Rae Woods (00:02):
From Advisory Board, we are bringing you a Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. My name is Rachel Woods. You can call me Rae.

(00:13):
Welcome to 2024 and there is no denying that healthcare looks very different today than it did last year or five years ago or 10 years ago, and the truth is that several seismic changes have emerged that have the promise to actually transform the very core of how this industry works. Now, understandably, that might bring up some anxiety, because healthcare leaders are very concerned about the immediate pressures that they have, as well as what these seismic changes could mean for their business. I am here to tell you today that these changes aren't just coming. Many of them are already here.

(00:59):
On this episode, I've brought three advisory board experts. We've got Natalie Trebes, Prianca Pai, and Sharon Yuen. Together, we're going to be talking about some of these seismic changes and discuss what leaders should be doing now to prepare for the future, prepare future. Natalie, Sharon, Prianca. Welcome to Radio Advisory.

Natalie Trebes (01:21):
Hi, thank you for having us.

Prianca Pai (01:23):
Hi.

Sharon Yuen (01:24):
Excited to be here.

Rae Woods (01:26):
The three of you are on the front lines. You're talking to health leaders every day. How would you characterize how those very leaders feel headed into 2024? What's maybe one word that you would use to describe how leaders are reacting to the state of healthcare right now?

Prianca Pai (01:43):
I think the sentiment we've been hearing the most is fragile. Nothing right now is guaranteed. I think in many ways things have gotten a little bit better since the pandemic, but I don't think leaders have returned to anything that's resembled stability in the least. So I think leaders are probably, what we've been hearing is, they're feeling like they're on a tight rope trying to balance a lot.

Natalie Trebes (02:04):
I would maybe add apprehensive as a word to think about. Leaders right now are very aware of a lot of challenges getting thrown at them and that they have navigated many of those challenges and urgent fires. We talked about that last year. They're aware of all of the onslaught of things that are coming. I think there's a deluge of things thrown at them in the future and they can anticipate that things will hit them. More and more, I'm hearing executives talking about needing to build into their strategic plan, a perspective on weight management strategies or a perspective on how employers are going to shake up benefits or what's happening with Medicaid, redeterminations, what have you. Everything that's going on with Medicare negotiating drug prices, there's just all of these things that we know are going to hit in the next few years and into the future. It's not so much that they are unaware of the situation. It's that they're unaware of exactly how it's going to unfold for them.

Rae Woods (03:08):
Neither of those are positive words. I will say, I rarely hear positive words. I actually like to ask this question at the beginning of when I'm in a room of healthcare executives, the closest thing to a positive word I hear is opportunity, which is of course rooted in something that is negative. It means something is wrong, something needs to change, something is broken, and we're going to take the reins and go after that. I'm curious to step away from executives writ large and actually look at the delivery system specifically, one thing that I do remember from this conversation last year is that we talked about the extremely precarious situation that hospitals and health systems were in. We called the state of their financials dire. We know that if that's the case with health systems that affects everyone else in healthcare, how are providers faring right now at the start of 2024?

Prianca Pai (04:01):
Yeah. Looking back, I think from the pandemic things are rosier. Inpatient volumes return to pre-pandemic levels. Most systems were able to convert agency spend to full-time appointments. So I think we should give health systems some credit, but when you dig an inch or two deeper, you see a ton of structural issues that are hitting the hospital from every side and that's what our team is trying to elevate. Internally, helps us initially dealing with the workforce shortage that hasn't gone away and supply chain volatility. That then is having ripple effects on capacity and quality of care. Financially, they're dealing with a shifting payer mix. So the erosion of the commercial market, the growing share of public payer coverage, that's just internally. Externally, just look at the headlines. A lot of their core business structures are being scrutinized, not-for-profit status, 340B drug discount program. So on the surface things are great, but there's a lot of undercurrents that are hitting them that I think we need to be paying attention to.

Rae Woods (04:58):
So if the delivery system is not out of the woods, at least financially, let's maybe step back out again. When we look at healthcare, how would you characterize our performance in 2023 headed into 2024?

