This Week Health

Don't forget to subscribe!

January 27, 2023: What were the hot topics at J.P. Morgan 2023? Here to discuss is Rob DeMichiei, Board Director, Strategic Advisor and Former CFO. Advent, Baylor Scott & White, CommonSpirit and Ascension all shared their structured cost reduction initiatives”. We’re talking reductions in the hundreds of millions of dollars. How do labor costs tie into this? Have we reached the peak? Whatever the case may be, premium pay is now an embedded cost that's not going away. Equity and inclusion and value-based care have also become an embedded discussion. How daunting is the complexity of healthcare today? Intermountain’s presentation on their 50 year journey from fee for service to value based care gives us a big clue.

Key Points:

  • Health-care pricing doesn't work
  • There’s an operational trend towards integrated call centers
  • Walgreens and CVS both have strategies around significant acquisitions of physician groups
  • Health Catalyst

Register now for our February 2nd webinar: Priorities for 2023. A CIO Discussion with Academic Medical Centers. Only available LIVE!

Subscribe: This Week Health

Twitter: This Week Health

LinkedIn: Week Health

Donate: Alex’s Lemonade Stand: Foundation for Childhood Cancer

Transcript

This transcription is provided by artificial intelligence. We believe in technology but understand that even the smartest robots can sometimes get speech recognition wrong.

Today on This Week Health.

I think it was interesting that everybody spoke of what I'll call structured cost reduction initiatives. And we're talking reductions in the hundreds of millions of dollars. Advent talked about 300 million dollar target but literally Intermountain, CommonSpirit Baylor Scott and White, Ascension all had specific strategic initiatives to reduce cost.

Thanks for joining us on this keynote episode, a this week health conference show. My name is Bill Russell. I'm a former CIO for a 16 hospital system and creator of this week Health, A set of channels dedicated to keeping health IT staff current and engaged. For five years, we've been making podcasts that amplify great thinking to propel healthcare forward. Special thanks to our keynote show. CDW, Rubrik, Sectra and Trellix for choosing to invest in our mission to develop the next generation of health leaders. Now onto 📍 our show.

All right. Today we are joined by Rob DeMichiei for our annual visit, retired C for U P M C, strategic advisor for Health Catalyst board member with Westar and Ampco Pittsburgh, and advisor for healthcare startups for private equity as well. Rob, good morning and, and welcome back to the.

Morning

Bill always look forward to the new year and touching base on JP Morgan.

Yeah, I, I'm looking forward to it as well. I did not get to make it out there this year and you did, so you are gonna be the eyes and ears of what's going on. Now I've, I've read a lot of stuff, but I'm really looking forward to really get, getting the mood of things there and besides wet, but what was the mood of things I, I'd love for you to sort of set the stage on this one and then we'll go into it.

What was, it was definitely wet. It was monsoon light conditions. But it was interesting. I think it was good to be back, bill. It was great to see people physically again. the city of San Francisco, I think wanted to make this a success that it was and I thought that it was JP Morgan actually moved the nonprofit track to a adjoining sort of hotel nearby.

Relieved some of the space issues from the past and there was a police presence. But it was a very enjoyable experience other than the rain. Interesting. With a physical conference in the past with a virtual conference, you can. Consume a lot of material by rewatching the videos.

And you couldn't do that. So you had to be physically present for most of the presentations. And so that cut down on the amount of material I was able to consume. But again, being able to see colleagues and friends and acquaintances and, and have the the meetings surrounding the, the west and that was something that was missed with the virtual. So it was good to be back and I thought it was a great.

Yeah, it's, and if people don't sort of get the layout here, so it's, it's actually spread out across the city. I mean, generally there's, there's the nonprofit track and the the biotech, pharma and whatnot. used to all be in the same hotel. Are those now in separate hotels?

So the nonprofit track was in a separate hotel, and, and that was sort of the relief valve I, I assume, and everything else was still in the Westin. But as many of the JP Morgan conference is all about what happens outside of the Westin.

It's all the meetings across the city. All of the industry players attend and, and talk initiatives and deals and and so that continues. So the restaurants were full. The hotels were full. So I think it was really important in San Francisco as well as they try to revive their hospitality

industry.

Fantastic. So talk about the nonprofit track. Let's start there what were you hearing and, and who did

you hear from?

So it was a lot of the regular players, there were a couple of notable changes. Some longtime presenters were not there. I, I kind of noticed that, that mass General didn't present and they had always been there in the past.

Jefferson did not present this year. They had always been there in the past, and so a few, a few new presenters as well. The And just in, in terms of some of the themes, I think everybody acknowledged the financial struggles, so this was not, An event where people were talking about their great financial performance.

I think it was acknowledged that it was a tough year in 22, and this was really about the different approaches. And again, I'll, I'll preface all my comments, bill, to say that in healthcare, every market is different. The competition is different. And that has a significant impact, the amount of commercial payers that you have.

