J.P. Morgan

Uncovering the Future of Treasury

J.P. Morgan Payments | Healthcare

Foreword

How can you establish a solid foundation for your treasury strategy in a time marked by conflicting perspectives, transformative disruptions, and numerous macroeconomic factors? Identifying a clear guiding principle for treasurers can be challenging, especially with the changes happening across the Healthcare sector. How can you utilize a deeper understanding of industry practices to develop an effective treasury and cash management roadmap for the future?

We have summarized our initial analysis of treasury practices in order to present the current state within the healthcare industry on core, practical treasury topics. J.P. Morgan's comprehensive understanding of the treasury ecosystem across select 90+ global Healthcare clients provides insight on how treasurers are navigating a changing landscape. Across the globe and within sub-sectors, what is the true status and direction of travel in Healthcare corporate treasury?

Six core trends emerged in this treasury analysis:

1 The journey towards Treasury Centralization is on an upward trajectory with high adoption rates across In-House Bank structures, Shared Service Center and Regional Treasury Center set-ups. Implementation of In-House Bank structures across our client base remains strong, with close to 41% using such set-ups. However, significant differences exist across regions, with 67% of clients having adopted this structure in EMEA, while APAC lags with an adoption rate of 15%. Almost 2 in 3 clients have a Shared Service Center set-up and more than 70% have a Regional Treasury Center in place. Many ongoing projects across our Healthcare clients - driven by the continued need to enhance working capital through efficient cash mobilization - should result in an increase in these 3 metrics in the years to come.

2 Around Treasury technology, SAP remains the number one ERP across our client base, with 83% using the German solution. With the 2027 deadline for all legacy SAP ERP Central Component (ECC6) users to migrate to S/4HANA approaching, the market is now feeling the urgency to take action. Furthermore, clients can opt to de-risk this transition by leveraging tools from their banking and business partners.

Foreword (cont'd)

3 Adoption of Virtual Account structures - allowing for immediate instead of overnight consolidation of cash - is slowly ramping-up, with NA clients leading the charge (16% adoption). This drive is - at least partially - to be explained by the lack of regulatory challenges in NA, that allow for the implementation of this native On-Behalf-Of model, while clients in APAC face more complexity to create this structure. Across Healthcare, Virtual Accounts have seen most traction with Healthcare Providers clients (17% share).

4 Connected to the pursuit of yield and efficiency, Cash Concentration remains high, with close to three-fourths of clients leveraging this structure. Although we clearly see a focus on mobilizing own-cash as the cheapest source of funding in a time of high interest rates and volatility, significant regional differences exist with clients in APAC markets showing a relatively limited adoption of cash concentration structures. While NA and EMEA have shown 79% and 77% adoption rates respectively, APAC lags with lower uptake of 58%.

5 When it comes to Working Capital, we notice Supply Chain Finance (SCF) adoption is the highest in EMEA with an uptake of more than 30%. This trend highlights the strengthened need to support the local and regional ecosystem through enhanced supplier relationships in a time of volatility and political uncertainty. Virtual Cards – often used as a complement to SCF for tail-end expenses – have a significant uptake in APAC, with close to 40% adoption.

6 Finally, with regards to Payments digitization, there is a growing usage of Electronic Health Record (EHR) systems for data storage in care delivery organizations. In North America, the most popular EHR providers are EPIC, Cerner and Parallom. J.P. Morgan's InstaMed platform is also seeing a growing uptake in North America, with 22% clients in the region already enjoying the benefits of the platform for processing payments and moving healthcare data seamlessly. In the overall global healthcare industry, electronic payments and receipts have dominated over checks with a usage of 77% and 67%, respectively.

Transforming your treasury from an operational to a critical business growth engine cannot be done in isolation – it requires strong collaboration with key partners, a strategic mindset, and the drive to execute. This research is a guide to help you navigate and transform into the "Treasury of the Future."

Connect with your J.P. Morgan Payments representative today to find the right solution for your business and benchmark your Treasury approach against your industry.

Healthcare Industry Treasury Analysis

Global Results

Treasury Landscape

A focus on driving liquidity and operational efficiencies

KEY INDICATORS ACROSS J.P. MORGAN'S CLIENTS IN THE HEALTHCARE SECTOR

In-House Bank

41% of J.P. Morgan's Healthcare clients leverage an In-House Bank. The vast majority of these structures consist of nominated entities, allowing for efficient consolidation and recycling of Group-wide cash.