Natalie Trebes (05:11):
I think when you look at the entire industry ecosystem, it's a poor report card. We've seen a lot of really concerning numbers when it comes to healthcare clinical quality. When it comes to outcomes, there's huge changes for the worse in maternal mortality, especially among Black women. You've got a lot of metrics around safety in hospitals, much worse than they were previous years. I think a lot of that translate to the difficult situations that hospitals have been in, but it's the whole industry around that that impacts this and how we're supporting the care delivery organizations.

Sharon Yuen (05:55):
For instance, there's an increase in adverse events that are resulting in permanent and severe harm or death to patients. In fact, it's actually 19% from 2021 to 2022. On top of that, 73% of adults actually believe that the healthcare system is not meeting their needs. So there's clearly a lot that we have to do here.

Rae Woods (06:15):
73% of adults believe that the healthcare system is not meeting their needs. That's a huge number. I got to acknowledge from the start, none of what we've talked about so far is good. Sharon, you're talking about the fact that patients are not all right. Natalie, Prianca, you're talking about how the industry is not all right, at least in terms of quality and spend, even maybe in the financial sector at least when it comes to hospitals and health systems. My question is what's been the reaction to this performance? If our report card is bad, what is everyone else in healthcare thinking, reacting to as a result of that performance, that poor performance?

Prianca Pai (06:56):
I think that's the right question. Let's put everything together. It's declines in quality of care, the heightened spending, coupled with the fact that you're seeing this growing share of public payer coverage, which means it's our trust fund that's footing some of the bill here. So it's not a surprise, I think, for leaders that regulators are ready to turn the screws and bring more scrutiny to a lot of these structures. So from CMS to Congress, we are seeing them take a closer look at everything from the Medicare Advantage business model and spending there to the pharmaceutical business and drug pricing to employers fiduciary responsibility.

Natalie Trebes (07:32):
Yeah, I would just view this as a perfect storm. That's how this all comes together.

Rae Woods (07:38):
Who's that storm going to impact?

Natalie Trebes (07:40):
The entire industry.

Rae Woods (07:43):
I expected you to say that, but is it easy to predict who and how and when these purchaser disruptions are going to hit, these screws are going to turn as Prianca said?

Natalie Trebes (07:56):
Yeah. When it comes from the regulator perspective, they have specific levers in terms of who they have jurisdiction over and are able to regulate. But that is always going to trickle down. So if we think about Medicare Advantage, for example, a lot of CMSs pushes have been on the health plans active there. They are going to have to turn around and in their contracts with providers, we will start to see those rate changes show up in their negotiations. We'll start to see that pressure on auditing show up in their chart choices. So no one is exempt, even if the pressure starts in one part of the industry.

Rae Woods (08:35):
No one is exempt even if the pressure starts in one part of the industry. That's a really, really important insight to highlight. At the same time, aren't we still just talking about everything that's happening in the present? We're talking about the fragility that you mentioned in the beginning, Prianca, the tight rope that leaders are walking. Natalie, what was your word?

Natalie Trebes (08:57):
Apprehensive.

Rae Woods (08:58):
Yeah, no wonder leaders are apprehensive if the present feels as all consuming as it feels for me, just even at the beginning of this conversation. At the same time, I'll tell you that every single leader that I talk to, and it sounds like it's the same for the three of you, they know they need to prepare for the future. I would like for us to tell them what that future could look like, especially since we know that so much has the potential to change in healthcare, and potential to change in pretty dramatic ways. So when it comes to the future of healthcare, where do you want CEOs, executives, boards to focus their attention?

Prianca Pai (09:40):
I think that's exactly right. There's a lot happening in the now. A lot of headlines, a lot of policy shifts, but we want leaders to pay attention to what are the undercurrents. There are three seismic shifts we're tracking. That's around where is care being delivered, who is then delivering that care, and then finally, how are we financing that care model?