So there is no one size fits all in terms of the, the issues that people had or the path forward. But I think there was an acknowledgement that after a very difficult. 22, that, that 23, there were some green shoots, some things that everyone was looking forward to. I think it was interesting that everybody spoke of what I'll call structured cost reduction initiatives.

So these were things that are. Sort of sanctioned at the board level. Executive involvement. Everyone had a different name for their strategic cost reduction initiative, and we're talking reductions in the hundreds of millions of dollars. I think Advent talked about 300 million dollar Target but literally Intermountain CommonSpirit Baylor Scott and White Ascension. All had strategic specific strategic initiatives to reduce cost.

and Common Spirits was a couple billion over three to five years, I think.

Yeah. So theirs had been an ongoing one since their formation, but, and so they're continuing on that path, but I think. Others who had always been profitable in past years have now started this as well with strategic cost reduction.

Yeah, that's, that's

kind of interesting that you said Intermountain in there, cuz Intermountain traditionally comes in. presents a glowing balance sheet, glowing performance, that kind of stuff. And we're, we're even hearing that from them.

Yes. And this gets back to the, the labor issues and the headwinds in labor specifically. A lot of these were driven by the contract labor and the agency costs. Now the bright spot was nearly everyone has acknowledged that those costs peaked in early 22. Kind of February, March 1st quarter timeframe. So there was a peak of that contract agency spend, and that's on its way down. Maybe not to the levels pre covid, but certainly down to a much more manageable level. However, the kind of standard wages, the base wages, the, the premium pay that's now an embedded cost bill that's not going away. That's the new structure. In fact, one interesting anecdote when you talk about the tightness of the labor markets, The the CFO f at Sutter said that we have nurses that are making more than pediatricians.

Wow. And I thought that was an interesting quote. And again, that's driven by the, the labor market where they are in California. And again, that's, that's no knock on anyone, but it's an interesting comparison of those two professions to see where the, how the market is really driving labor costs.

But the bright spot is that is, and that's one of the things. Driving these, these cost reduction initiatives, that's now an embedded expense. Those higher labor costs, there are other headwinds that need to be dealt with. So everyone is undertaking these structured cost reductions.

So I'm, I'm curious cuz Labor we saw a major strike in New York City.

I just got my, my Beckers for today and it says that let's see, Providence Nurses to rally at headquarters over paid leave. Brigham and Women's Faulkner, hospital workers stage walkout. So we still have labor unrest even with, I guess rising

labor rates. . No doubt. I mean, it's still a difficult work environment.

There are this sort of triple attack of, of the various diseases that are, being dealt with now. So there, there's still significant pressure on the workforce. There's. Significant burnout being experienced by the workforce. So this is kind of a structural issue, and that even gets back to the whole idea of, of leveraging inpatient labor and, and what is the workforce of the future?

What does healthcare in the future look like and where we'll be delivered. But the, this labor issue hasn't gone away and it will not go away in terms of the kind of embedded cost bill. A couple of other just quick operational trends that were mentioned, I think multiple times the idea of integrated call centers.

This is something that others have done in the past. I know at U P M C, this was done a few years back, but both Common Spirit had an initiative around this. They take 40 million calls per. And as you can imagine as a national health system, the amount of potential for variation if these were things are nested in the individual hospitals.

And so they were moving to more of a hub approach, having regional hubs to standardize and improve access and the patient experience. IU Health has a similar initiative where they're pushing for same day access and one of the ways to do that is to have this integrated call center.

Everybody talked about their digital front door. I think this almost becomes a standard discussion where they sort of tout the number of users that they have and the growth that they have in their digital front door. Year over. So those were a couple of kind of the just overall highlights, but I think it was interesting what was embedded in this discussion bill, was what I'll call the headwinds of healthcare.

And it was interesting seeing the nonprofit presentations where, They were, what I'd say implicitly acknowledged with the, the strategies that were presented going forward. But if you went to the, and I did go to the insurer's presentations and some of the tech players presentations, and these headwinds are much more explicitly discussed as part of the insurance strategies.

So there's, there's really this kind of. Disconnect between the way that the insurers are viewing the world and, and to them it's a fate accompli where they are becoming providers and what their plans and aspirations are as providers versus an explicit acknowledgement, I think, of the competition from the providers.

And if you think of what those headwinds are, it's certainly competition in the primary care space. The insurer. You have the tech players, you have the retail players who are entering primary care and urgent care. Home care is a hot space. So the whole idea of this healthcare continuum ranging from.

Primary care to all the way to post-acute. It is an open competition with the providers not-for-profit providers planning now to increase their offerings and to be sort of omnichannel, but the insurers creating networks and work streams that may or may not include those large health systems as a primary.

