Rae Woods (00:02):
From Advisory Board, we are bringing you a radio advisory. My name is Rachel Woods. You can call me Rae. The business climate in healthcare is incredibly tough. Costs and prices are up, margins are tight, and the workforce crisis rages on, and this is all happening as leaders navigate a range of disruptive forces that represent short term crises and the opportunities leaders are seeking in the long-term. These are just some of the topics in Advisory Board's state of the industry research.

Rae Woods (00:40):
Today, I've invited Ashley Antonelli and Natalie Trebes to show how your strategic decisions can influence the future of the healthcare industry.

Rae Woods (00:50):
Hey, Ashley. Hey, Natalie. Welcome to Radio Advisory.

Ashley Antonelli (00:53):
Hello.

Natalie Trebes (00:54):
Hi.

Rae Woods (00:55):
Ashley. No pressure. This is your first time on the podcast. Do you have a favorite episode of Radio Advisory?

Ashley Antonelli (01:01):
Ooh, maybe a little recency bias here, but I'd have to say the podcast we just recorded about the business implications of overturning Roe V. Wade is one of my favorites because it really focuses on the entire healthcare industry and bringing in expertise from a cross-advisory board to tackle a really big business problem that we're having in healthcare right now and provide some clarity in a very uncharted time.

Rae Woods (01:48):
And what a perfect segue into what we're talking about today because we are having a conversation about the entire healthcare industry. I hope that our listeners know this by now, but in case they don't, our company advisory board exists to provide actionable guidance to health leaders. We want to provide that guidance for leaders who are grappling with some of the toughest issues in healthcare. And usually on this podcast, I'm talking to an advisory board expert or an external guest about a very specific challenge or maybe a very specific market, but we are not going to be doing that today and that is because your research actually covers the entire healthcare industry. What is actually the goal of your research?

Natalie Trebes (02:30):
It's a little bit of everything for everyone research. We're working on an ongoing basis to help executives who have to keep up with the millions of things that crop up every day. It's hard for them to have the space to follow all of the under the radar trends and sort through all the noise and the news and so we are always trying to distill the most important things going on for the healthcare business right now and how that's going to connect to 5 years, 10 years down the road. So our goal is to always make it easy for any healthcare leader to get a view of what's happening right now and how their decisions and current events are going to shape where we all go in the future.

Rae Woods (03:10):
Natalie, you just said that executives have a million things cropping up every day, and I actually think that's how health leaders feel because there are so many crises out there when it comes to this industry. And frankly, it is extremely difficult to decide which problems actually need the most attention. Because you're focused on the state of the industry, how do you even go about deciding what challenges to focus on in 2022?

Ashley Antonelli (03:41):
As we can imagine, when we are trying to tackle something this massive, we start by casting a very wide net and we draw on advisory board teams' conversations with healthcare executives and the deep research that we are all doing into key strategic issues and trends across the industry and then that helps to inform where we focus. We have two ways that we really think about big trends. In the first category, it's the trends and actions and forces that are a prevailing reality for most of the industry. So these are the challenges that are affecting everyone, shaping the environment, the entire industry is functioning in right now. And then we also think about what are the market forces that could affect everyone's strategy going forward.

Ashley Antonelli (04:34):
In the second category that drives what we focus on, we really consider the evolving approaches to strategy where different industry players are actively making decisions right now that will certainly affect where the market moves. So think here it's structural dynamics that have the biggest influence on how our industry operates. That could unfold in many different directions across the industry and most importantly, where executives really have agency to shape the future.

Rae Woods (05:07):
All right. So there's these two ways to think about the challenges: the challenges affecting everyone and the challenges that we have more agency over and might look a little bit different depending on the market and depending on the stakeholder. What are actually the challenges affecting everyone?

Natalie Trebes (05:23):
Well, a month ago, I would've had a different answer and we'll get there, but there are, of course, a few big new forces that are unfolding rapidly right now. So we've got the overturn of Roe V. Wade that Ashley alluded to, and we've discussed that at length and probably will continue to. That's going to have a lot of big implications for the healthcare business. And then, of course, we've got a potential, and I want to emphasize potential this point in time, recession. So the jury's out on where that's going right now. We're looking at some different likely scenarios and paying attention to the lagging inflation that healthcare has to deal with. But that is a reality that seems to be on the horizon.

Natalie Trebes (06:05):
Those are really good examples of how easy it is to get overwhelmed by the challenge of the day, the news of the day, and why we do this work in the first place to explain that broader business environment.

