Vidal Seegobin (00:00):
Pediatric hospitals can oftentimes be kind of islands onto themselves. The more that they can start to cooperate, coordinate, and share information would be well worth their time because I don't think anyone has a silver bullet solution that will weather all of the changes that we expect to have.

Abby Burns (00:17):
From Advisory Board, we're bringing you a Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. I'm Abby Burns.

(00:26):
Today, I'm going to be talking with Advisory Board expert Vidal Seegobin, and he's going to break down the current and future state of pediatric hospitals specifically. I want to get right into my conversation with Vidal, but to preface, there are a couple of reasons why I think this is a particularly timely episode.

(00:41):
One, as we get closer to the impacts of the One Big Beautiful Bill Act taking effect, the provisions related to Medicaid might disproportionately affect kids and those who care for them. About 41% of kids in the US are covered by Medicaid compared to about 15% of adults, according to analysis from the Pew Research Center. That means Medicaid plays a bigger role in generating pediatric hospital revenues.

(01:05):
Two, as non-pediatric providers are looking at the financial headwinds we've been talking about on Radio Advisory, they are taking a hard look at how they might rationalize their service portfolio to stabilize their own finances. Pediatric services are at risk here. On the whole, they're not profitable compared to other services. We've been talking about ripple effects of a degrading safety net. This is one to keep your eye on, especially because ped-specific hospitals only make up about 5% of the hospital market nationwide, and they tend to be quite geographically dispersed. So in other words, those displaced volumes that might result from service closures won't necessarily have a waiting landing pad.

(01:45):
I could keep going here, but I'm a firm believer in handing the mic over to the experts. So with that in mind, let's go to my conversation with Vidal. Vidal, welcome back to Radio Advisory.

Vidal Seegobin (01:56):
Thank you so much for having me again.

Abby Burns (01:59):
Vidal, we've talked a lot on Radio Advisory about the state of hospitals and health systems in the US, but we honestly haven't talked about the state of pediatric hospitals specifically. My goal today is, one, to rectify that, and two, to talk about why the state of pediatric hospitals matters to non-ped specific organizations, both providers and non-providers. Why should they be keeping an eye on this group that they may or may not interact with a whole lot? That's the ambition for today.

(02:30):
Let's start with the simplest form of the first question. How are pediatric hospitals doing right now as we enter 2026?

Vidal Seegobin (02:39):
Yeah. So if I start with how I spent a lot of my time in 2025, it was about focusing on hospital finances. And that's an interesting lens to look at performance because it does allow for you to compare and contrast, and look at specific nuances related to different types of providers. When you understand what's happening within the pediatric space, you look back to 2019 when we talk a lot about our financial story before COVID-19, pediatric hospitals financially were doing pretty well, particularly when you compare them to their all hospital peers.

Abby Burns (03:16):
And when you say pretty well, give me a ballpark.

Vidal Seegobin (03:18):
I'm talking about double-digit operating margin.

Abby Burns (03:21):
Wow.

Vidal Seegobin (03:22):
2019, we're talking about 12%, and then in 2024, we're talking about 11%. And you contrast that with five to seven for adult hospitals, that's pretty good.

Abby Burns (03:35):
Right. And it's helpful to mention when we're talking about hospital margin versus health system margin, which we know tends to be a few percentage points lower.

Vidal Seegobin (03:42):
Yeah, that's a great qualifier. That story just does not continue into 2025.

Abby Burns (03:48):
Where does 2025 take us?

Vidal Seegobin (03:50):
So 2025 takes us at a pretty noticeable decline in that hospital operating margin for pediatric hospitals, going all the way down to 1%.

(04:00):
And so I'd want to qualify that first and foremost. So part of what the Advisory Board's been doing over the last year has been working with Strata Syntellis data to understand cohort performance. And we're looking at a pediatric hospital cohort of less than 30. So all the caveats related to the size of that population I think hold true. But augmenting this analysis, we've talked to a lot of finance leaders at pediatric hospitals across the country. And there are a couple of reasons why we think that at least the performance financially for pediatric hospitals has declined over the last year. And we have every reason to believe that 2026 will probably indicate even more financial headwinds for these organizations.

Abby Burns (04:48):
Okay. So what are some of the main reasons that we see this deep decline?