Rae Woods (10:01):
Wow. You did not pick any small things that we need to be focused on when it comes to the future of healthcare. Where we deliver care, who delivers care, how do we pay for care? Those are huge changes. I have to ask, what do we actually mean when we're talking about those seismic shifts, those paradigm shifts?

Prianca Pai (10:19):
Yeah. That's a great question. So I think the first one is around delivery infrastructure where we're delivering care. We've historically been a hospital centric business and we're shifting to more of an ecosystem based model. That means care management, care standards might be directed at the market level. That means we're going to have a lot more players, potentially more friendly and unfriendly alliances. That second prediction is around the care team who is delivering that care. We're at this really interesting intersection between the workforce crisis and these huge advances in technology that we've seen across the year, that we're seeing this evolution to a care team that's going to be dependent on technology. Then our finally thing, how we're paying for this? We've been always a procedure centric business and we're shifting to more of a pharmaceutical based model. So what does this new era, when we look at this emerging drug landscape, and this new era of pharmaceutical and device innovation, it's ushering in this new era of bespoke care, which I know we'll talk about later.

Rae Woods (11:17):
I want to channel the question that is immediately probably coming up for our listeners, or if it's not coming up, it should, which is why these three? How do we know that these are three areas we need to focus our attention on in 2024, because they can change in dramatic ways by 2034?

Natalie Trebes (11:35):
None of these are transitions that are unfamiliar to anyone who's been in healthcare for a year or 20 years. We have been on many of these journeys: the journey to push care out of the hospital, the journey to add technology into how we do our work, the journey to add in treatment options and not only focus on episodes. What I think is new this year and where our team is focused in conversations with executives is what is accelerating and changing, whether that is an intense pressure or an innovation unlock? So you think about all of the big advances in AI this year. That's a big accelerant. With those we can understand more where we're headed. I think we have mostly in the past talked about where we are coming from and we want to start talking about where are we going and that's not been a part of the conversation as clearly as we'd like it to be.

Rae Woods (12:30):
I actually suggest we do that. We focus on where we're headed and maybe across all three of these, we can touch on those accelerants, the things that are changing, the things that are happening in the market. I think it's the right answer to, dare I say, try to predict the future a little bit and tell health leaders where we might be headed. Let me caveat that immediately. How much time do the three of you have? I don't think there's any way that we're going to get through all of those in one episode. So maybe-

Natalie Trebes (13:02):
For you, Rae, we have all day.

Rae Woods (13:05):
Let me change that. Our listeners perhaps do not have all day. So maybe let's focus on the first one where care is delivered. Will you three come back for next week's episode to talk about the other two?

Prianca Pai (13:20):
We'll think about it.

Rae Woods (13:23):
Come on.

Prianca Pai (13:26):
Of course.

Rae Woods (13:27):
So let's talk about this first fundamental shift on where care is being delivered. Something I heard you say, Prianca, loud and clear is the hospitals are no longer the center of care delivery. If I'm honest, we at Advisory Board have been looking at the rise in vertical ecosystems for a long time. These vertically integrated systems, we talked about payviders. We could name private equity. We could name a couple of different buzzwords here. I want you to roll the tape all the way forward for me. What could the future look like in a world of ecosystem controlled care rather than hospital controlled care?

Prianca Pai (14:11):
I think the end state, again, with the caveat, not a hundred percent sure this will be the end state, but right now I think we're seeing lots of loose affiliations with these ecosystem players, these vertically aligned behemoths. Eventually, we are going to probably see a few single corporate entities through their acquisitions that we've seen across the past couple of years, directing care management, care standards, care pathways at the market level. Again, it's a destiny. It's a possibility, and I think that puts into question, what is the role of the health system in this new paradigm as we're shifting away from the hospital being the central hub for care?

Rae Woods (14:50):
Because what I'm hearing you say is it's not just that they are bigger, it's that they are controlling more things. You said controlling care pathways, controlling how patients consumers move through the system. Is this a good thing or a bad thing?