Rae Woods (06:18):
But Natalie, those are quite literally very recent things, and I know that you and Ashley have been doing your state of the industry research for months and Advisory Board does this research year after year for decades. So I have to believe that there are other core challenges that everyone is feeling beyond these two most recent kind of questions that are facing healthcare.

Natalie Trebes (06:42):
Yeah, that's exactly right. So let's tee those up. We've got workforce shortages that are still very much a crisis, definitely going to be affected by what we just talked about. The shifts in where people are getting their healthcare coverage from is the second one. And then you've got the increase in vertical integration that's starting to form the foundation for entire ecosystems of different businesses. And then lastly, there's been a frenzy of investment capital that maybe is cooling off and that kind of ties in with the looming recession, but it's left the industry inundated with innovation potential that's going in search of financial support.

Natalie Trebes (07:25):
So these are all the forces that are converging and working together and setting the stakes for how healthcare leaders are navigating right now.

Rae Woods (07:32):
I want to talk about each of these in turn, starting with the workforce crisis. This is absolutely something we've talked about on this podcast before because this is probably the one, beyond the two most recent challenges you mentioned, Natalie, that has been top of mind for health leaders for several months now.

Rae Woods (07:52):
Ashley, what do we need to know about the workforce crisis?

Ashley Antonelli (07:55):
This is top of mind issue for healthcare leaders across the industry, but the interesting thing about the workforce crisis when it comes to healthcare is that, quite frankly, I think we're talking about it wrong. As we think about this and how it's affecting the economy at large, we talk about the Great Resignation, but in healthcare, it's really more like a Great Realignment. Of what we're seeing is that workers in healthcare are leaving their current roles in favor of other players in the market who may be able to offer what they're looking for, right, so we're talking about better pay, more flexibility, et cetera, and that's really driving the shifts that we're seeing in healthcare.

Rae Woods (08:41):
And by the way, I know I just mentioned that we've talked about the workforce crisis on this podcast before. Well, we are going to be talking about it again and exactly the insight that you just shared, that it might not actually be the Great Resignation in healthcare is exactly what we're going to talk about on next week's pod.

Rae Woods (08:59):
But the one that's on the horizon for me is coverage swings, especially when I think about the moment that is coming when the public health emergency ends.

Ashley Antonelli (09:11):
Right. And there are so many questions around the public health emergency right now and what happens when it ends, but one of the things we are really thinking about are coverage shifts that could occur at the end of the PHE. What we saw during the pandemic was a mass shift among people who had employer-sponsored coverage or didn't have coverage onto Medicaid. That occurred largely in response to changes in employment, but enrollment in Medicaid has remained pretty stable, right, even though we've seen the employment rate largely recover. That's because under the public health emergency, there's a ban on states being able to disenroll people from Medicaid. So when the PHE ends, we expect to see a massive amount of people potentially losing this coverage and Kaiser Family Foundation estimates that about 15 million people could lose coverage, and it's currently unclear to us where those people might land.

Ashley Antonelli (10:18):
Now, many of them will likely be eligible for employer-sponsored coverage, but not all. And even those who do have the option of enrolling in employer-sponsored coverage, we're not sure whether they will or if they'll enroll in other types of coverage that are available to them. This is a big thing, but one key takeaway that I want to note here is we are going to have some warning before the PHE ends.

Rae Woods (10:47):
That's right. 60 days, right?

Ashley Antonelli (10:49):
Yep. 60 days. So this is a place where organizations can and should be planning ahead for their markets. So if you're a payer who may be at risk of seeing big enrollment decreases, you're going to want to be thinking about what enrollment education or transitional support you can be providing. And if you are a provider thinking about this, you really want to be planning for how your payer mix might shift.

Rae Woods (11:18):
And you mentioned, we are going to get a little bit of a cushion when it comes to the warning, but I'm guessing you want our listeners to get out ahead of this before the clock starts ticking.

Ashley Antonelli (11:28):
Yes, absolutely. 60 days is not very long when we're thinking about launching these type of initiatives, as I mentioned, education enrollment or transitional support. You really need to have a plan in place so that you can be deploying these things 60 days out, so your consumers and patients have guideposts to where they should be going.

Rae Woods (11:51):
Ashley, we've been talking about Medicaid, but that's not the only coverage swing that I think we are watching.