Vidal Seegobin (04:51):
First, I think the cost structure of a pediatric hospital is a little bit more expensive than your average adult hospital for a couple of reasons. First, generally speaking, when you compare to adult hospital peers, pediatric hospitals rely on more contingency labor, which is more expensive than adult hospitals.

(05:15):
Second, pediatric hospitals on average as a percentage of their total expenses do pay more for supplies. There's a couple of reasons for that. You split a lot of volume because of sizing and kind of special needs for children in particular. And so you don't often accrue a lot of those pricing advantages from larger contracts.

(05:38):
And then third, which I think is pretty notable because I think it indicates a general phenomenon that all providers and hospitals in particular are going to have to navigate if they're not navigating it already, is the pace of revenue that your average pediatric hospital has been generating from the outpatient space has increased at a faster rate than adult hospitals. Meaning that for a larger period of time, pediatric hospitals have been somewhat insulated from this site of care shift, but now more and more of the revenue that they make come from the outpatient space. And second, just generally speaking, you make less money from an outpatient delivered service than you do from an inpatient service.

Abby Burns (06:26):
So we've been talking about the outpatient shift on the adult side for quite a while, but I know a lot of organizations are feeling that financial squeeze, right? I think of the number is like 57% of revenue on the adult health system side comes from outpatient at this point, but it's taken a long time to get there.

Vidal Seegobin (06:41):
Yeah. One other item I would just note that's very specific to pediatric hospitals and why this financial situation might have had market change relates to bad debt deductions, which is at a much higher rate for pediatric hospitals than their adult peers. So in this 2024 to 2025 period, when you're looking at a 12-month rolling average of year-over-year change on bad debt deductions, it increased about 29% for the all hospital cohort, but for children's hospitals, it increased 55%, so almost double. And so I'm not exactly sure how much that contributes to it, but it is a pretty outlier data set in the analysis.

Abby Burns (07:24):
Okay. So a lot of financial headwinds kind of coming to a head in 2025. And you said, we expect this to continue in 2026 to the point where average hospital margin might actually go down further from 1%. Why should the rest of the industry pay attention to what's going on with pediatric hospitals?

Vidal Seegobin (07:41):
So as I had mentioned earlier, there's a couple of structural factors that relate to pediatric hospitals that are going to require them to have to prepare and make moves around the impacts of provisions related to the One Big Beautiful Bill Act more quickly, and I would argue more aggressively than adult hospitals, which means that they are probably going to be the leaders in finding these solutions, and therefore probably good case studies for sourcing and identifying smarter pathways forward.

(08:16):
Most specifically when I say that, our analysis of who is most going to be impacted by the One Big Beautiful Bill Act, it is providers who are disproportionately serving Medicaid patient populations. Anywhere between 48 and 55% of your average pediatric hospital payer mix comes from Medicaid.

Abby Burns (08:42):
Wow. Wait, I just want to sit with that for a second.

Vidal Seegobin (08:44):
Sure.

Abby Burns (08:45):
You said 48 to 55% of payer mix on average for pediatric hospitals comes from Medicaid. On the adult side, that number is much closer to 30%. Do I have that right?

Vidal Seegobin (08:55):
Yeah. I mean, I've talked to some people that are low at 15, but 20, 25% is also considered on the adult side, a warning sign for them to have significant exposure. Now you're doubling that when you're talking about pediatric hospitals. And so for that reason, thinking about how different states and counties prepare for the administrative burden, how providers step into those gaps to provide more frictionless administrative completion, and how they can ensure continuity and care, I think is the first order of business. It's one of the first provisions to start to take effect. And so that's one of the very first things I'll be looking at. And I would imagine the pediatric hospitals would have a pretty savvy already kind of infrastructure that I would be looking to replicate across the board.

Abby Burns (09:43):
But are there other elements of how pediatric hospitals will be impacted by and will have to respond to the impacts of the One Big Beautiful Bill, OBBBA, OB3, whatever you want to call it, that we should be watching?

Vidal Seegobin (09:56):
The one area that is pretty time sensitive right now relates to the subsidies for the exchanges, and what that's going to mean for family coverage and children coverage, right? So as I spent 2025 trying to understand all of the points of financial exposure, how much any one hospital of any type sees of patients who are covered under ACA exchanges is somewhat unknown, right?

