Insight #1: Health systems feel a disruption to the academic model is necessary to address the workforce crisis

What CSOs talked about: Given the persistence of post-pandemic labor shortages across the industry and demographic projections that there won’t be a sufficient healthcare workforce to support the population, CSOs felt it’s necessary to explore solutions that go beyond incremental improvements to the traditional workforce pipeline. Instead of adding additional residency slots or building out lengthy academic programs aimed at a limited pool of college graduates, systems are exploring ways to attract and train the broader group of workers who might otherwise work in non-healthcare and retail settings.

One large system in the Northeast that's not an AMC (name redacted for privacy) discussed plans to acquire a university to have more control over their pipeline and to experiment with shorter two-year training programs for critical roles, such as radiology and anesthesiology techs. Programs would be aimed at high school graduates.

Meanwhile, some systems such as Cleveland Clinic are rethinking job descriptions and necessary qualifications for posted jobs. They have a team that sits externally from HR taking a more skeptical look at which licenses are actually needed for various scopes of practice and whether any written qualifications are dissuading otherwise strong candidates.

So What? Perceptions around workforce shortages have changed: what was once seen as a temporary and acute crisis is now seen as a persistent and strategic threat to the long-term viability of the nonprofit health system model. CSOs noted that, even three years ago, they would have been surprised by how bad the situation is today.

While this concern was often primarily the domain of CHROs or CMOs, CSOs have been increasingly pulled into the workforce conversation to seek more creative solutions. In a survey we conducted last fall, CSOs said that their number one strategic priority (out of a long possible list) was to identify financially sustainable recruitment and retention strategies.

At the forum, there was a recognition among participants that labor is increasingly a differentiator between organizations: some systems have effectively cut their vacancies in half through a strong workforce-centric strategic plan, while others continue to struggle.

Insight #2: Health systems are increasingly looking to cut clinical costs as cost-cutting elsewhere has been exhausted

What CSOs talked about: Nearly every system now has a standing team focused on taking cost out of the system. While administrative waste is always paramount, there’s been a growing emphasis on workforce reduction through AI and automation. CSOs discussed their feeling that cuts to administrative functions have hit diminishing returns, and that systems now need to prioritize downsizing clinical functions to address tight finances.

Here are some of the cost-cutting approaches we heard:

• An executive team at Intermountain Health now meets weekly to systematically consider workforce reductions across all functions. The team has already achieved $15M in savings in Q1 and is now aiming to cut labor requirements for call centers in half.

  • Intermountain is also working with Nuance to deploy ambient listening tech for RNs. The system is now opening access to its ambient listening tech to all doctors across the system in Q2 after seeing 1.5-2 hours of time saved per doctor in a pilot.

• BJC likewise discussed how they view cost-cutting as a continuous process, with focus areas that change every 12-18 months.

• Michigan Medicine is turning to technology for savings: a new tower with virtual nursing capabilities was recently stood up, and the system is also using AI to predict patient trajectories (including LOS) and intervene when they begin to stray in a bid to improve throughput.

• Virtua Health set up a central command center that predicts patients’ days of discharge and has been able to see a measurable impact on reducing excess days.

• Duke University Health System is building “smart hospitals” filled with cost-saving features such as water flow detection to identify leaks, and a smart parking lot with balloons that pop up to flag empty spots. They are also thinking about how to sell the rights to developers on new campuses, looking to create spaces for ‘live work play’ with housing units, hotels, and gyms.

So What? A recurring theme across many of these examples is the deployment of new technologies, including AI. As we wrote in our earlier deep dive on health system boards, many systems are looking to add tech talent to their boards (and C-suites) to help facilitate these transformations.

A challenge for system leaders is that tech enablement initiatives tend to eke out small labor efficiencies that are difficult to plan around—if a new tool saves a doctor or nurse 30 minutes of their time each day, how do you translate that to reduced compensation costs? It’s hard to take out .1 of an FTE. In practice, systems often need to take a leap of faith: slow hiring now (or stop hiring for certain functions) and trust that new tools will allow staff to function more effectively in the future.

More broadly, it’s clear that systems are looking to transform cost-cutting from a sporadic activity done annually (or every few years with outside consultants) into a continuous process led by internal teams. Put another way, as cost-cutting becomes a permanent state of affairs, systems are looking to cultivate cost-cutting skill as a core executive competency.

Insight #3: Health systems are turning to policymakers and courts to push back against untimely MA payments.

What CSOs talked about: Participants were emphatic about the harms caused by payment delays, administrative hassles, and claims denials by MA payers. We’ve previously written about the trend of systems dropping MA plans to “vote the worst players off the island,” and while that topic did come up at the forum, CSOs were also interested in discussing more systemic solutions.

A leader from Northwell discussed the system’s advocacy with the New York State Legislature for legislation that financially penalizes payers for improperly denied claims (including forcing an interest penalty on the float). In part due to their advocacy, the system managed to bring its denial rate down from 22% to 5% in just 18 months.