Shared Service Center

Over two-thirds of Healthcare clients use a Shared Service Center, either regional or global. Most of these perform payables, receivables or reconciliation duties; sometimes expanding into HR, IT, Legal, etc. — 67%

On-Behalf-Of

1 of 4 clients analyzed have adopted On-Behalf-Of ("OBO") processing. Most of these OBO structures are focused on payables and supported by a Payment Factory. Collections On-Behalf-Of are still lagging, but recent technology advancements – including Virtual Accounts – are upping the game. — 25%

"The treasury organization holds a crucial position in strategic decision-making. The Treasurer, equipped with real-time insights, robust control mechanisms, and proficient liquidity management, has the potential to profoundly transform a business."

— Mukund Iyengar, Managing Director, J.P. Morgan Payments

Technology Set-Up

Strengthening the foundation to enable real-time Treasury

KEY INDICATORS ACROSS J.P. MORGAN'S CLIENTS IN THE HEALTHCARE SECTOR

Enterprise Resource Planning

SAP clearly dominates the Healthcare world, with more than 80% of Healthcare clients operating this ERP. As the migration deadline approaches for transitioning to S4/Hana, we anticipate the market to feel urgency to take action. — 83%

Treasury Management System

Unlike the trend regarding ERPs, adoption of TMS has a far more balanced distribution. Setups including FIS (39%), Kyriba (24%), TIS (8%), Wallstreet (8%) and Workday (5%) lead the industry and together comprise 84% of TMS configurations across our client base. — 84%

Connectivity

The Healthcare industry's connectivity of choice is dominated by Host-to-Host as a primary channel, highlighted by its proficiency for corporates with a close pool of banking partners and typically high transaction volumes. SWIFT however remains the "preferred route" for large value, urgent transactions. — 73%

"Advanced treasury technology is indispensable for modern financial management. It empowers organizations with real-time data, robust risk management, and strategic liquidity optimization, thereby ensuring sustained growth and resilience in an increasingly complex financial landscape."

— Tristan Attenborough, Managing Director, J.P. Morgan Payments

Liquidity Management

Turning cash into a truly liquid asset

KEY INDICATORS ACROSS J.P. MORGAN'S CLIENTS IN THE HEALTHCARE SECTOR

Physical Cash Concentration

Over 70% of clients globally have an automated physical Cash Concentration setup. Significant regional differences however exist, with clients in APAC markets showing a limited adoption of cash concentration structures. — 74%

Notional Pooling

27% of J.P. Morgan's Healthcare clients are leveraging Notional Pooling structure, to efficiently manage the trade-off between FX for funding vs. strategic FX execution and thereby optimize transactional expenses. — 27%

Virtual Accounts

Only 8% of clients already use Virtual Accounts for payables and/or receivables. There is a higher adoption of Virtual Accounts by NA clients, with 16% of the companies embracing it to rationalize bank accounts. Virtual Accounts allow for immediate consolidation and usability of cash into the "Header" account. — 8%

"Treasurers seek seamless liquidity management to guarantee uninterrupted operations. In an ever-evolving business environment, the ability to access liquidity anytime and anywhere is paramount, making real-time treasury solutions the cornerstone of future financial strategies."

— Raj Shenoy, Executive Director, J.P. Morgan Payments

Working Capital

Increased focus on Working Capital optimization

KEY INDICATORS ACROSS J.P. MORGAN'S CLIENTS IN THE HEALTHCARE SECTOR

Supply Chain Finance

Supply Chain Finance is gaining traction with around 1 in 4 clients leveraging this solution to support suppliers and secure sourcing at a time of global economic volatility. — 23%

Virtual Cards

Virtual Cards – often used as a complement to Supply Chain Finance for tail-end expenses – have historically been far more developed in the North American market where it originates. But we begin to see more appetite in other regions as these solutions are being brought to market. — 20%

Sales Finance

Adoption of Sales Finance solutions have reached 17% of J.P. Morgan's Healthcare clients. Off-balance sheet treatment and scalability make Sales Finance a compelling solution to companies witnessing rapid balance sheet growth fueled by both increasing volumes and rising commodities prices. — 17%

"In a rapidly evolving macroeconomic landscape, Trade Finance solutions are essential for managing the working capital constraints imposed by market volatility."

