted away from large acute-care hospitals toward Ambulatory Surgery Centers (ASCs)—specialized facilities for orthopedic, eye, or joint surgeries. Patients receive targeted care and leave the same day. ASCs are more efficient and often more profitable than traditional hospitals, though they require a different operating model.

As you noted previously, providers don't just have a margin challenge—they have a critical cash flow challenge.

Kenny Snarr:

How much of a provider's margin profile do you think is driven by scale versus specialization?

Ben Cook:

For HCA, it is entirely a scale and standardization story. They win on scale the same way Walmart or Amazon does. For Tenet, CommonSpirit, or Ascension, who are smaller than HCA, they win through specialization—focusing on specific high-margin procedures and ASC networks where they can command targeted pricing.

Kenny Snarr:

Academic research institutions also bridge these worlds by conducting research similar to pharmaceutical companies.

Regarding cash flow: we almost always evaluate these organizations based on profitability because it is easy to measure on financial statements. Cash flow, however, is much harder to observe, yet it drives almost all organizational behavior. How long does it take to get reimbursed for care? Was a claim properly coded? Did a patient get readmitted, preventing reimbursement?

Payers naturally want to hold onto cash longer to generate investment returns, while pharmaceutical innovators must layout billions in cash for R&D years before seeing any return. The cash conversion cycle across providers, payers, PBMs, and innovators explains their core behaviors, yet it is rarely discussed.

Ben Cook:

The cash flow narrative on the innovator side—pharma, biotech, and med device—is heavily misunderstood. Average S&P 500 net margins sit between 10% and 13%, while providers and payers operate between 0% and 5%. Med device and pharma companies sit on the other end, often posting net margins of 20% to 35%. It's easy to look at those numbers and assume they are making money off the sick, but looking through a cash lens tells a different story.

Innovators aren't sitting on piles of cash without purpose. Developing a single drug takes over 12 years and costs between $2.2 billion and $2.5 billion, with cash flowing out for over a decade before a single dollar comes in. A single snapshot showing high margins ignores 15 years of risk, uncertainty, and failed Phase 1, 2, or 3 clinical trials. When a drug finally reaches the market, its returns must compensate for the massive capital lost on failed programs.

For example, Roche, a respected pharmaceutical company based in Switzerland, evaluated its pipeline through a initiative to scrutinize low-probability drug programs. Recognizing that they couldn't throw finite resources at every program, they halted roughly 60% of their lower-probability pipeline projects. By focusing capital and resources on the remaining 40%, they significantly increased the speed to market and overall value of those high-probability therapies.

Kenny Snarr:

What percentage of innovations actually make it through the pipeline to market?

Ben Cook:

Studies from Deloitte and others show that in pharma, less than 10% of programs funded in year one ever make it to market by year 12. Med device has a higher success rate—around 30% to 40%—with development cycles lasting 4 to 9 years and costs ranging from $300 million to $800 million, largely because device portfolios are refreshed every few years with iterative technological updates.

Kenny Snarr:

That highlights the challenge. When pharma companies are forced to cut pipelines, it can be a net negative for patients if therapeutic areas go undeveloped. If innovators cannot generate sufficient profit and cash flow, R&D investments slow down or stop.

Simultaneously, the regulatory environment—such as the Inflation Reduction Act—is increasingly focused on managing innovator margins. This forces biopharma companies to adapt their go-to-market strategies. Rather than developing a compound in-house over 15 years, major pharma companies increasingly partner with or acquire smaller biotechs that have promising early-stage compounds. They leverage their massive commercial organizations to navigate regulatory hurdles and bring therapies to market quickly within their patent exclusivity windows.

Ben Cook:

It creates a Venn diagram where pharma, universities, research institutions, and providers collaborate through minority stakes, licensing agreements, and acquisitions. Deeper partnerships are essential to bring therapies to market faster while maintaining safety, quality, and affordability.

At Acumen Learning, we view all of these sub-sectors through the Five Business Drivers: Cash, Profit, Assets, Growth, and People. Every major healthcare organization puts "People" at the center because their workforce and patients drive their mission. Kenny, how do you see different healthcare entities prioritizing these drivers?

Kenny Snarr:

The Five Drivers provide a simple framework for a complex system. Whether you work in healthcare, sell into it, or design policy, understanding Cash, Profit, Assets, Growth, and People reveals how these organizations allocate scarce resources.

Different entities prioritize different drivers based on their immediate pressures. A pharma company may focus heavily on Assets (R&D pipelines) and Growth, whereas a hospital system is currently consumed by Profit and cost pressures due to labor shortages and inflation. When these two entities meet, they often talk past each other because they are focused on different drivers.

Top-line revenues are growing across healthcare, but margins are declining, and consumer costs are rising. Understanding the Five Drivers gives leaders a common language to align, empathize, and collaborate across sector lines.

Ben Cook:

That mutual understanding is vital. A pharma company focused on Growth must realize that the hospital system across the table is suffocating under Profit and labor pressures. The Five Driver model helps bridge that gap so both sides can find collaborative solutions.

As we look ahead, a few key trends stand out: Is innovation outpacing the system's ability to afford and deliver it? Companies like Roche are aiming to deliver "three times the value at half the cost to society. The downstream impacts of specialty drugs, precision medicine, and GLP-1s on payer coverage and employer costs. Evolving reimbursement models and regulatory policies surrounding drug pricing.

Kenny, what else should healthcare leaders keep an eye on?

Kenny Snarr:

Artificial Intelligence is transforming the industry. Beyond R&D, low-margin payers and providers are leveraging AI tools to automate claims processing, streamline care delivery, and improve operational productivity. Every healthcare company is being forced to become an innovator, making strategic bets on where technology can yield the highest return. I am optimistic that these technological capabilities will lead to better outcomes, greater efficiency, and more affordable care for consumers.

Ben Cook:

For those listening, our report, The Care Equation, breaks down these Five Drivers across 10 of the largest healthcare companies using their latest financial data.

Kenny, thanks for sharing your insights today. It's always a pleasure learning from you.

Kenny Snarr:

Thanks, Ben. I love your passion and expertise. These companies need to succeed—it's important for all of us.

Ben Cook:

Thanks, everyone, for watching. We'll stay in touch.