Intermountain has also leveraged relationships with state policymakers: at their urging, the state of Colorado is now doing RAC audits to review every Medicaid hospitalization coming through the system.

Other systems have sought allies in the courts. A large system in the Southeast discussed multiple legal challenges they were assembling with fellow providers (even competitors) to fight Medicaid and Medicare Advantage denials. With that said, the system’s first attempt at bringing a lawsuit was unsuccessful.

In another example of collective legal action, the California Hospital Association (and its 400 member hospitals) recently initiated a lawsuit against Anthem Blue Cross claiming that prior authorization delays violate the state’s patient protection laws.

So What? Bad behavior by payers is nothing new, although recent headwinds with reimbursement and unexpected utilization are pushing plans to become even more aggressive with prior authorization and denials. As noted in our research on MA, there’s been a 63% growth in MA denials as a percent of net patient revenue from January 2022 through July 2023. Rising interest rates have also added to the pain felt when payments are withheld and delayed, spurring interest in legislation that would force payers to make up the loss.

There was clearly appetite at the forum for a collective health system push to get policymakers to address the issue, possibly at the federal level with CMS. The question is whether CMS has the appetite for such reforms. For instance, the agency’s recent prior authorization final rule lacked teeth with mandated timelines that are longer than the current baseline (despite the AHA applauding it). While the agency does consider the interests of patients in its rulemaking, it may be reluctant to limit the tools that carriers have been using to rein in costs (especially given that MA is more expensive than traditional Medicare with a significant impact on the Medicare Trust Fund).

In the absence of a policy solution, health systems might consider pushing for similar penalties to be demarcated in their contracts with payers. This is often achieved by either being willing to accept lower rates (e.g., 100% of Medicare FFS) or coupling negotiations with commercial contracts. However, securing such terms is clearly more feasible for those with substantial leverage, which is not always the case in markets with few alternative carriers.

Insight #4: With new filing rules, health systems are thinking about how to adapt to the new M&A environment

What CSOs talked about: The increasingly hostile environment for M&A at the federal and state levels is causing plenty of headaches for health system executives. But instead of pulling the plug entirely, participants talked about how they’re coping by taking a far more careful and measured approach.

Potential buyers are now thinking about crafting stricter “best effort” covenants to reduce their exposure if mergers become more drawn out under the new HSR filing guidelines. Likewise, potential sellers are considering heftier break-up fees given the greater uncertainty around closing. There’s also more pre-deal work: a large system in the Northeast discussed the extra cost and effort they spent on pre-merger economic analysis to demonstrate that they were the most pro-competitive choice for a potential partner.

"Irrespective of if it makes it into legislation, these new filing requirements are having the desired effect because they are stopping us from even having these conversations." – Health system strategy leader

Now that FTC proposals say that any document—even an erroneous draft compiled by an intern—is fair game for the purposes of challenging a merger, systems are having fewer strategic conversations with potential partners and are clamping down on internal discussion. More conversations are happening in-person or on the phone, rather than via email where there’s a paper trail.

Relationships with payers were also discussed: an M&A deal is much less likely to go through if payers offer testimony claiming that the transaction will reduce competition and raise prices. More health systems are also being put in the tricky position of being asked to testify about their health system market competitors.

So What? Despite the uncertainty around some of the recent regulatory changes (including legal challenges to the new rules and the prospect of a potential new administration in the White House next year), health system strategists have accepted that they’ll continue to face elevated scrutiny in the years to come.

Even if the next FTC chair shies away from more adventurous cases (e.g., challenges to vertical integration) in favor of more “bread and butter” cases, health systems will likely continue to be targets. While only 1.3% of all deals are challenged, half of the FTC’s cases are in healthcare, and half of those cases are focused on providers, which isn’t likely to change soon.

We don’t expect that this will stop M&A activity altogether, but it will force more caution among leaders and could make work with external consultants and legal counsel (if conducted over email) more challenging.

Insight #5: Consumerism isn’t driving expected ROI, but that doesn’t mean it’s not driving “softer” ROI.

What CSOs talked about: In a joint session with The Health Management Academy’s Consumer Co-Lab, CSOs and other executives discussed governance in the context of efforts to transform the consumer experience. Here were their top takeaways:

• It’s always going to be hard to measure an ROI with consumerism efforts as the simple KPIs (e.g., reducing FTEs in call centers) aren’t often happening. Therefore, leaders need to get scrappier and tighter on measuring ROI and collaborate closely with CFO counterparts.

• Consumerism projects always need to serve two “customers”—patients and physicians. Leaders should have physician champions involved in strategy governance and journey mapping work to help build alignment and address this dual mandate.

• Systems often want to bring in talent from outside the healthcare industry for consumerism efforts. Some consumerism leaders have teams made up of 75% of out-of-industry talent. However, this often presents challenges: title leveling/congruency; satisfying candidates’ salary expectations while competing with the likes of big tech companies (e.g., Google, Epic) and a “traumatizing” transition to healthcare when they’re confronted with limited budgets, a complex regulatory environment, and internal committee structures.