— Keith Murphy, Executive Director, J.P. Morgan Payments

J.P. Morgan

Healthcare Industry Treasury Analysis

Sub-Industry Results

J.P. Morgan

Healthcare Industry Treasury Analysis – Pharmaceuticals

Assessing your Treasury set-up and processes against Pharmaceuticals peers

"In the Pharmaceutical industry, sophisticated treasury management is vital for navigating regulatory complexities, optimizing cash flow, and improving working capital. Effective treasury strategies ensure financial stability and enable the continuous advancement of life-saving treatments."

— Shelly Yen, Executive Director, J.P. Morgan Payments

Healthcare Industry Treasury Analysis – MedTech

Assessing your Treasury set-up and processes against MedTech peers

" In the MedTech industry, advanced treasury management is crucial for sustaining innovation and operational excellence. By optimizing liquidity, managing financial risks, and ensuring regulatory compliance, effective treasury strategies empower MedTech companies to drive technological advancements and improve patient outcomes. "

Nicole Gruesen, Executive Director J.P. Morgan Payments

KEY INDICATORS ACROSS J.P. MORGAN'S CLIENTS IN THE MEDTECH SECTOR

Treasury Landscape

• SSC: 81%
• In-House Bank: 45%
• On-Behalf-Of: 9%
• While there is limited adoption of On-Behalf-Of, MedTech clients are the leaders in the usage of SSCs with more than 80% of clients adopting it.

Technology set-up

• ERP (SAP): 86%
• TMS (Kyriba / FIS): 54%
• Connectivity (H2H): 67%
• Kyriba (27%) and FIS (27%) lead the TMS market in the MedTech sector whereas SAP is the clear leader for ERP with more than 4/5th of respondents using this platform.

Liquidity Management

• Physical Cash Concentration: 81%
• Notional Pooling: 24%
• Virtual Accounts: 6%
• MedTech clients have the highest level of Cash Concentration across all sub-industries but show a low uptake for Virtual Account Management.

Working Capital

• Virtual Cards: 15%
• Sales Finance: 11%
• SCF: 19%
• MedTech clients have the lowest adoption of Virtual Cards as compared to other sub-industries. Almost 1 in 5 MedTech clients are using Supply Chain Finance.

Healthcare Industry Treasury Analysis – Healthcare Providers

Assessing your Treasury set-up and processes against Healthcare Providers peers

" In the Healthcare Provider space, the patient experience comes first. Robust revenue cycle management and treasury solutions are essential to keep focus on patients by ensuring operational stability and optimizing cash flow. "

Jorge Sikaffy, Executive Director J.P. Morgan Payments

KEY INDICATORS ACROSS J.P. MORGAN'S CLIENTS IN THE HEALTHCARE PROVIDERS SECTOR

Treasury Landscape

• SSC: 50%
• Half of Healthcare Providers clients leverage SSC, either regional or global to gain operational efficiency.

Technology set-up

• ERP (SAP): 67%
• TMS (Kyriba / GTreasury): 100%
• Connectivity (H2H): 100%
• Kyriba (50%) and GTreasury (50%) dominate the market as the most popularly used tools. Host-to-Host is the primary connectivity channel with all the clients selecting this method.

Liquidity Management

• Physical Cash Concentration: 67%
• Notional Pooling: 25%
• Virtual Accounts: 17%
• Though there is significant level of Cash Concentration, Healthcare Providers clients lag other sub-industries in this area. The highest adoption for Virtual Accounts is by Healthcare Providers.

Working Capital

• Virtual Cards: 29%
• Healthcare Providers clients have the strongest uptake for Virtual Cards across different sub-industries.

Healthcare Industry Treasury Analysis – Healthcare Services

Assessing your Treasury set-up and processes against Healthcare Services peers

" Managed care and healthcare service organizations must adapt to the evolving treasury landscape by leveraging advanced technology, enhancing liquidity management, and implementing robust risk and compliance frameworks. Proactive scenario planning is essential to ensuring financial stability and sustained delivery of high-quality care. "

Ishani Dhaon, Executive Director J.P. Morgan Payments

KEY INDICATORS ACROSS J.P. MORGAN'S CLIENTS IN THE HEALTHCARE SERVICES SECTOR

Treasury Landscape

• SSC: 54%
• In-House Bank: 27%
• On-Behalf-Of: 15%
• Healthcare Services clients have a 15% adoption rate on On-Behalf-Of, lagging Pharmaceuticals. Though the SSC adoption rate is significant, clients have a lower uptake for In-House Bank.

