Strategies to build your cost optimization

- [Heather] Hello everyone and thank you for joining today's webinar, Building your 2023 Cost Optimization Strategy. My name is Heather Vollmer with Optum and I will be your host today. