Expert Insights on Private Equity’s Role in Healthcare Compliance

It’s no secret that private equity is playing an accelerating role in the healthcare industry – but what does that mean for compliance professionals?

We invited Melanie Sponholz, the Chief Compliance Officer of WCP Healthcare at Waud Capital Partners, to share her insights on this timely topic. Our latest Compliance Conversations episode, “Compliance Implications of Private Equity’s Involvement in Healthcare,” features a conversation about why private equity can work with – not against – healthcare organizations.

Join Melanie and CJ Wolf, MD, for their discussion on:

  • Why compliance teams should be viewed as a strategic business partner and not an enforcer
  • Private equity’s impact on the healthcare industry over the last decade
  • Compliance trends and potential risks Melanie sees in her day-to-day work with multiple organizations of all sizes


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Compliance Implications of Private Equity’s Involvement in Healthcare - Podcast


Episode Transcript

CJ: Welcome everybody to another episode of Compliance Conversations. I am CJ Wolf with Healthicity and today's guest is a good colleague and friend, Melanie Sponholz. Welcome, Mel!  

Melanie: Hi, nice to be here.  

CJ: We are so grateful to have you here and I think this topic is a topic we've never talked about on the podcast, so I'm looking forward to it. But before we get to the topic, we love to hear from our guests. Tell us a little bit about yourself, personally and professionally, whatever you want to say, how did you end up in compliance? What are you doing? All that kind of good stuff.  

Melanie: OK, so I got into compliance, I was voluntold into compliance initially, so I know that's not an uncommon story, right? But I started in healthcare, I guess 20 years ago as a physical therapist, and I treated patients for a number of years and then I took more of a management role in the area of quality assurance and professional development. I had a pit stop first. I'd say I went into OPS for a little while first doing some...  

CJ: There you go!  

Melanie: Oversight of a large number of clinicians, and then from there went into QA and that's where I was when I got voluntold to please create a compliance program for the company that I was with and it stuck. So, I stayed in compliance, I eventually switch to other areas of healthcare I spent a big chunk of time in home infusion and that's where I was when WAUD Capital Partners, where I am now, found me and they actually found me because of my PT background because they had just acquired an outpatient PT organization and were looking for advice about that, and I'm connected with them and rest is history.  

So, they created this role for me because they invest in two sectors; healthcare and software, and technology. And because they realize that compliance is really an integral part of healthcare, they had been thinking about bringing on someone to help provide strategic oversight and support in that area to their healthcare portfolio. And when we connected, we started talking about what that might look like and I decided to give it a try. And now, six years later, here I am. And it's been really interesting working with anywhere from 6 to 8 portfolio companies at a time and supporting their compliance teams and helping them live in the, you know, building the plane in the air mode when you're acquiring. So, that's kind of the thumbnail sketch of my compliance career.  

CJ: That's awesome. And we're going to talk about private equity in healthcare and compliance and you're an expert there, before we get to that though, I thought it was so interesting just how you kind of landed in compliance, what made you stay in compliance? I'm just kind of curious. Like, what things like were like, "OK. I think I found a good place!"  

Melanie: I think it's a couple of things. I think some of the same reasons I liked quality assurance in that, I feel that both quality assurance and compliance are tied to good patient care, so they still support the reasons I went into healthcare to begin with, which is to get that good outcome for patients at the end of the day. So, I like to highlight and I think the ability to communicate that connection helps me get compliance accomplished in an organization where I need to convince other professionals in that area, you know, clinical professional, that this is important stuff, but I think it's helped me in that area and also I think people have a misconception about what compliance is and too many people see it as some kind of all investigation focus enforced their kind of area and I like to counter that and be a business partner and a cheerleader and a supporter. So, that maybe I can change that perception of compliance a little bit.  

CJ: Well, and I'm glad you pointed that out because in the, you know, in the short time we've known each other, I was going to say that's really my perception of one of your greatest strengths is you seem to be a strategic partner with the people you work with as opposed to, like you said, "Oh, here comes compliance! What is the oddity today?" And you can correct me because I don't know the inner workings of what you do, but it does seem like you have a good seat at the table, right? And you're there, kind of from strategy and business leadership and I mean is that accurate?  

Melanie: I mean, it's been really fantastic the access that I have to our boards and executive team. So, I really have the opportunity to sit in on the board meetings for all of our healthcare portfolio companies. I mean, in most cases with their own internal compliance leadership, you know, I'm not mentioning in that role, but I'm still seeing as that added strategic perspective and it's really been fantastic and I think it's helped the compliance leadership at our companies too because I'm seeing in that light as kind of a board level support and it brings them to the table as well, in a way that maybe doesn't always happen. So yeah, it's been, yeah, it's been great. I feel like we have a lot of access and support.  