Technology set-up

• ERP (SAP): 63%
• TMS (Kyriba / FIS): 72%
• Connectivity (H2H): 100%
• Kyriba (36%) and FIS (36%) lead the TMS market in the Healthcare Services sector. Host-to-Host is the primary connectivity channel, with 100% of clients selecting this method.

Liquidity Management

• Physical Cash Concentration: 78%
• Notional Pooling: 21%
• There is high uptake of Cash Concentration by Healthcare Services, closely following MedTech. Among all sub-industries, Healthcare Services have the least adoption of Notional Pooling.

Working Capital

• Virtual Cards: 24%
• Sales Finance: 14%
• SCF: 24%
• Almost 1 in 4 Healthcare Services clients use Virtual Cards and Supply Chain Finance solutions for enhancing working capital management.

Healthcare Industry Treasury Analysis – Biotechnology

Assessing your Treasury set-up and processes against Biotechnology peers

" In the Biotechnology sector, the role of the treasurer is pivotal. By expertly deploying capital, mitigating financial risks, and leveraging optimal payments solutions, treasurers enable biotech companies to focus on groundbreaking research and innovation, driving advancements that transform healthcare. "

Nimesh Avantha, Executive Director J.P. Morgan Payments

KEY INDICATORS ACROSS J.P. MORGAN'S CLIENTS IN THE BIOTECHNOLOGY SECTOR

Treasury Landscape

• SSC: 40%
• In-House Bank: 33%
• Clients in the Biotechnology sector lag all other sub-industries in the adoption of a Shared Service Center. 1 in 3 clients leverage an In-House Bank structure for improved liquidity management.

Technology set-up

• ERP (SAP): 80%
• TMS (TIS / FIS): 100%
• Connectivity (E-Banking): 83%
• TIS (50%) and FIS (50%) are the leading TMS tools in the sector. E-Banking is the most common connectivity channel, with 83% of clients selecting this method.

Liquidity Management

• Physical Cash Concentration: 67%
• Notional Pooling: 25%
• There is significant level of Cash Concentration across Biotechnology clients, driven by the need to efficiently mobilize internal cash.

Working Capital

• Virtual Cards: 17%
• Sales Finance: 17%
• Virtual Cards have a slower uptake by clients in the Biotechnology sector. Biotechnology clients have a 17% adoption rate of Sales Finance solutions, lagging only Pharmaceuticals.

Healthcare Industry Treasury Analysis

Regional Results

Healthcare Industry Treasury Analysis

Regional Results

KEY INDICATORS ACROSS J.P. MORGAN'S HEALTHCARE CLIENTS IN NORTH AMERICA

Treasury Landscape

• SSC: 74%
• In-House Bank: 40%
• On-Behalf-Of: 23%
• We see growing adoption of In-House Banks in North America, with 40% of clients already using it. On-Behalf-Of structures have an uptake, helped by a favourable regulatory environment.

Technology set-up

• ERP (SAP): 76%
• TMS (FIS / Kyriba): 63%
• Connectivity (H2H): 86%
• FIS (38%) leads TMS penetration in North America, with Kyriba (25%) in second place. SAP dominates the ERP space with over 75% market share; Oracle is a distant 2nd place.

Liquidity Management

• Physical Cash Concentration: 79%
• Notional Pooling: 39%
• Virtual Accounts: 16%
• North American clients have the highest adoption rate for cash concentration structures and Virtual Accounts, facilitated by the USD centricity of the Healthcare business globally.

Working Capital

• Virtual Cards: 17%
• Sales Finance: 20%
• SCF: 22%
• Virtual Cards are prevalent as a complement to SCF solutions for tail-end expenses, especially in the U.S. Though Supply Chain Finance adoption is upwards, it is still lagging EMEA.

Healthcare Industry Treasury Analysis – Europe Middle East and Africa (EMEA)

Assessing your Treasury set-up and processes against EMEA headquartered Healthcare peers

"Treasury practices in the EMEA region are experiencing significant transformation due to advancements in digital technology, evolving regulatory requirements and consumer demands, as well as increased geopolitical uncertainties. Adapting to these changes is crucial for corporate in order to maintain financial agility and ultimately capture new growth opportunities in the region."

Stefania Braghiroli, Executive Director J.P. Morgan Payments

KEY INDICATORS ACROSS J.P. MORGAN'S HEALTHCARE CLIENTS IN EMEA

Treasury Landscape

• SSC: 87%
• In-House Bank: 67%
• On-Behalf-Of: 47%
• EMEA is a leader of In-House Bank adoption with over 2/3rds of EMEA clients using this cash optimization set-up. Usage of SSCs is also high in EMEA with primary focus on financial functions.