Offering in in their, their networks. So that's really gonna be interesting as that plays out the whole idea of the shift from inpatient care to outpatient care. And it was interesting bill Surgery Partners always has a great presentation, but their forecasting a 60 billion shift. Of surgery cases from the inpatient environment to the outpatient environment, whether that be hospital, outpatient or a s c. So a significant movement away from, from the inpatient establishment. And and the other hand, Rob,

I have to ask this question, but you know, as the former CFO for U P M C, if you had heard that what, what would

you be? . Well the whole idea is and then this kind of leads us to another part of the discussion is what are the ambulatory initiatives? So how do you. Create capability because there's no doubt there is a, a price issue with the cost of inpatient care. It is not only more costly to provide because of the fixed cost, but just the reimbursement is in some cases, bill. The reimbursement inpatient versus outpatient that a payer is paying for the same procedure could be anywhere from two x to five x to, I've seen it as high as seven x inpatient versus outpatient.

So if I am a payer, if I'm an employer, I'm thinking about. How can I deliver high quality services to my employees, to my members, and do it in, in a low cost environment? And, this is no longer a theory outpatient care, outpatient surgery can be done very. Safely very successfully.

So as a C F O you acknowledge that we need a different business model and what this does, this creates sort of opportunity and, and an issue if you are in, and there were two really some, there were a couple of good examples of the ambulatory initiative. So, so I'll jump to that now. But if you're in a growth environment versus a non-growth environment, I think it the degree of di difficulty is exponentially different.

So what I mean by that, and I'll use the example, advent talked a lot about their, so they're, they're down your way. In Florida, they talked a lot about their ambulatory strategy. They actually have appointed a separate C F O A ceo. For their ambulatory initiative, their capital spend is focused on on the ambulatory space, virtual care, primary care, outpatient and it's omnichannel primary care, urgent home care, virtual care, but they're in a growth market.

In fact, they're trying to keep up with the demand for their services. And I'll contrast that with U P M C who by the way, did a great job with their presentation their team. So I'm a bit biased, but they did a really good presentation, but they talked about their outpatient strategy as well, their appointing separate executives to lead that initiative.

For them and, and they wanna fully leverage the health plan and their capitated revenue stream to do it in, in a low cost environment. The difference is U P M C is in a low growth or no growth market versus, I'll use the example of Advent, who is in a high growth market. So if you're in a high growth market, you make that transition by sort of ratcheting up your capability and your ability to take in volume by growing your outpatient f.

And so that new volume, you can start to push that to your, your growth areas, your newly constructed outpatient facilities. If you're U P M C and you're in a stagnant growth or a no growth or a shrinking market, how do you then make that transition in just moving inpatient cases to outpatient facilities at a lower reimbursement?

So I think this is what if, so if you think about the Sunbelt, and this was the story. and, and also there's a lot of great information out there. A couple of really good sources, bill, that I've come to rely on in the past year. There's an organization called trill, and I'm not sure if you've been following anything that they do.

Yeah. And then also just Healthcare is another publication, so I I read Modern Healthcare every morning. Kaufman Hall has good materials. The advisory board has good materials, but trillion is, is sort of a new entrant to, to the marketplace. They really have some great analysis about the growth of the different markets, and the sunbelt is, is growing significantly.

The population is moving there, so the patient and the caseload is growing there as well. So if you've got growing volumes, then you can finance, if you will, this switch, this transition to outpatient, because now, you're actually trying to keep up with the volumes as it is. And so instead of building large, new expensive inpatient facilities, what you do is you, you start to reallocate and you start to move what you can to the, the new outpatient capacity, and then you backfill your inpatient capacity to a higher acuity.

So that is a great, I think, strategy. It's a way tactically to execute the strategy. If you're in a growth market, if you're in the northeast, It's gonna be very difficult to execute this strategy without significant financial transition, financial pain during the transition. But this was, this was definitely a theme.

Tampa General actually had a really nice presentation, something unique that they're doing in the ambulatory space. They call it hospital at home. and what they've done, bill, is they've created capacity for a hundred to 150 patients per day in what they're calling the first virtual community hospital.

So if you figure community hospitals around a hundred to 150 a d c, what they're saying is, look, we've created a virtual community hospital. And what they do, they use remote monitoring. They also follow that up with in-home visits, they. Kind of wearable devices. So they have a whole strategy around building, again, in a growth environment, this new capacity in a virtual manner versus in a physical manner with an inpatient.

Capabilities. So I think this is, this is a critical headwind, the move from inpatient to outpatient. And the question is, how aggressively are you going to address it? Because the competitors surely are the, the insurers, and they talked about this Cigna, Humana others that presented, talked about creating networks which are driven by primary care, gatekeeping, their.

Driven by virtual care and they are looking for, for quality and value wherever that service is given in whatever type of capability. So this is going to be an accelerating trend and those that can tactically execute on the strategy. It's one thing to talk about the strategy, it's another to execute. And again, very difficult to do in, in a low growth environ.