CJ: That's awesome! Well, let's maybe just set the stage and you can kind of educate me as well as our listeners. So, in healthcare like just historically like big picture, right, like healthcare started in the United States usually coming in like from maybe like a religious institution right or like volunteer groups. And so, there's a lot in healthcare that's kind of this non-profit sector, right? And then we know that there's a for-profit footprint in healthcare too, for-profit hospitals, etcetera. And this may be my misperception but is private equity, like just getting into healthcare more, have they been there all along and I wasn't aware of it? Can you maybe just set the stage a little bit of what role they play? And maybe give a little timeline if you know it.  

Melanie: Well, I think they've been in it for quite some time, I mean, I can't claim to have deep knowledge of the timeline prior to, I worked for an equity-owned home infusion company prior to coming to WAUD capital. So, maybe it's been eight- or nine years total that I've been somewhere in the space. I do think there's a lot more private equity and healthcare over the last 10 years. But I think prior to that there was still private equity that was more focused potentially in the publicly traded arena and then more recently more in the private markets, but I think, CJ, that some of what you mentioned in the historical sense explains somewhat why private equity has moved into this space. Because I think, you know for good reason you had a lot of healthcare organizations that were founded by healthcare professionals, and as they grow, you know, someone who may be a fabulous healthcare professional may create an organization that at some point reaches a critical map where it really requires or could really benefit from, I should say, you know, more about the background of someone who has expertise in finance or procurement or operation and so it lends itself well to being an area where you can make a company more profitable and grow it because you have the opportunity to go in and create a lot of efficiencies and gain that size and geographical footprint through acquisition, that gives you more buying power and procurement areas than that makes you a better, a more attractive partner for payers because you can reach more live because you're a bigger organization. So, there's a lot that is attractive and the ability to take the smaller pieces and build with them.  

CJ: Yeah, I really like the way you said that too, because there are clinicians that might have some business acumen, but you know, I went to med school, and we didn't have a single business class, so that wasn't many years ago, maybe things have changed, but to your point, people can be great clinicians, but they may not have the time. Maybe they would be good at it, but they want to focus on clinical work, and to your point, there are people who do this for a living, right? Like they are good at finance, they're good at marketing, they're good at growth. And you know financially strong healthcare organizations can probably serve more people better, right? So, we shouldn't really shy away from kind of the financial strength as a good, you know in growth because it could lead to, as you mentioned a bigger footprint and affecting more people.  

Melanie: Right!  

CJ: So, from a compliance standpoint then, because you're seeing things maybe from two different perspectives, and if it's true, maybe we can talk about both, like you're seeing because you're the chief compliance officer. So, you're seeing these portfolio companies and so you might be, I'm assuming you'd be involved like when one invests in a company, you probably be part of the due diligence, but also, you're seeing how the compliance is being done at each kind of company. Is that true? Do you have both those perspectives?  

Melanie: Yes, I do. I work through, we call it working through the whole life cycle of the investment. So, it starts with our due diligence when we're considering partnering with an organization, and at that stage of the game I help engage those that are going to do their due diligence reviews on the healthcare regulatory side and that can be the legal team. It can be the documentation and coding review, it could be privacy reviews, cybersecurity reviews, and all those fun things.  

So, I helped scope those and work with the teams that are working on those work streams to help us. you know, first of all, find any red flags that might make you consider not partnering with an organization, but also, and maybe even more importantly, making sure we have a good understanding of what we'll want to do post close, so integration, planning and from a compliance standpoint, "What will we want to do to build that program once we're working with that organization?”  

So, I start there and then depending on the organization, I mean some of them have a big compliance team already others have a lot of good elements of compliance, but maybe not a robust formal 7 elements program yet. So, whatever they need, you know, I can either be a resource for their existing team or I can help the executive team and the board as they try to hire to create that internal team and serve as kind of a pinch hitter in the meantime, while we're getting their internal team built and then I'd stick around, you know, for as long as they're with us to help.  

I know you came to our annual compliance symposium; you were a speaker this year, but we do that every year for all of our portfolio compliance teams. We have a compliance symposium with a lot of awesome speakers and continuing education that's targeted for our team. And then, that theme team, we meet every week on Fridays and talk about hot topics and have guest speakers and I think maybe my team reached out to you about joining us for one of those coming up too, right?  

CJ: Yeah! They have, yeah!  

Melanie: So, we do all kinds of stuff with our teams throughout the life cycle and then also getting them ready for an eventual exit transaction. So, making sure that they're prepared to go through due diligence again when it's time for them to transition.  

CJ: Yeah, this is so fascinating. I'm going to ask you some more questions, but we're going to take a really quick break and we'll be right back.  