(10:24):
And we know that premiums are likely to increase. We know that people might think to themselves, "I could forego health insurance or I might want to delay getting health insurance." And what that would mean for families with children, I think is somewhat outstanding. Now, the literature tends to show that families and communities tend to be a lot more successful and consistent in ensuring that children remain insured under public programs, and that's probably a cooperation between families as well as providers.

(10:59):
But I do wonder a little bit about some of this potential churn of people opting out from ACA derived insurance products, how they get their children onto public plans, and how they do that as seamlessly and as effectively as possible. We don't know how much of the risk there is, but we think the plan for it will still require us to identify and move those patients, those children over to public insurance as quickly as possible.

Abby Burns (11:25):
Two things on that. One, it's probably a good idea to timestamp this conversation. So we're recording this on January 20th. By the time this episode comes out, there will have been a vote of some sort on the subsidies. So we might have somewhat of an answer to this question, if the subsidies are extended.

(11:41):
The other thing, you mentioned that hospitals don't necessarily know what percent of their payer mix comes from ACA. Can you just explain that to me?

Vidal Seegobin (11:50):
As I've tried to track down data points, particularly for our policy calculator to figure out, well, how much of the potential risk would face a health system that has amount of money coming from commercial insurance? Generally speaking, when I talk to finance leaders, they capture the payer mix as commercial, not ACA derived commercial. So it's hidden within that larger line item. I think Tenet last year in their earnings report indicated something like seven to 10% of revenue coming from ACA exchanges, but it's always hard to extrapolate from one of the larger publicly traded hospital operators for your average not for-profit, and particularly for a pediatric hospital.

Abby Burns (12:35):
Okay. Vidal, that sort of brings us to where we are at right now in this moment, how pediatric hospitals went from 2019 to 2025, and are entering 2026. If we can think about this space as a microcosm for the rest of the industry to watch, what's the headline of how pediatric hospital leaders are operating or are thinking in 2026?

Vidal Seegobin (12:57):
I think about pediatric hospitals and their leadership of having to navigate the future in three separate time horizons and all at the exact same time. So the first is everything you would imagine around any provider who's looking at the provisions of the One Big Beautiful Bill Act taking shape and saying to themselves, this shows up in our strategic planner survey data this year as well, operational efficiency, margin management and discipline in finding every cash advantage or ability to conserve cash as kind of order number one. And that I think is in the immediate term.

Abby Burns (13:39):
And we'll be talking with our colleagues in a few weeks about the results of that strategic planner survey.

Vidal Seegobin (13:43):
Yeah, exactly. So the second one relates to what we had just talked about around the site of care shift phenomenon and more revenue coming from the ambulatory space, which I think requires pediatric hospitals, and I would argue every provider, to think differently about how they plan and pace for the site of care shift so that they have maximum control, and minimize the revenue and financial impact to the maximum extent possible.

(14:11):
Then the third one, which is the longest time horizon, which I find to be the most interesting and different than what a lot of our adult hospitals are worried about. It's not a surprise, I would imagine to nearly anybody listening to the podcast that industrialized world is seeing a decline in birth, particularly when you pull out immigration, right? And so that means fewer and fewer families are having fewer and fewer children. And that I think for a pediatric provider means that the patient population that they're planning for when their capital outlays to build infrastructure have to be thinking differently about smaller pediatric patient population to the future, which means that things around flexibility, modularity, and planning for a smaller footprint are all things that they need to do now, even if they won't see or realize those changes until sometime farther into the future.

Abby Burns (15:06):
It's interesting because I agree, that sounds like the point of greater divergence from adult hospitals, right? Most adult hospitals are planning for more volumes or at least more Medicare volumes. But the operational impacts that you just named, how can you be more flexible, how can you think about modularity, actually sound pretty similar to what the rest of the hospital sector needs to be thinking about.

(15:26):
So I want to talk about all of these time horizons. And let's actually start with the longer term time horizon in mind. I think we can use the words future proofing here. What I heard you describe was how do we future-proof our business model? What does it actually look like for pediatric hospitals to do that?

Vidal Seegobin (15:42):
So in my ideal world, or if I think that they stuck the landing, the medium and the long term would probably look very similar, which would be thinking about how you grow your ambulatory footprint and mobilize your strategy such that you are building multiple points of access and delivery that are not disproportionately dominant or biased towards the inpatient space.