📍 📍 In 2023 we are celebrating five years at This Week Health, and we are working to give back and we will be partnering this year with Alex's Lemonade stand all year long. As you know, having a child with cancer is one of the most painful and difficult situations a family can face. At Alex's Lemonade Stand Foundation, they understand the personal side of the diagnosis, the resources needed and the impact that funded research can have for better treatments and more cures. Today, Alex's Lemonade Stand is one of the leading funders of pediatric cancer research in the US and Canada, funding more than a thousand research projects and providing programs to families affected by childhood cancer. You can get more information about them at alexslemonade.org. So how are we going to partner? The leadership team and myself personally, we have put some money aside to really fund the start of this. But what we're looking for is partners, right? So we're gonna ask our partner our partners, our sponsors to be a part of this. We're gonna ask you to be a part of this. And some of the ways that you can help contribute is we're gonna have drives throughout the year. We're gonna have follower drives, followers of the show, followers of our LinkedIn channel, Twitter channel, YouTube channel, you name it. We're gonna have these drives. And as part of those drives, we're gonna ask people to be a part of putting donations towards Alex's Lemonade Stand. There should be many opportunities this year, so keep an eye out all year long to see how you can support Alex's lemonade stand. You can find more information out on our website thisweekhealth.com. You can also check out Alex's Lemonade Stand again at A L E X S lemonade.org. And if you go to our website their logos gonna be on our homepage on the top right hand corner. We're celebrating our five year anniversary, and we want to continue to give back to the community. So we welcome you to be a part of it and looking forward to seeing what we can do this year.

📍 📍 did you hear any talk about the transition to being payvider or providers who are also payers? Within the nonprofit track are, are people expanding? That aspect?

Yes. Definitely. Another theme, much more discussion this year on value-based care than, than I've ever seen in the past. And I'll talk about some of those. Again, U P M C, has a significant, about 50% of their revenues come from the health plan side. And what one. of the Charts that they highlighted was the significant profitability that's been driven this year. In a very difficult year for the provider side.

It really drove the profitability. I think the segmentation of the slide was about 600 million of profit on the health plan side, and a loss of 400 million on the provider side. So like all the other large providers, loss making year. But because of the value-based network at the health plan, an overall profitable year for U P M C.

Baylor Scott and White, about 15% of their revenue is now value-based care, whether it's from their own health plan or through their ACO arrangements. They have around a million covered lives. Christiana Care was a new presenter this year. They did a really nice job actually. They talked about their Ki Ascend joint venture with Highmark, and they really spent a lot of time talking about value and reducing the cost of care and, and creating a ambulatory network.

Sutter again, in the growth market, talked about building an ambulatory and physician ecosystem and they want to be a value-based leader, as they call it. Advent again, in, in a growth environment, talked about creating risk ready networks. And then Intermountain actually, as has a very successful health plan, but also announced at the conference, a joint venture with university of Colorado uc.

Health Sort of an a c o type of arrangement, I think around 300,000 lives. So there was a significant discussion around value-based care this year more than superficial, where, where there were actually plans, initiatives, and discussions around. Moving to that and, and again, to get back to. Is it too little, too late?

Bill? How quickly can you do it? And are you talking about it or are you actually doing it? And, and Well, the time is now. I, I was

reading some quotes from the Intermountain presentation and they were at 50% covered lives, our 50% value-based care, I should say. So that's what they were at. Then they acquired scl, which dropped them to 38%.

This deal that they're doing though with uc makes sense because SCL was, had a sign. Presence in Denver, in that Colorado market as well. And I think essentially if I, again, I'm sort of reading tea leaves here. What they're gonna do with value-based care is essentially what they've done in Nevada, what they've done in the in the Utah markets they're now gonna try to do in the Colorado markets, I would think.

Yeah, your, your quotes were correct. In with, with the merger, again, with SEL having their own health plan or that level of value-based care, it brought down their overall percentage, but there was a specific commitment to get that back up and not have that degradation and the this.

Joint venture with uc Health. It just at an l o i stage. So it's, it hasn't been consummated yet. It was just announced that, I believe it's an l o I, but I think it is kind of an ACO arrangement where we, they would be utilizing the uc health physicians but bring, bring that capitation and that discipline to, to kind of the practice of medicine.

You know

what's interesting? One, one of the years I was. Almost every presenter got up there and talked about Epic, like our epic implementation and that kind of stuff. I would imagine this year you probably didn't hear that.

I did not, not every single system mentioned it, but I, I knew that you would ask.

So I, I jotted a few notes. Only three that I noted had, had discussed Epic advent talked about their 355 million install at least. That was the, the portion in the current year Boston Children's was beginning to under. An EMR installation and Memorial Hermann mentioned an install as well.

And I get back to just the the, with new context around the financial performance of these systems. Can you afford, can you get any kind of ROI on a billion dollar investment on. Hundreds of million dollar in, in some case, depending on the size and complexity of the system investment in an emr.

So what, what was. I think viewed as a given years ago has become a significant financial hurdle and constraint in terms of getting any kind of roi. But, but there was some discussion, but not as much

the ROI discussion's interesting to me. We just had a, a webinar with three I, I would say sizable, I D n CIOs. and they threw out essentially they're looking for ROI targets of less than a year. That's, that just gets a green light. A year to two years is now a significant discussion. And two years or more they say is almost a non-starter. Like we can't even start the conversation within our health system.