Ashley Antonelli (11:59):
Yeah. Medicare Advantage, MA, is getting astronomically concentrated, and that is popping up on our radar for sure. First, when you think about MA, it's growing quickly and actually faster than we'd predicted. This was one of the biggest growth years yet, and we're currently on pace to have over half of the Medicare population enrolled in MA by next year.

Rae Woods (12:25):
Wow.

Ashley Antonelli (12:26):
Yeah. So a big tipping point is around the corner. And I think when you double-click on that, what's even more surprising is that when you look at growth within Medicare Advantage plans, it's really concentrated. The top five largest gains were in the hundreds of thousands of covered lives, while all the plans with lower growth amounts, we're looking more at tens of thousands of new enrollees.

Rae Woods (12:53):
Oh, wow. Hundreds of thousands versus tens of thousands of new enrollees.

Ashley Antonelli (12:56):
Right. So what we're really seeing is the MA market begin to be super concentrated around the top five players. So you think United, Humana, CBS, Elevance, formally Anthem, and Kaiser. United alone hit almost a million new MA enrollees in a single year, and that's about three times more than the next biggest plan.

Rae Woods (13:20):
Is this all just a growth game for these players, right? I'm thinking that MA is a big growth opportunity and has been for the last few years. Is that the mindset here, or is there something bigger happening?

Ashley Antonelli (13:32):
Right, there is something bigger happening here. So this growth in MA is something of a virtuous strategic investment cycle for the largest plans. The attractive finances, both from full-risk ownership and from risk and quality adjustments, mean that growth here brings in outsized revenues, and those margins can be used to finance other relevant capabilities like care management and provider services that can then further help gain MA enrollment growth. So this trend is definitely incentivizing and enabling vertical integration among these players.

Rae Woods (14:14):
Which is exactly the elephant in the room that we haven't gotten to yet. Frankly, this is something that Advisory Board spent a lot of time talking about a couple of years ago when we saw the big PBM payer integrations happening, right, CVS and Aetna being the big one. But I'm not sure it's something that we've talked about in a while.

Rae Woods (14:34):
Natalie, what's new here?

Natalie Trebes (14:36):
Yeah, I mean the insurance giants, in particular, I think have been steadily marching forward in assembling this diverse array of assets across insurance, medical group, home care, or pharmacy technology, retail, et cetera. I think there's a couple things I think are new and interesting here to pay attention to. First, I really think we are at the tipping point of moving from assembling and buying assets only to starting to coordinate how they're used. So we're really starting to see the giants test ways of using their different businesses to create new capabilities altogether, so they're becoming more and more these "health solutions companies" and that might mean that they have services across all different healthcare sectors, but it also means that they want to become a one-stop shop for all things healthcare and so that is in pursuit of controlling the ecosystem that a patient member consumer exists in. And I think the virtual first products are good examples of that, where you've got a connection between the insurance company and a provider and technology arm to steer where patients go.

Rae Woods (15:48):
But, Natalie, the FTC is also a big question that I'm sure listeners have here because, right, their goal is to try to keep consolidation at bay.

Natalie Trebes (15:57):
Yeah, I think that's the other big thing to pay attention to is what kind of consolidation is allowed. The jury is still out on how the FTC interprets vertical integration. And if you compare insurers to health systems, insurers really had an advantage over the last couple years in the pandemic in terms of their finances. They had time to plot their strategic moves and be thoughtful about M&A and-

Rae Woods (16:25):
That's right.

Natalie Trebes (16:26):
... yes, the FTC is questioning things, but where we're seeing the force of the FTC come down is on the health system side, so several mergers have been blocked there and that's much more in the horizontal consolidation space. And that's really difficult for health systems who I think want to build the capacity to get to the point of vertical integration, but need to build up just some more strength in general, and they're taking hit after financial hit, complicated by the FTC right now.

Rae Woods (18:04):
That financial context brings me back to one of the things that you brought up at the very start of this conversation, which is the broader economy. I, too, keep reading and seeing headlines that we are headed towards a recession, and it's understandable that there is a lot of fear out there in terms of how much a potential recession would be felt by the healthcare industry. What is our latest thinking there?

Natalie Trebes (18:30):
Well, I can imagine we're going to have several more podcasts about this over the next six months, I'm sure. And you can probably also hear our difficulty in reining ourselves in and being able to cover everything all at once.

Rae Woods (18:46):
Which is exactly why it's hard to talk about the entire state of the healthcare industry and all of the crises that are facing us.