(16:09):
And a couple of other reasons why the site of care shift is happening across the board are things that I don't think we ever want to stop, right? It is technological innovation, it is about more convenient access for patient populations, it's allowed for more flexibility on the clinician side. I don't think we want those things to go away. So if we think about that medium term site of care shift as something we do effectively to set ourselves up for the future, then I would imagine that many pediatric hospitals would find themselves, and I think adult hospitals as well, if they were able to do that too, would find themselves in a better position.

Abby Burns (16:45):
Vidal, you mentioned at the beginning of our conversation that the shift to ambulatory or shift to outpatient is happening faster in the pediatrics world. Can you put some numbers to that for me?

Vidal Seegobin (16:56):
When you look at the amount of outpatient revenue that have contributed to the overall financial performance of a pediatric hospital, in 2019 it was 44%, and now it is 52%. So you're looking at an eight percentage point increase in the time horizon, which is pretty noticeable, and I think also contributes to how they think about their future calculations of where they're going to derive their revenue from.

Abby Burns (18:35):
Vidal, I want to name an elephant in the room when we are talking about pediatric care in 2026, and that is what's happening with vaccines and vaccine policy. On the policy side, we've talked about this on Radio Advisory before, right, the dissolution of the ACIP a few weeks ago, the change to reduce the number of recommended vaccines from 17 to 11.

(18:57):
But arguably more important, I think, is the culture and the patient and clinician experience side of this. We've seen huge growth in vaccine hesitancy among the general population, among parents when we're thinking about their kids. We are thinking about the way that changes to the vaccine schedule will show up in the doctor's offices in the form of more confusing, more frustrating conversations between parents and especially primary care doctors. There's definitely a frontline business impact here.

(19:27):
How does this fit into the narrative for peds hospitals right now?

Vidal Seegobin (19:32):
Yeah. So in April of 2025, we in partnership with Optum Advisory had a pediatric round table, and that was bringing together a bunch of leaders from across the country who lead pediatric organizations. And one comment that came up anecdotally, that the leader wanted to get an understanding of other people experiencing this or not, related to a decline in a number of emergency department presentations for children related to respiratory issues. And what her curiosity was, was whether or not this was attributable to uptake in the RSV vaccine.

(20:11):
Fast-forward the tape, I've spoken to maybe three other finance leaders in mostly the Northeast, but across the country, who have now confirmed, at least anecdotally, that they have seen a marked decline in the number of children patients showing up to the emergency department, and they believe it's because of uptick in the RSV vaccine, right? So I think people are seeing the results of being able to proactively be able to vaccinate communities, and families, and patients, and that leading to a reduction in the pressure and capacity for the emergency department precisely at the moment of the year when we start to see an uptick in those phenomenon.

(20:53):
Now, the flip side of that is we were talking a lot about the financial story and financial stability of pediatric hospitals. A reduction in volume precisely at this moment in time is going to have financial impact, right? So I think for the greater good, I would hope we would all agree that we want to see fewer people have to ever show up to the emergency department to begin with, but the result will also be that we will have to think differently about what kind of demand we will serve. And if we believe that that anecdote is actually true, whether or not that trend will reverse because there is now more skepticism about whether or not the family should be having their child vaccinated for RSV, or any of the other ones that have now become optional, or not considered to be recommended for non-high risk patients.

Abby Burns (21:41):
The RSV vaccine is actually a great example to use here, because remember, this is a vaccine that just came out in 2023, so it is relatively new. And part of the explicit objective was to decrease hospitalizations, right, emergency presentations for babies, for infants. The numbers that you just shared suggest it is having that desired effect. So I'm wondering what this example tells us about the effect of vaccine policy changes on hospital finances, on hospital strategy.

Vidal Seegobin (22:12):
One of the fun things and challenging things about healthcare, it is the microcosm of society, right? It is the intersection of economics, public policy, sociology, technology all coming into one space, right? And so I do worry a little bit about the cognitive load we are now asking clinicians, pediatricians in particular to help navigate with their families as they try to make the best decisions available, and now kind of increasing the level of uncertainty across the board for everybody, right? And so that feels like heading in the wrong direction.