And I asked all three of 'em like, is that the case there? And they, they all said, absolutely. We're not looking at three year returns right now. Right now we're very focused on a year to two

years. I. Sort of hone in on that a little bit. Bill, I think that's with. Various applications not, that's not an EMR discussion right. I know of no one who's getting a, a one year return or a three-year return. This on an emr, it's or,

or e r P for that matter.

Yes, exactly. It's, I think it's in the other applications, it's, it's the specific niche applications where they do provide value and they always have provided value in efficiencies and productivity and, and patient experience and those kinds of things.

But I think the lens now is, is and, and that's a, that's not necessarily a bad thing. I think that's a good thing that people are demanding or holding others accountable for a one or a three year investment on, on an it. Sort of niche product. It, it's actually what, what should be

delivered.

📍 📍 All right. We're doing webinars a little different this year. As we have told. You got a lot of feedback from the community about what works, what doesn't work. We talked to our advisors, our cio, CMO advisors, and they said, Hey, Community generated topics, great contributors, not product focused. They want the questions ahead of time so that they can incorporate them into their answers. And they want a forum that is honest and open. And what we decided was once and done. If you're at the webinar, you get to hear the content. If not, it's not on demand. You don't get to download it later. We're gonna do it on a consistent date and time, and our next one coming. Is February 2nd. It is priorities for 2023, and this one is around academic medical center. So we have some great leaders who are gonna come in and discuss the priorities for 2023. We're gonna continue to just bring great content, community generated topics and keep the discussion going. If you have feedback, love to hear. And if there is any questions you have, go ahead and fill out the registration form and you have a space there to give us your questions ahead of time. We wanna make sure that we cover the topics that are of interest to you. website, top right hand corner. Sign up today. Love to see you there. 📍 All right. So I'm, I'm gonna go to the other presentations that you went to, but invariably at the JP Morgan conference, there's hope, right? So there's somebody who gets up and gets presentations on. What they're doing around social determinants, what they're doing around research, what they're doing around was innovation. And that kind of was there, did I, I assume that some of the presentations hit on those kinds of things.

I think it, again, it became something in the past that was a new initiative or a new discussion around equity and inclusion. To now what has become an embedded discussion. And I think that's actually a good thing, right? This isn't touted as, look, look at us look at we're what we're doing new. So I think nearly every presenter, not everyone, but nearly everyone had a slide or two slides that, that addressed that bill. But I think the good news is it's, it's embedded now versus kind of bolted on or new. So, so yeah.

So there, there was a discussion, but. it's evolving.

So you, you got to some of the payers. Did you get to like the CVSs or some of those, and they completely overlap, so I understand how hard it is to get to some of these.

Yeah. What I had to do, let me talk a little bit while we're sort of bridging now, the payer provider side I did get to those and, and I'll talk to about them, but I wanna talk about payer rate increases.

Because this is something that was talked about on both sides, and I was able to hear both sides of the argument. So I heard the, the payers talk about rate increases and I heard the providers talk about rate increases. So a couple of anecdotes from that. The c e O of Cigna talked about rate increases, and it was interesting.

He what he did say is that they are, Seeing, they are not expecting any deferred care. And I think if you look at some of the materials from Tri that. Premise is backed up. That theory is backed up, is that care has not really been deferred. That's going to reappear, it's been deferred in foregone, so there isn't anything coming that, and I didn't hear any of the providers really talking about that either.

But the Cigna c e o said that they're not expecting a, a backlog of cases to suddenly appear to raise. Utilization or, or cost. But they did recognize, and he did recognize the labor issues, the cost of labor, and there was an acknowledgement that they are willing and acknowledge that that needs to be paid for.

So there was an acknowledgement to pay for some of the increased labor cost. Intermountain touched on their rate negotiations,

so hold on. Acknowledgement on labor. Was there an acknowledgement on inflation, inflationary pressures on, on supplies and that kind

of stuff? Not explicitly, but that's not to be interpreted, that, that there wasn't acknowledged.

He explicitly just spoke of labor increases. So I think it was a general, it was a specific statement on a general issue bill. So I he didn't mention the other inflation, but I don't know that he was I think it was a general statement. So recognizing inflation generally, but speaking specifically to labor costs, talk about.

Yes, Intermountain talked about their coming negotiations and they said that they would be asking for what they termed their fair share. And I thought that was probably a reasonable approach. The c e o of Tampa general. Had that was another very good presentation. I didn't, didn't know much about Tampa General, and I learned a lot about them.

It was good presentation, but a little more militant in the approach to payers. He, he discussed what he called unspent premiums during covid. So this was addressing the, all the premiums that were collected during. The kind of two years of covid at its height and where utilization was lower and those dollars were not expended on healthcare, but were instead became profits for the insurers and saying basically what happened to those, and we want some of those back.

So I think that's an interesting approach. So this is going to be, I think this could be. , these rate increases are always viewed as a, a salvation for not-for-profit providers traditionally. And again, I think depending on what market you're in and the competitive pressures or lack of competitive pressure in your markets, I think there, there has to be a degree of caution with rate increases across the board, high increases.