Sharon Yuen (15:05):
None of these things are necessarily good or bad things. And really how you feel about that depends on what seat you're in. These are futures that are definitely looming and our role as researchers is to let you the executive know what you have to prepare for right now.

Rae Woods (15:20):
I mentioned that this is an area where we focused our research on for a while. Give us an update. We all know that the national giants have been pursuing consolidation for several years now. What's even still on the table? What strategies are we seeing these corporate entities pursue right now?

Prianca Pai (15:40):
I'm going to take that into two parts. So I think the first thing you asked is what's up for grabs? I think historically our team has been saying it's mainly going to be community assets. So think about primary care, pharmacy, home care, virtual care. These players are trying to essentially rightsize a portfolio of cross-subsidizing and complimentary assets. They aren't touching insurance PBMs, that belt set. They don't want to touch the hospital business. We already talked about how that's a hard business to run, but I think especially after the rumored and failed Humana-Cigna merger, I honestly think maybe anything at this point is up for grabs. So I think a lot of players are going to be divesting, acquiring, or merging across 2024 essentially trying to titrate that "right" healthcare portfolio.

Natalie Trebes (16:24):
Prianca and Sharon have built a really amazing table that I'm sure everyone in the industry has seen logos underneath large corporate conglomerates before, that kind of chart. They've assembled a really beautiful table of the actual numbers behind the sizes of some of those assets. So you can kind of compare and see how big are these different entities in which spaces. So we really encourage everyone to take a look at that on our website.

Rae Woods (16:49):
We'll add it in the show notes too. So some areas are more saturated than others. A lot is still on the table. Does that mean that all of these corporate players are pursuing the same kind of strategy?

Prianca Pai (17:02):
Absolutely not. I also mean don't think they're all trying to disrupt healthcare. So I don't think Amazon, CVS, Walgreens have the goal to disrupt healthcare. They're all trying to do the same thing. I think we're trying to say is that they have very scoped ambitions about what role they want to play in healthcare, because at the end of the day, these new entrants, they rightly understand that healthcare is an industry where they can capture more of the consumer wallet. So I think most players, maybe all players from retail to payers are really focused on cross-selling services.

(17:34):
So what do I mean by that? They're trying to acquire as many patient access points, front doors to care, so they can pinging pong patients, pinball them across their assets to basically capture that low acuity care and pharmacy spend. For some players, I think that is the end goal. I think especially those without an insurance arm, again, that's not disruption. It's more iterating on access in a way that our traditional healthcare infrastructure hasn't been able to.

(18:01):
I think some players are taking that a level deeper. They're actually indexing on a specific patient population, a lucrative patient population, seniors. They're layering those assets together, pharmacy, home care, ambulatory assets into a certain market to cement their market position. They're going to continue to compete in this incredibly, I think, game that's going to get even harder for those Medicare Advantage dollars. They're trying to essentially capture savings and revenue, those dollars that are associated with managing senior care longitudinally.

(18:32):
Then the last thing we're seeing that I think few players can actually achieve, and I think this is the hardest one to actually pull off, is the ability to oversee network operations. So a few players might be able to actually control supply and demand of patients and balance that cost-effective insurance product with also a revenue generating physician business. Again, that last ambition or goal, it's not just for a specific patient population. It's not just to capture more revenue from the consumer. It's actually to influence and oversee care for our entire markets of patients.

Natalie Trebes (19:09):
If that sounds scary to any executives at all of our established healthcare organizations we work with, I think you need to remember that the same hurdles you face are very much in the way of these ambitions, and so it all comes down honestly to patient relationships, right?

Prianca Pai (19:30):
Mm.

Natalie Trebes (19:30):
These corporations are still going to need to convince patients, get their attention, put other services in front of them, and convince them to choose those services if they want to cross sell. If they want to capture senior care value, they're going to need to engage patients in care management activities to engage with their physicians and manage their health over time. If they're going to oversee network operations, they have to convince a patient to follow a referral differently. This is not something that's been easy for incumbent organizations, and that's not necessarily going to be easy for these ecosystems as they build up their infrastructure.