(22:47):
Second is, I mean, I think that one of the key points of success of both the healthcare system across the board and the American health system in particular, is the rapid technological advancement and adoption we've brought into healthcare. And if we are now more and more skeptical of anything new and different, particularly on the vaccine front, which from a public health perspective continues to have the strongest and best ROI, then I do worry about whether or not we're just taking off such a powerful tool in our toolbox to make our society and to make our communities healthier.

Abby Burns (23:22):
A couple weeks ago, we had our colleagues, Natalie Trebes and Max Hakanson on to talk about what healthcare CEOs need to know in 2026. And one of the main points that they emphasized was being aware and planning for not just the immediate ripple effects, but the second and third order ripple effects of changes that we're seeing across the industry. And I actually think this is a great example of how do we plan for some of these changes today, starting right now, starting yesterday in terms of how are we supporting our clinicians if we're thinking about providers and especially pediatric providers.

(23:52):
But also what does this planning look like? We've been talking about the longer term horizon. How do we need to anticipate ED volumes in the next six, 12, 18, 24 months?

Vidal Seegobin (24:02):
Yep.

Abby Burns (24:03):
One of the sort of nuggets that I've pulled from our conversation so far is that timeline is really important for pediatric hospitals and sort of how they time their action. So I do want to talk about what are they doing and what do they need to do in the immediate term. Reminder, we're talking about a steep decline to a 1% margin, anticipating further margin decline. How are pediatric hospitals responding to this?

Vidal Seegobin (24:30):
So first, I think a lot of my conversations across the fall of 2025 involved pediatric leadership trying to quantify the potential exposure and impact related to the One Big Beautiful Bill Act. One of the benefits of, I think, of leading a pediatric organization is everyone get around treating children who are sick, right? And so I've seen mobilize towards advocacy and quantification of impact pretty aggressively, which I would argue nearly everybody should be doing as well.

(25:00):
Second, I think that clinical operational efficiency in terms of length of stay management, better operating room prediction, and management and throughput are all key must-do activities across the year. And even some of the work that our operations team looked at around care variation reduction shows that some of these exemplar institutions are actually pediatric hospitals.

(25:26):
Other area, which I think is a little bit of a ... And if you have to think about it from a pediatric lens somewhat differently, I think across the board, most providers who are looking at the impacts and the preparation for 2026 are saying to themselves, "We need to be able to really optimize revenue cycle, which ensures that we're getting as much money for what we've served as possible."

(25:47):
Anecdotally, when I was talking to the same cohort in April of last year, pediatric leaders, there's oftentimes been much more reticence to use some of these strategies and tactics to collect from families in particular. And so the way forward that some of our colleagues have identified has to do with thinking about not revenue cycle in terms of a kind of revenue capture perspective, but thinking about it through the lens of financial experience, right? So how you pull forward visibility, and ability to be able to access, and to be able to pay through different modes as a way of making it just easier to collect, but with a softer, more consumer focused touch than I think other people talk about it from other vantage points.

Abby Burns (26:34):
That's interesting because that's also a space where there is a lot of tech innovation, AI innovation, including in other industries that is a natural sort of point of overlap, or potential point of overlap or entry into the healthcare space. It sounds like this is a pretty similar list to what adult hospitals are focused on.

Vidal Seegobin (26:53):
I would agree, which is part of the reason why I think it's important to shed a light on pediatric organizations, because the race that they're running is already started, and they have to move pretty fast and have plans in place pretty quickly.

Abby Burns (27:06):
I want to end our conversation by looking into the future and getting a little bit operational. And to start, I want to talk about what pediatric hospitals should be doing in the beginning of this year.

Vidal Seegobin (27:17):
A couple of them that are already started, but they need to really be accelerating. So as we model out the potential impacts of eligibility changes and administrative burden that takes shape on the Medicaid side, pediatric hospitals need to be at the front and center of understanding how those rules are going to take shape, what requirements are going to be placed in forward of patients, and how they can make sure that that happens as consistently and as frictionless as possible.

(27:46):
The second thing is pediatric hospitals only account for about 5% of the total hospital population and can oftentimes be kind of islands onto themselves. And they probably don't even think about themselves as competitors in the way that some of our other members do. So the more that they can start to cooperate, coordinate, and share information either in venues like what we do or others, I think would be well worth their time, because I don't think anyone has a silver bullet solution or a well hermetically sealed plan that will weather all of the changes that we expect to have. And so I think that's another smart place that pediatric hospitals should probably be doubling down on.