We're already dealing with the acknowledged issue that the cost of. From not-for-profit health systems is already too high, and we're talking about price transparency and lowering the cost of care. So this, this old salvation of across the board increases or raising significant procedures, 5%, 7%, 9% in a market.

In a competitive market, which is already looking to lower the cost of healthcare, you have to be careful what you do. So you may get that contract for the higher rate, but you're gonna be faced with a payer who's gonna create a network to, to start moving volume elsewhere, right? You're already high cost.

And you're gonna raise your rates five, 7%. What's going to happen potentially in a, in a very competitive market where there's competing network resources, outpatient, other hospitals, home care, et cetera, this could backfire. This could become a little bit of a, a vicious cycle where those higher rates don't necessarily translate to higher revenue for the health system.

Higher revenue per case, but o overall lower revenue if, if volumes are moved away from that particular provider. So I think this really calls for what we, what we've called again, strategic pricing, but what does that really mean? And, and the health systems have the capability to understand their, their costs on specific procedures and inpatient, outpatient sites of care, different physicians, and then translate that to a strategic pricing strategy where.

You're raising rates on high acuity, highly specialized services, and potentially lowering your, your prices on commodity services where there are competing capabilities in your, in your region

or in your, so, so you could, you could get rate increases, but that might cause them to look for the, what you talked about earlier, those lower cost, sites of care.

And that may be with the health system, maybe outside the health system. So a health system might have the opportunity to direct it to their lower cost sites of care. And, and take advantage of those rate increases or the money could actually go outside the health system?

Correct. So the, if you think of the, the old C f O playbook and, and c e O playbook in the nineties and the early two thousands, and, and in some cases, again, in in markets where there's not a great deal of competition, the rate increases the salvation for the financial performance.

It, it falls straight to the bottom. The volume has not been impacted. And what I'm saying, bill, is in this new world where there are options, where there are choices, where there's price transparency, where there's focus on the cost of care. This could, this strategy isn't a guaranteed success to increase revenue, again, market by market.

It's going to depend. But in some competitive markets where these insurers have primary care networks, where they have. A network with outpatient surgery centers and other capabilities. Yes, you're still going to need the ed. You're still going to need the high end acuity, but you're gonna see networks that are created with cost differentiation, where this could push additional volumes outside of the health system into these alternative providers.

So, This, this is no longer the slam dunk strategy that it was in the past. This is something that must be done very carefully and could actually introduce great, great peril to the, to the financial wellbeing of a system. It was interesting

to read about the Common Spirit presentation in that they're, they're gonna do the cost reductions, but they said in two markets, I'm gonna get these markets wrong, but I know one of 'em was Phoenix.

in the Arizona markets, they're going to be increasing their invest. And this gets to your point, common Spirit is so huge that they literally have to start thinking regionally or locally of that. In, in that market. We're gonna invest, we might even build a new hospital in that market, but we would never build a new, new hospital in some of these other markets.

It really does be, especially for these large systems that the idea was scale, scale, scale. And we're gonna, we're gonna benefit from. The complexity now of those systems is, is really daunting, isn't it?

Yes. And that was actually discussed by common spirits. I believe it was discussed by Advent.

So some of these larger national systems are looking at their portfolio. Where can we be, be successful? Where can we compete? Where do we have the scale? And the presence to compete. So I think again, it isn't just let's get bigger for the sake of, of being larger and scale, it's now a, a review of portfolio to say where, where do we want to make future investments, even where can we be successful?

And then either rationalizing or partnering with others to improve profitability and, and rationalize their footprint.

did the rating ratings. Drop the ratings on, on health systems in general, or have they pretty much stayed the same?

There was, without getting the exact nomenclature correct, there was over the summer a kind of a systemic downgrade of the nonprofit industry.

And I think the, the latest that I've heard there was kind of a slight uptick in it. It's, it's still kind of a negative or kind of watch situation. So this, this went from like critical condition to maybe like stable to bad. . But it went from like very bad over the summer to just a slight bit of an uptick.

But again, I'm, I'm thinking more long-term bill, where the traditional model and what's made health systems successful. These headwinds are significant. Again, in non-growth markets, I think they're really difficult. I would not want to be an an obviously I'm not a, a nonprofit health system c f o today.

Very difficult job with steering large organizations from something where an entire organization has been trained to succeed in a fee-for-service environment and then try to make this transition to value-based care. Price competition. Very difficult situation when you don't have the growth in volume to finance. That transition.

The Intermountain presentation, it wasn't Bert this year, was it? It was a new C f O. It was a new C

F o I believe. Bert's retired and the, the, they have a new c E O. With Mark Harrison moving on and new c f O that I believe came from the the SCL side.

Yeah, I'm, I'm gonna miss Bert.

He was, he was a character, but one of the quotes, I, I just didn't know if it came from Bert or not on the Intermountain presentation was our 50 year journey from fee for service to value based care. And it's sort of saying that you don't do this overnight, it can't be done overnight. It, it does take time.