Welcome back everybody from the break! We are talking about kind of some of the unique environments and concepts when it comes to kind of private equities, involvement in healthcare, and maybe the compliance implications there. And we're talking to Melanie and one thing I was thinking is you were just answering that other question before the break was, you probably see like best practices and maybe somethings that aren't so great, cause you're evaluating compliance programs, right? from these different companies, and so you're almost like a consultant in a way, where you're seeing best practices in certain areas. Is that true? Are you able to like, see the good and the bad in some of those areas? And then maybe on the best practices, share that with the other companies in your portfolios? 

Melanie: Yeah! I do feel like I learned, you know, three years’ worth every year for them in this job because I am working with so many companies and then even within those companies as they are looking at potential add-on acquisitions, I'm seeing lots of those every year too. So, we really do see the gamut. I think what's encouraging is I think a lot of what we see are people with really good starts and good intentions in the area of compliance that really will flourish with more formal programming and resources.  

I think the biggest struggle and the one area that I've learned to point out is that when you're doing an add-on acquisition of a really small organization, say it's a physician practice or something. And when I first started I would see the inclination to be, "Oh! Well, can't we kind of do a due diligence light on this because it's such a small practice?"  

CJ: Right!  

Melanie: But that's where you need the most work usually, right? So, because usually, that's a place that didn't have the staff or the resources or the expertise to have a compliance program yet, and a lot of times they're folks who might still be on paper records and there are lots of reasons why that's exactly who you want to do some diligence on because they're probably going to need the most help those closed to get up to speed.  

CJ: Yeah, absolutely. What kind of, I mean, and this doesn't have to be specific to obviously it doesn't have to be specific to the companies you work with, but in general, in compliance, what kind of risks are you seeing out there in the spaces that either you have knowledge of? What are some trends? Are there any things that stick out? I know this is kind of putting you on the spot, if not, that's fine.  

Melanie: I think it's a fair question and I don't think it, you know, any of this would be unique to our companies for sure. I think cybersecurity is probably one of the top risks to every company in healthcare because the information you can get if you're a hacker from a healthcare company, is so much more valuable than maybe what you might get from credit card numbers even because it hasn't detected it quickly when you get it. So, just trying to educate about that as well as privacy, because privacy is such a growing area of focus and it's not just HIPAA anymore. There's lots of focus on consumer protection and non-HIPAA related privacy and there are more and more states that have their own approach to privacy that you need to be aware of, and then even in the most recent update to the DOJ evaluation of corporate compliance programs, you know they're talking about, "Do you know how your teams are using Apps to communicate?"  

CJ: That's right!  

Melanie: So, I think there's a lot of focus there. And then of course, as you and I have talked about before, you're never going to escape a top risk being just you're coding and billing, right? And you know, "Are you auditing effectively?" You know, "Do you have an internal audit program that's risk-based, so you find things?" "Are you educating well?" So, I think those are some of the areas. And then the third, so if it's privacy and security, coding and billing, the third area, I would say is just a referral source, interaction those are the three top areas and I think that's across probably most of healthcare.  

CJ: Yeah, I was just going to say I do a lot of work with clients and those really are the three biggest. So, it almost doesn't really matter what the business background or structure is those are the risks, right? Because like you mentioned patient information is so valuable privacy, you know, the expectation from the public in general, even outside of healthcare, you know, privacy laws are becoming more and more important and people are becoming more sensitive to that. And of course, billing and coding you follow the money, right? It's like those are claims and they got to be done right. And then the financial relationships are always an issue with potential Anti-kickback or STARK types of things.  

Melanie: Well, I guess if you're thinking about that update to the DOJ guidance, the other area we all need to start thinking about is our compensation structure.  

CJ: Yes, structures, yep. I read that, I thought that was so interesting, right? Like, because they're trying to focus on that individual accountability and having individuals feel the weight. So, they can't just make a lot of money and escape the consequences if they did it inappropriately.  

Melanie: Yeah, and how are you incentivizing people too both positively and negatively? Is there a connection to compliance with the way you're using incentives?  

CJ: Yeah, exactly! So, you've been doing compliance for a long time. I've been doing it for 23, 24 years, you know? And when I first started, technology, you know, we had spreadsheets and paper and pencil and that sort of thing. Are you seeing more usage of technology, like we hear from OIG and DOJ that they're doing a lot of data analytics, are you seeing much improvement? you know, just kind of big picture from when you first started compliance or more people doing and using data analytics and technology to help run their compliance programs?  

Melanie: It really wasn't a focus 15 years ago and now I think it's becoming table stakes; you have to figure it out. You can't avoid it anymore. So, like when we came up with our agenda for our symposium last year, we partnered up with the Data Analytics team from Jefferson Health System in Philly, they have this really cool team there that liaises with their clinical professionals and their compliance team to help put take the data that's available to the system and come up with useful ways to use it based on what the risks that the professionals or the compliance team we're trying to look at. So, we did a whole workshop with them trying to figure out how can you take data that's available to you in your organization and make that useful from a compliance standpoint.  