Natalie Trebes (18:53):
Exactly. So again, I want to be clear, the jury is out on whether we're headed into a recession, let alone how bad it will be. I hear predictions all across the board right now. On the one hand, because this is somewhat of a natural consequence pathway after such high inflation, the market is actually preparing for this and the Fed is taking action. There is going to be mitigation. This is not a surprise that's catching us off guard. So the market's not going into free fall. But on the other hand, exactly that kind of expectation means that executives are thinking about this. This is a very real business perception and so, organizations are starting to act as if we are heading into a recession. That's going to dampen how bad it is, but it also means we will feel some of those effects.

Rae Woods (19:41):
That's business leaders in general, but what does that look like for health leaders?

Natalie Trebes (19:45):
Yeah, I think we're starting to hear some examples of health system leaders, in particular, starting to feel like they need to rein in their CapEx plans and rethink big strategic investments or expenditures, so that might mean belt-tightening around not building out an ambulatory surgery center, right? So this changes the plans that people can lay for the future.

Natalie Trebes (20:09):
And I think that connects back to one of the other forces we've been looking at, which is where our investment dollar's flowing. We are coming out of a time where capital was pretty free flowing. It was easy to get money for new science and technology innovation ventures. The market is somewhat correcting a little bit. There's a retraction of some of that capital, and there's more scrutiny coming. So everyone is going to get pushed on how to survive. There are going to be ventures seeking partnerships. Systems, plans, incumbents across healthcare are going to have to think about who they actually want to have deals with and be working with. So it's going to be an uncertain future.

Rae Woods (20:49):
Okay, so let me get this straight. We've got a workforce in crisis, and we're expecting a realignment in where healthcare staff are employed. We're on the precipice of a payer mix change and enrollment declines. Some of the biggest healthcare companies are starting to take advantage of all of the assets they've acquired, and as we look ahead to a potential recession, we're going to see a frenzy of ventures looking for income as capital tightens up. And we've only started talking about the market forces affecting everyone. Where does this actually leave healthcare leaders, besides just completely overwhelmed?

Ashley Antonelli (21:29):
Yeah. I mean, that's probably a good summation of how they're feeling, in all honesty, but that's why we think it's more important than ever to help identify the strategic dynamics where leaders do actually have an opportunity to shape the future or where not thinking about the direction they want to head will be a mistake.

Rae Woods (21:54):
Yeah.

Ashley Antonelli (21:55):
Today, I think everything feels aggressively urgent. It's very easy to be overwhelmed by the challenges of today, so the fires that some listeners may be facing or to be overzealous about the opportunities, the shiny things that some other leaders may have. It can feel like for every fire that leaders have to be putting out right now, another organization has a shiny opportunity to go after: capital, talent, partnerships. But if we're not thinking about the future we're aiming for, we're going to act myopically. For example, making over ambitious benefit promises to staff to attract talent right now, only to later focus on specific skill sets as care delivery strategies shift in the future toward different sites of care. Overall, any actions that you take here are going to have enormous trade offs between today's challenges and future strategic goals and priorities.

Rae Woods (23:00):
So let's top line those big areas. Where does your research show that different organizations can act, can actually actively shape their future? What's up for grabs?

Natalie Trebes (23:13):
So we think about them in terms of how they affect the structure of the healthcare business. And again, these are dynamics that we think can totally change how the healthcare business works, that have unwritten directions and leaders can make decisions that actually matter here on these areas. So first, the realm of patient flows. How do we actually steer patients through the system, and in that, there are decisions about partnership with physicians and influence over consumer navigation of their healthcare choices.

Natalie Trebes (23:45):
Then, we've got the actual options or modalities that we have to deliver healthcare. And here, we're seeing the industry explore how do we actually deploy telehealth and home-based care at scale, without conflicting with one another or creating more chaos in the industry.

Natalie Trebes (24:03):
And then finally, the actual goals that we have for the outcomes we want to achieve in healthcare. What are we pursuing here as an industry? So you've got questions in value-based care that I know you've talked about with Claire Worth around what value are we designing payment models around? What are we trying to pursue here? And then in the realm of health equity, which we've also spent a lot of time on as a company, how much are we going to proactively bake that into our business models?

Natalie Trebes (24:31):
So these are huge decisions that different organizations have roles to play in how much they invest, where they focus, what they're actually aiming for in terms of the end state.