So even. I, I mean, everybody's somewhere on that journey. Intermountain is clearly farther along. A U P M C is farther along, and then there's other sharp healthcare and others that are farther along. But it's It is a journey. It's not a, Hey, let's switch this overnight.

No, it, it, it is a journey. And, and and those two examples U P M C'S journey is sort of a 25 year journey. So, so it is a long path and it involves losses upfront while you learn to manage risk and to. See the negative impact of taking on risk. I don't know that in the terms of creating their own health plan. I, I didn't hear folks talking about that. That was a strategy maybe five or seven years ago where some systems, if you remember, Northwell and Mercy created health plans.

This is more of a, I think, an ACO type strategy, value-based payments for physicians, bundles. Those kinds of things I think are it's almost like a mixed value-based ambulatory strategy where they're trying to create lower cost care and then enter into some degree of risk basically so that they're not beholden to.

Only volume for success into the future. But it is a journey. It takes learning. It takes a different mindset. It takes different metrics. And, and I will tell you this, it doesn't happen overnight and it involves losses for, for several years before you learn how to do this. Is, is there

a concern at the primary care side of a competition for doctors?

I mean, Either not enough of 'em or the competition forum. 'em, cuz we've, we've heard initiatives from cvs, from Walmart, from Walgreens. Obviously Optum is continuing their growth in the primary care space. It, it just doesn't seem like there can possibly be enough primary care doctors for everyone.

Who is going after that space? Was there any concern on the provider side

that that wasn't addressed by any of the presentations? That, that I heard, bill, but it was, again, if you, you talk about what was presented by the insurers at the conference and all of them are acquiring significant assets whether it's.

Walgreens c v s all of them have strategies around significant. Acquisitions of entities and physician groups. You you we've talked in the past, Optum's the largest employer of physicians in the country, so there wasn't an acknowledgement of that issue. We know that the compensation costs are increasing and this will drive further increases in competition.

But and again, when you, when you listen to the insurers speak, this is not something that's a theory or a thought. This has now become it, it's gone from ambitions five years ago to an integrated strategy. Now, when you listen to c v s, when you listen to Cigna, When you listen to Walgreens, this, this is an integrated strategy that they're moving forward with, with primary care, with virtual care, with low-cost networks, with surgery centers.

And I worry that the timing is off in terms of if you're thinking about the success of the not-for-profits, They're acknowledging the change. They're acknowledging value-based care. They're implementing strategies. Man, the, the headstart that the insurers have had, the profits from the covid period, and now the investments that are being made in those assets.

Over the last several years, we're talking about tens of billions of dollars that have been spent already and more as planned. There was a discussion of Oak Street Health being acquired. That's cooled off in the last couple of days, but c V s certainly is looking for additional primary care assets. So this is kind of the battleground, and I worry, bill, that the timing is off between the execution of the strategy on the nonprofit side and the insurers now honing their strategy.

And, and beginning to excel at their strategy. In fact I can't recall which one said that they're in primary care. Their, their de novo sites are profitable within three years. And we talk about primary care being a loss leader on a, on the nonprofit side. And here you have these insurers that not only are moving volume, In terms of medical spend to lower cost, but they're actually breaking even on the delivery of that care as a provider in three years with, with, with the capital spend as well in a new site.

So these are very I wouldn't even say they're alarming or disturbing. I think it's, it's a discussion of where healthcare's headed and it may have already been decided where healthcare is headed. And the question is, in this new world, what, what, what do things actually look

like? The CVS was very active.

I, I'm curious if you got any feel for the health tech space, the because it was generally quiet in terms of new rounds of funding or mergers or acquisitions, that kind of stuff. I mean, you mentioned Oak Street, but CVS had like three or four and it felt to me just perusing as many headlines as I could.

There was really a lot less. If not almost non-existent. Talk like that of, of new deals, new funding rounds and that kind of stuff. Outside of CV S'S announcement, did you get a feel for that? Yeah,

tough, tough time. I think for tech investments, for private equity deal volume has started to slow.

The hurdle rates are very high, so I'd say it's very kind of non-eventful. they're looking for profitability. They're not looking for more discussion, for more promises about the future. They're saying, look, we need we need profitable deals. You look at the, the valuations. There, there's still a large gap with private company valuations where the current owners think they're worth a lot more than they are.

And the valuations are much lower. So the expectations for a transaction are just completely mismatched with what somebody's willing to pay for a nonprofitable tech company. I will say that the, the advantage that the insurers have it's, it's a synergistic acquisition where they can take something that's breakeven or, or money losing and pull that into.

Their existing medical spend to lower their costs and as opposed to a financial buyer who can't really justify the transaction standing on its own.

I, I think this will be my last question then. I'll, I'll let you, if there's any other things that you have. My last question on this is

there was a lot. health system large health system investment, either equity or vc, that kind of stuff. Obviously, U P M C has some stuff. Ascension is, is one of the big players there. Providence and Jefferson were players there with their challenges financially. I've, I've, I've had conversations with both of 'em and they've changed sort of their approach to the, to the market.