Rae Woods (20:07):
I also think that folks would be surprised to hear that these giants also don't necessarily want to be everything for everyone and control everything. I heard loud and clear, they have actually very scoped ambitions. To your point, Natalie, it's not a guaranteed success. It's not a guaranteed success. Which leads me to the thing everyone on the line wants to hear, which is what are the incumbents to do? What does it look like to survive, and is growth even possible in the face of these industry giants?

Prianca Pai (20:43):
I think absolutely. I think probably the player you're thinking about the most-

Rae Woods (20:49):
Absolutely growth is possible?

Prianca Pai (20:51):
I think growth is possible. I think it's hard.

Natalie Trebes (20:55):
Maybe not for everyone.

Prianca Pai (20:56):
It's not for everyone. Lots of caveats. I think there.

Rae Woods (21:01):
I also by the way, think that growth is possible in specific scenarios. At least, I think it enough that we have another episode that's going to be coming out soon when it comes to health system growth strategies in 2024 and beyond.

(21:59):
What about survival? What about the lifelines that health systems might need to pull on right now?

Sharon Yuen (22:05):
Sure. So historically, health system woes have often been to merge, but we're seeing some different strategic lifelines come out of the woodworks now and they're nothing new, but they are new to health systems. There are three I want to top line. The first one being ambulatory connectivity, the second being synthetic scale, and the third being IDN model alignment.

Rae Woods (22:26):
What do these things mean? Maybe can we get an example of what it might look like in practice to say, I'm going to bet on trying to get some synthetic scale here.

Prianca Pai (22:38):
Yeah. I think instead of thinking of it as terms, what are the goals behind these partnerships? One I think is when you think about ambulatory connectivity, it's controlling top of funnel. So you're maybe partnering with a retail giant for convenient care options. That's what RUSH did with CVS Health's ACO. You're essentially having seniors come to CVS for a certain set of care services and then they get funneled to RUSH for more of those specialty care services,

Rae Woods (23:03):
Which by the way, I really like this example. I think it's a big deal because it required RUSH the incumbent to say, actually, we're not the best front door anymore. Let CVS be the front door.

Prianca Pai (23:13):
This is my favorite example. I think also because we recently saw it with Orlando Health and Walmart. I think it's brilliant. I think we already know health systems are at risk of being commodified. So I think it's basically they're owning the narrative. They're partnering with retail who is good at consumerism, who's good at access. They have the money to actually iterate, I think, on board those consumers in plays and let retail take over some of those low acuity volumes, have them funnel patients to the health system so that the health system can actually focus on what they do best, even the acute and specialty care. So that's one of my favorite strategies that I've been seeing and I'm excited to continue watching in 2024.

Rae Woods (23:49):
I have to believe, because you mentioned aligning IDNs, the example here has to be Risant, right? That's the thing everyone's been wondering about.

Natalie Trebes (24:00):
Oh, totally. The proof is going to be who does Risant add next? So for anyone not familiar, Risant is the new subsidiary of Kaiser Permanente. They've added Geisinger Health system under that and they will work with Kaiser health insurance, the health plans to continue running Geisinger and focus on more value-based care that's aligned with the Kaiser payvider model.

(24:28):
I think for anyone familiar with Kaiser, they are really, really established with the full IDN vertically integrated model in California and a few other places. Really hard for them to export that model to other markets unless they get all the assets at once. So I think this is a move to try to get more footprint for Kaiser with systems that can work with that model and just really build that alignment in. Again, really going to depend on who they add next, if anyone.

Rae Woods (24:59):
If all of this that we're talking about is where the industry is going, at least when it comes to where care is delivered, I have to ask, are there risks? Are there vulnerabilities that we need to name as we navigate towards this future?

Sharon Yuen (25:18):
So personally, I think the biggest risk, and some might call it the biggest irony, is the fact that the industry pursuing scale actually widens access gaps and leaves a whole swath of patients behind in the process. We're seeing that across the ecosystem. The pressure is really on to invest in more profitable services, demographics, geographies. What this leads to is health systems making a lot of really tough choices to close certain service lines or even entire hospitals and that leads to even more care deserts.