Rae Woods (24:43):
For me, one of the most helpful things that your team has done, and probably one of the most hopeful things that our audience can can hear, is that you've actually set up the idea that the future is not set in stone. There are, of course, forces that everyone in healthcare is going to have to grapple with, but these other things are more like... they're more like guideposts, right? They're areas where there are decisions that leaders can make to actively shift the future in the direction that they want to see the industry go. I'd love for you to give me an example that makes this a little bit real for our listeners.

Natalie Trebes (25:21):
Yeah. So I think in each of these structural areas, we are looking at at least two different directions that the industry or a market could move in. So in the realm of value-based care, which I know you've spent a lot of time talking with Claire about, we have a future where the industry actually aligns and everyone follows a model that looks similar to what Medicare does, or we see a lot more splitting on the commercial side and very tailored models that reflect the utilization patterns of the private pay population.

Natalie Trebes (25:58):
In the realm of physician partnership, which I know you are very interested in.

Rae Woods (26:02):
Always.

Natalie Trebes (26:03):
There's a real question of what is the different relationship that a health system, that a health plan, a purchaser has with these new corporate-backed physician practices that are really growing. And there's a world where the industry really focuses on using those practices to circumvent the health system, the hospital, specifically. There's also a world where health systems embrace those models and think more holistically about coordinating care across a local market and place a little less importance on their hospital volumes.

Rae Woods (26:40):
Is it obvious for individual stakeholders or individual organizations to know which direction makes the most for them, or do you have any guidance to help them understand these are the paths forward. Here's the side that I want to end up on and that I can actually make active steps towards making that a reality.

Natalie Trebes (27:02):
When we look at all of them together, it's not a perfect fit, but I think there are some general themes of some of the potential scenarios or future states look a little bit more like coordination across different industry players and somewhat of a organization of ecosystems, and so that's probably a world where large incumbents are successful and smaller organizations need to make sure they see a niche for themselves where they can be a complement in that world.

Natalie Trebes (27:34):
There are other scenarios where the industry moves to more chaos on the one hand, but also freedom on the other hand, right? So there's a lot of different models that play flexibility, movement going on in the market, and that's where a really nimble organization might be successful, if you're able to adapt and rapidly move through the environment that's created. So depending on your own characteristics, you might want one of these scenarios over the other, but you also have to be aware of what are the characteristics of other organizations that are going to influence the direction this goes.

Rae Woods (28:12):
Possibly in the opposite direction that you want.

Natalie Trebes (28:14):
Yeah, exactly. And so this is all about knowing yourself, knowing your competitors, knowing your partners, and seeing what you might want, but also what they might want.

Rae Woods (28:25):
Well, Natalie, Ashley, there is clearly so much for us to unpack when it comes to the state of the industry, and that's one of the reasons why we have so many conversations about specific markets and about specific stakeholders and about specific challenges. But for now, I want you to tell our listeners the one thing that they should take away when it comes to the state of the healthcare industry.

Rae Woods (28:49):
Ashley, let's start with you.

Ashley Antonelli (28:51):
It is a very noisy, chaotic, urgent time right now. And we are clearly at the tipping point of a lot of big strategic dynamics. What healthcare leaders and their team should be doing is figuring out what their true north is. What is the one strategic priority that they don't want to stray from and using that to guide them as they make decisions on how to navigate their paths forward.

Natalie Trebes (29:26):
And I would just echo that, but in the opposite sense, you also have to know what you're not going to be able to prioritize. So decide what you're scoping out, what is okay to let go of because otherwise, you will struggle to have that one priority be your true north.

Natalie Trebes (29:44):
I also want to say you can have one cheat issue that you just love to pay attention to and indulge in that. Just tell your team that you're doing that, so that you're not feeling distracted in your spare time.

Rae Woods (29:57):
I feel like you're speaking to us when you say that and all of our side hustles, research we do off the side of our desk.

Natalie Trebes (30:08):
It's okay to have a passion project. It's okay to scroll Twitter.

Rae Woods (30:13):
Well, Ashley, Natalie, thank you for coming on Radio Advisory.

Ashley Antonelli (30:18):
Thank you, Rae.

Natalie Trebes (30:18):
Thank you.

Rae Woods (30:24):
Look, I get it if you listened to this conversation and are feeling a little bit defeated, but I'm not sure that's the right answer because the truth is, you have agency to shape the future, and the very real decisions that leaders make today will have an outsized impact on your long-term goals.

Rae Woods (30:46):
You can learn more at the link in the show notes because remember. As always, we're here to help.