Technology set-up

• ERP (SAP): 93%
• TMS (FIS / TIS): 54%
• Connectivity (H2H): 57%
• FIS (31%) is leader of TMS set-ups in EMEA, while TIS (23%) comes second. H2H has a wide adoption with 57% clients preferring it; most clients also have E-banking (61%) for contingency.

Liquidity Management

• Physical Cash Concentration: 77%
• Notional Pooling: 10%
• Virtual Accounts: 5%
• While there is nascent adoption of Virtual Account Management, EMEA clients show a high level of automated Cash Concentration across regions with over 75% adoption rate.

Working Capital

• Virtual Cards: 12%
• Sales Finance: 8%
• SCF: 31%
• Virtual Cards have a low penetration in EMEA; this product is largely reserved for clients with meaningful U.S. presence. However, SCF solutions have gained meaningful traction in EMEA.

Healthcare Industry Treasury Analysis – Asia Pacific (APAC)

Assessing your Treasury set-up and processes against APAC headquartered Healthcare peers

"Navigating the APAC region's complex landscape of regulations and currency controls presents challenges, yet significant opportunities arise through the establishment of Shared Service Centers (SSCs) and Regional Treasury Centers (RTCs), which drive operational efficiency, optimal liquidity structures and strategic financial management."

Prateek Singhal, Executive Director J.P. Morgan Payments

KEY INDICATORS ACROSS J.P. MORGAN'S HEALTHCARE CLIENTS IN APAC

Treasury Landscape

• SSC: 23%
• In-House Bank: 15%
• On-Behalf-Of: 7%
• There is low adoption for IHB in APAC, explained by restrictions on cash mobilization in selected markets. Given regional complexities, only 7% of APAC clients have On-Behalf-Of processing.

Technology set-up

• ERP (SAP): 87%
• TMS (Kyriba / FIS): 80%
• Connectivity (H2H): 69%
• Kyriba and FIS lead the TMS market in APAC with 40% share each. SAP clearly dominates the APAC Healthcare world, with more than 80% of clients analyzed using this platform.

Liquidity Management

• Physical Cash Concentration: 58%
• Notional Pooling: 29%
• Although there is a reasonable level of Cash Concentration across APAC clients, it lags EMEA and NA. Diverse currency mix within the region pushes clients to adopt Notional Pooling solutions.

Working Capital

• Virtual Cards: 38%
• Sales Finance: 24%
• SCF: 14%
• Virtual Cards have gained the highest traction amongst APAC clients as compared to NA and EMEA. However, there is low uptake of Supply Chain Finance solutions so far.

Glossary

Connectivity – primarily required for Corporates to initiate payments and collect reporting from their Banks. Typically performed via Host-to-Host, SWIFT or API.

Enterprise Resource Planning – a comprehensive software system that organizations use to manage various essential parts of their business, with each department using a system optimized for specific tasks.

In-House Bank – an internal banking system that operates within a Corporate to manage the cash flow within the group efficiently and enhance processes for subsidies, improving efficiency & cost across the organization.

InstaMed – a J.P. Morgan company that securely transforms healthcare payments by driving electronic transactions, processing payments and moving healthcare data seamlessly.

Notional Pooling – a tool that offsets debit balances against credit balances in one or multiple currencies to minimize currency management and maximize yield opportunities.

On-Behalf-Of – a set-up whereby a central Corporate entity (typically the In-House Bank) processes a Payment or Collection on behalf of a subsidiary, regulation allowing.

Physical Cash Concentration – a liquidity management technique that involves consolidating cash from various accounts into a single header account to improve cash visibility, control and yield.

Sales Finance – an alternative source of liquidity provided by a Bank through purchase of Corporate receivables.

Shared Service Center – a specialized organizational entity within a Corporate providing support for various functions including AP, AR, accounting, HR, payroll, IT, compliance, purchasing and security.

Supply Chain Finance – a set of solutions to optimize cash flow by allowing businesses to lengthen their payment terms to suppliers while allowing them to collect earlier.

Treasury Management System – a software application which automates a Corporate's financial operations, helping with day-to-day activities such as cash flow, assets and investments.

Virtual Accounts – a series of sub-accounts linked to a single header account, providing Corporates with improved availability and usability of cash while enhancing visibility and control.

Virtual Card – business to business payments solution enabling companies to create & manage unique virtual card numbers to facilitate payments to suppliers.

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