They were, they used to be, Hey, we're investing in these companies to get a return. Now they're more focused on, Hey, we're investing in these companies that can help us to deliver care and being really focused in. on optimizing their, their core asset. Is that just the nature of, of one of the cycles that these things go

through?

I think there's still talk, still discussion around those initiatives and spa In fact Northwell actually dedicated a large part of the discussion to their, to their ventures. I think others they're, they're still doing it. It's. From a focus standpoint, it's probably not top of mind right now. It's not like this is a great market to be monetizing any of those investments that have been made.

So, so it, it's very prevalent now. I think there, they're almost aren't any systems that don't have a venture arm. It just wasn't a big focus bill at, at this, at this year's. Conference just because I think of the overall financial environment.

That makes sense. Well, I, I asked a bunch of questions sort of steered love for you to look at your notes. Is there anything else that maybe we, we haven't covered or, or kareed into? ?

No. I mean, we, we've, we've covered quite a bit. I've gone through all of my notes. I think one thing that was interesting to me, IU Health has talked about their price reduction initiative or their kind of cost of care initiative, and they've put in specific cost production goals.

And so they're looking, and this may become a standard in, in the future, looking at commercial prices as a percentage of. Prices and, and they've gone from the, the statistics they gave there were 276% as a percentage in, in 19, and they were down to 265% in 22. And, and there are a number of studies.

Trillion did some nice work on this. There are significant differences in those percentages. And one of the discussions, so you have price transparency as a governmental initiative. There has been discussion with the congressional budget office about a price cap for commercial fees for providers, and this is the methodology that has been talked about using Medicare as kind of a benchmark or a base rate.

So this could be, it was interesting to see that IU Health is doing this and has been doing it for a number of years, but this could be the new de facto price cap. If there is one implemented, and that would've significant implications on nonprofit providers who continue and still have a significant of their profitability funded by by commercial rates.

So if you think about the headwinds in that area, any kind of a price cap like this would lower the cost of healthcare, but would create significant issues for. Providers. And again, this gets back to the idea of lowering the cost of care, moving to value-based care moving from inpatient to outpatient.

So these, all of these things we've talked about today, bill, these systems all have to have not only great strategies in the next 3, 5, 7 years, but also tremendous execut. So it, the first step is the strategy. And we heard a lot more about the strategy this year than we have in the past where it was in many cases not even discussed.

And I think the next question is around the execution. How will U P M C execute? How will advent execute? How will all these systems actually start building the capability And then moving the volume away from the traditional, very lucrative inpatient reimbursement to these outpatient setting. Yep.

And IU Health is Indiana.

I see. Indiana, yes,

correct. Indiana University.

Yeah. It's like, it, it's like when people say to me, UW Health, I'm like, Wisconsin, Washington. Where are we going here? Yeah, Indiana University. I wonder how much of that was driven by their market. Right. So you're talking Bloomington, Illinois, or Indiana, you're talking fairly rural, not overly affluent.

They, that community probably can't handle. too much in the way of increases to their healthcare costs?

Well I think it's right. You could, you could make that statement about any, any metro market. But I think iu that's true. And I think there was I'm not a hundred percent sure, but I think there was also kind of governmental pressure.

There was some discussion. Whe whether it was state government I believe who was bringing up the issue and this was a kind of a reaction to the plan to make healthcare more affordable.

Rob, this is a, I have two pages of notes here, and I feel like I went to the conference. I I appreciate you going. I'd like to get back there again next. They did not issue me a press pass. So this was the first in, in five years, they did not issue me a press pass. I, I guess they have limited numbers. Is what they told me. So love to love to get back there and to see it in person. Cause like you said, the energy, I mean, cuz you, you walk into a coffee shop and you just see loads of people from the industry having conversations and it's a great place to catch up with people and I appreciate the time catching up with you as well.

Yeah,

Al, always great Bill. Always enjoy the discussion. Appreciate 📍 it.

I love the chance to have these conversations. I think if I were a CIO today, I would have every team member listen to a show like this one. I believe it's conference level value every week. If you wanna support this week health, tell someone about our channels that would really benefit us. We have a mission of getting our content into as many hands as possible, and if you're listening to it, hopefully you find value and if you could tell somebody else about it, it helps us to achieve our mission. We have two channels. We have the conference channel, which you're listening. And this week, health Newsroom. Check them out today. You can find them wherever you listen to podcasts. Apple, Google, overcast. You get the picture. We are everywhere. We wanna thank our keynote partners, CDW, Rubrik, Sectra and Trellix, who 📍 invest in our mission to develop the next generation of health leaders. Thanks for listening. That's all for now.

Contributors

Thank You to Our Show Sponsors

Our Shows

Newsday - This Week Health
Keynote - This Week Health2 Minute Drill Drex DeFord This Week Health
Solution Showcase This Week HealthToday in Health IT - This Week Health

Related Content

1 2 3 247
Transform Healthcare - One Connection at a Time

© Copyright 2023 Health Lyrics All rights reserved