• Consumer strategy leaders (e.g., VPs of Consumer Strategy) can better serve as “connectors” between multiple stakeholders within the system when they don’t have operational execution responsibilities.

So What? As health systems have grown in size and offerings, they’ve created increasingly complex organizations with responsibly widely dispersed across different departments and executives. To deliver a cohesive product for consumers, systems need to invest in internal governance and empower the executives tasked with spearheading these initiatives. They also need to tie compensation to patient satisfaction in a smart way—potentially looking beyond more traditional measures of HCAPHS to get at true digital experience and access.

Systems also noted they are facing a new frontier with consumerism as patient data collection grows. While there is a lot of distrust around data privacy and security, they shared the belief that patients are very willing to share their data if the system can secure it and create value from it through more personalized, seamless consumer journeys.

Insight #6: A reckoning for PE and VC investors could create headaches and opportunities.

What CSOs talked about: PE and VC investors have poured billions into companies that promised to disrupt healthcare in the past few years, but many have seen little return on their investments. While industry thinkers are still predicting some tangential return to the pandemic-era funding landscape, some CSOs predicted that it will never return. Rather, investors might pull back from healthcare once they realize that the potential profit pools up for grabs are smaller than they think.

If PE- and VC-backed companies downsize or go bankrupt, it could create both collateral damage and opportunities for health systems. For example, the bankruptcy of Steward Healthcare (covered at greater length later in this edition)is creating chaos for patients and policymakers, but some of its assets are going on the market for cheap. One CSO also discussed the impending bankruptcy of two PE-owned air ambulance companies in their market, raising the question of whether they should acquire them and transition them to value.

CSOs also discussed how investors are also experimenting with new approaches due to the evolving landscape, like General Catalyst’s move to acquire Summa Health and fold it into HATCo in an attempt to create a proving ground for their portfolio of services (a topic we covered in a January edition of The Strategist).

"I think we’ll look back at the model of venture being involved in healthcare and say it was a catastrophe." – Health system strategy leader

So What? If PE and VC investors do pull back from healthcare, it would also mean fewer opportunities for partnerships with health systems. Such partnerships are also running into increasing headline risks: the Biden administration’s crackdown on “corporate greed” in healthcare has targeted PE in particular, and state regulators have been skeptical of the relationships between nonprofit systems and the VC industry. And as we wrote in our previous edition, the FTC’s new noncompete rule is also creating a new precedent questioning the nonprofit status of systems that work with for-profit partners.

It's unclear if predictions of a “reckoning” will truly come pass. There are some signs the IPO window is reopening, creating opportunities for VC to cash out and reinvest. At the same time, the gradual decline in inflation over the past six months raises the prospect that the Federal Reserve could eventually cut interest rates, making it easier to raise new debt.

Insight #7: Financial constraints are forcing health systems to make difficult decisions around payer mix.

What CSOs talked about: A repeated theme across sessions was the tension between mission and finances with respect to payer mix.

As the population ages and reimbursement shortfalls continue to grow each year in Medicare and Medicaid, there’s been an even greater focus on commercial patients. But for some leaders, a growing focus on the commercial side feels at odds with their system’s mission to provide care to the whole community (and especially those with the most need). It also makes it harder to tell the health system value story with Congress and the public.

Intermountain discussed the system’s potential plan to work with large, self-insured employers (two-thirds of the commercial market) to only offer access to their medical group for those willing to pay on a subscription basis. They would offer same-day access, care navigators, and free preventative services to provide value. Otherwise, they shared, system leaders are worried about financially sustaining the system over the next 10 years given that constrained resources are going to those on government plans.

"If we don’t do something differently, we are going to hurt many people. We’ll be okay as a system if we just focus on commercial, but is that ethical?" – Health system strategy leader

Participants also discussed the sense that the healthcare system as a whole is bifurcating between for-profit providers that can focus on the most lucrative commercial patients, while nonprofit systems are left taking care of everyone else. There’s a fear that nonprofit systems will have to behave more like for-profits to survive, including optimizing payer mix and demanding higher commercial rates. However, it’s possible this difference is oversold: a recent analysis by Trilliant Health found that for-profit systems actually don’t have consistently higher negotiated rates than nonprofit and public-owned peers.

So What? The need to grow commercial revenues has always been something of an unspoken truth for nonprofit systems, but as financial challenges become more dire, system leaders are increasingly willing to be more vocal about the goal. Undoubtedly, most strategies being pursued today are at least partially aimed at attracting commercial patients. Given limited access, there’s fear that any effort to open access is not backfilled with commercial volumes.

This need is challenging in a time when many think health systems are losing the public narrative battle with Congress and the media. Yet there are also more options for creative models with virtual solutions. For instance, there was a lengthy discussion on virtual hub and spoke models to support rural hospitals where Microsoft’s recent efforts to get rural systems on Epic through Azure Garden Plot could open opportunities. Ideally, such models could not only support rural access and allow specialist work flexibilities, but also keep lower-margin cases out of tertiary/quaternary care settings.