(25:50):
One of the most pressing examples that comes to mind is the fact that from 2011 to 2022, we've seen 217 hospitals actually close their labor and delivery departments. When you take that into consider the fact that 7 million women of childbearing age already live in maternity care deserts, that's a really concerning and hard fact to reckon with. You have to think about the fact that folks have to travel hours, if not cross state borders to receive the care that they need, and for most, that's really an impossible ask.

Rae Woods (26:22):
I'm guessing you're going to tell me that despite the fact that there are other sectors that are stepping in, whether it's closures in L&D, we see lots of women's health startups, for example, lots of industry focus on women's health, I'm guessing you're going to tell me that's not going to be quite enough.

Sharon Yuen (26:38):
Exactly. So a lot of non-hospital entities and non-traditional entrants are really eyeing these access gaps as business opportunities. But when you take a step back, you realize that the solutions they're creating are really patchwork at best. They're not comprehensive. They aim to serve those who are the easiest to serve, easier demographics, easier geographic areas, et cetera.

Rae Woods (27:01):
I think what you're getting at and what we've been getting at across this entire conversation is why this shift is more than just a market force. It can be a true seismic paradigm shift, a fundamental change in where care is delivered and the impact that that's going to have on healthcare and the impact that that is going to have on patients.

Natalie Trebes (27:22):
Right. We're talking about this shift from a world where all care is oriented around hospitals to one where you've got larger conglomerates that are assembling a mix of assets where the hospital plays a role in that. So they are thinking about how do they allocate hospital resources? How do they use the hospital efficiently? That could be a great thing if we're actually starting to think holistically on a societal level of how do we distribute healthcare dollars, but it could also be hard if that pressures more of these gaps that Sharon is talking about and just creates a little bit more of a patchwork in the pursuit of efficiency.

Rae Woods (27:59):
So we have two other paradigm shifts to talk about. I can't believe that we have that, but we're going to do that next week. My last question though for you for this episode is what should our listeners, what should healthcare leaders, what should CEOs be watching that will help them determine the extent of this shift in their market?

Prianca Pai (28:21):
I think there are three areas that leaders should be paying attention to really get a sense of how much their market is shifting. I don't think the shifts are going to happen overnight, but these new entrants, I think are going to slowly pick apart a market over time. So I think the first bucket would be around volume and revenue. So I want leaders to pay attention to how is their patient attribution for risk-based contracts shifting? What about their low acuity volumes, those specialty pharmacy volumes? Then I want them to focus on their market role, the role as the provider. What's happening to your employer contracts with these new entrants coming in? What about being an employer of choice, winning that eternal staffing war, especially as we have more and more players entering a market? Then finally, I think it's around patient data. You're going to have more players. Your picture of the patient is going to get harder and harder to put together. So what does that mean for you as a leader?

Rae Woods (29:10):
Well, Prianca, Sharon, Natalie. Thanks for coming on Radio Advisory.

Natalie Trebes (29:16):
Thanks for doing part one with us.

Rae Woods (29:21):
Okay. First episode of the year, and we already went through a ton of changes that are happening in healthcare, and I'm a little bit worried that you might be walking away from this conversation a little bit overwhelmed. Well, there's two things I want to remind you of. First, we have to keep track of these national trends, what's happening here and now in terms of performance, how purchasers are looking at us and maybe turning the screws. Yes, we have to look at the national market forces when it comes to some of these big shifts, but I don't want you to forget the second thing you should be doing, which is to make sure you're focusing on your own organization, your own volumes, your role in the market, and you have to have a relentless focus on data. It's the combination of that national focus and what's happening in your market that will help you understand the path forward this year and beyond. Remember, as always, we are here to help.

(30:40):
If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Rae Woods, as well as Abby Burns, Kristin Myers, 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 Carson Sisk, Leanne Elston and Erin Collins. Thanks for listening.