CJ: Right, right.  

Melanie: And one of our companies, I thought this is really interesting, I was just talking to them a couple weeks ago and they're trying to come up with a ticketing system, kind of similar to what you would find with an IT help desk ticketing system to use for compliance help.  

CJ: Ah, interesting! Yeah, especially. I mean, if you have high volume, that makes a lot of sense, right? 

Melanie: Yeah, it's really interesting. They're trying to figure out how can you build some algorithms to prioritize different requests then to help streamline the process for people to make it improve customer satisfaction. 

CJ: Yeah, exactly right! Like I and I think of AI and where is that going to take us? That to me is still kind of future, but not too far future. So, artificial intelligence, right, like what can it do to help us in compliance?  

Melanie: Yeah, we're doing a cybersecurity event next week and Shuba, one of my teammates, used AI herself, and she's a compliance person, she's not an IT person, and she was able to use AI to generate a phishing e-mail that looked like it came from WAUD Capital Partners.  

CJ: OH! That's so great.  

Melanie: Yeah, isn't that crazy?  

CJ: OH yeah, yes, I mean that could be a way that we could use it like I'm not an expert at all, I've just heard these anecdotal things, but that just makes me think of how could you use it to make your lives and jobs easier, right?  

Melanie: Yeah! 

CJ: That's so cool. Yeah, the other thing, I wanted to kind of ask about is, are you seeing, just kind of I'm talking about the profession of compliance, it's a relatively young profession, accountants have been around forever, attorneys forever, but are you seeing more acceptance as compliance as like a legitimate profession in the companies you interact with? You mentioned that most of them have programs, some might have elements, but maybe not a compliance officer. Thoughts on kind of just compliance as a profession. 

Melanie: Yeah, I do. It's interesting because I think a lot of the compliance leaders of our vintage, if you want to call that, I think you know never, never set out to be in compliance. It just kind of evolved that way through other career decisions. But I do see more and more people entering it as a conscious choice now from when they're in college and grad school. And you know, for instance, I teach a course for Fordham School of Law Masters and Compliance Program and those are students who are setting out intentionally to go into compliance careers, so it's definitely, and I know there are similar programs at Peyton Hall, I think, and Loyola and Chicago. And I'm sure there are others too, but there are a lot of people making conscious decisions to do it now.  

CJ: I don't know if I've ever told you, but I teach in an undergraduate healthcare administration program, so it's a broader kind of based program....  

CJ: Well, Melanie, this has been so fun and I could talk to you all day and we will, right?  

Melanie: Yeah! We will soon, yeah.  

CJ: But for our listeners, you know, we're going to kind of wrap up here in a few minutes I, but I want to give you an opportunity to share anything else that you think might be important. Maybe something I didn't ask you anything. Do you have any last-minute thoughts as we're getting to wrap up here?  

Melanie: Let me think. Well, I encourage other compliance professionals not to be afraid to maybe try compliance out of a private equity-backed company. I know you know there's a lot of anti-PE and healthcare sentiment out there, but I think it's just like any other healthcare organization whereas a compliance professional you do it that's whether there's a culture there that supports compliance, but it can be a really exciting place to work because it's fast-paced and you learn a lot about doing evaluations of programs and building new programs as you add on companies. So, it can be really rewarding as a compliance professional. So, I guess that would be my plug for not being too hesitant to give it a try.  

CJ: Yeah, and I really agree with you. Like I've worked in for-profit companies I've worked in not-for-profit companies in healthcare and it doesn't really matter, like if the culture is not there, like you're saying, like there's a whole lot of settlements in non-profits too, right? Like people that in leadership made bad choices, and so I don't think it's necessarily the space, it's more what's the culture, what's the leadership like? So, I totally agree with you there.  

Well, this has been great and we really appreciate you sharing a little bit about this area. A lot of people don't know a lot about it, including myself. And so, I really appreciate it. I think you just introduced yourself one day at a, you know, as we were going to a healthcare compliance conference and we kind of hit it off and I really appreciate just the way that you approach the profession and approach colleagues. I just really appreciate your approach to those things.  

Melanie: Well, thanks so much, CJ! Right back at you and I hope I'll be seeing you soon in Anaheim.  

CJ: We'll be there. And for all our listeners, we hope that you will be there, and maybe by the time this airs, we will already have had it. And so, we're hoping that it's a great conference.  

Thank you as always for listening, if you know of people that you think would make great guests, please reach out to us. Please hit the like button. Let us know what you like, and what you don't like, and share it with friends. Until our next episode. Have a great day, everyone!

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