(28:23):
And then I think the third relates to what we would have said around site of care shift. But I think for a lot of reasons, pediatric hospitals might have thought that that was something that they could have worried about at a longer time horizon, but all that revenue change that we found just means that every interaction you have from a financial perspective is just going to have the less yield. And so how you think differently about your ambulatory network and strategy, acknowledging that perhaps the destination for that patient may not in fact be the hospital, it may be an outpatient facility or an outpatient site, I think is something that is going to have to be hardwired into how they think about capital planning, referral strategy, planning and business development for your average pediatric hospital going forward.

(29:10):
Can I add one more that I forgot related to the pediatric space? So one thing that came up around workforce relates to pediatric clinicians and the amount of debt they incur to become an expert, and the remuneration that they get from that, which anecdotally they describe as a smaller funnel from the very, very top, but a very, very dedicated and passionate workforce that are very driven by mission. So you can see both the challenges and opportunities related with that dynamic, but it's something, again, I would point to as being very critical for pediatrics thinking about opportunities and risks going forward.

Abby Burns (29:49):
Yeah, absolutely, especially given some of the workforce headwinds we talked about, like the impact of vaccine policy changes on the clinician experience.

(29:57):
For listeners who are not from pediatric hospitals, what should they have on their radar when it comes to thinking about pediatric providers in 2026?

Vidal Seegobin (30:07):
I'll go back to a data point that I found that comes from the National Bureau of Economic Research that looked at the drop-off rate when the public health emergency stopped and we had to do Medicaid redeterminations. The National Bureau of Economic Research found that children consistently maintained coverage at a much higher rate than adults for a whole host of reasons, which I would argue means that something about what's going on with pediatrics or how we work with families to ensure coverage continuity is better than for, I would argue, the adult population where we've seen requirements for a different purpose, but still introducing administrative burden and friction. So I would try to figure out whatever it is that they do so coverage is continued for patients and families as perhaps the spine of a plan that you might replicate or components you'd want to import into your blueprint.

(31:03):
The two other things is maybe I'll steal from Natalie and Max's point about the second order consequences. So you've got the pediatric space, which is dominant on the Medicaid side. If not every pediatric provider can continue their service mix going forward because of financial reasons, that is going to have reshaping effects in terms of where these families seek out care, and I think will have wider ecosystem changes and impacts as well.

Abby Burns (31:30):
Right. We talk about that a lot with rural hospitals potentially closing or closing down units. I think it's worth mentioning pediatric hospitals in this vein.

Vidal Seegobin (31:37):
Exactly. And then the second point is if you're thinking about the other side of the coin when it comes to paying for healthcare services, these financial headwinds that pediatric hospitals are projecting and are planning for, will likely also have a plan related to trying to negotiate better rates. And so that is going to be a potential additional point of friction, but obviously it's a negotiation and we've structured the system to do this. But part of the reason why that is happening is precisely because of the financial situation that we're talking about, and the reshaping of the payment environment and coverage environment that the One Big Beautiful Bill Act is now requiring of the healthcare industry.

Abby Burns (32:24):
Well, Vidal, thank you for coming on Radio Advisory.

Vidal Seegobin (32:27):
It's always a pleasure.

Abby Burns (32:33):
What I take away from my conversation with Vidal is this, pediatric hospitals are going to be disproportionately affected by the same financial headwinds that are affecting the rest of the provider industry. This matters to you even and arguably, especially if you're not a peds hospital because of the ripple effects it's going to have on the rest of the industry, including on your own business. And it matters because the way that peds hospitals navigate the coming months and even years likely has takeaway lessons for your own organization. And remember, as always, we're here to help.

(33:25):
New episodes drop every Tuesday.

(33:29):
If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts, and leave a rating and a review.

(33:35):
Radio Advisory is a production of Advisory Board. This episode was produced by me, Abby Burns, as well as Rae Woods, Chloe Bakst, and Atticus Raasch. The episode was edited by Katy Anderson, with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Leanne Elston and Erin Collins.

(33:53):
We'll see you next week.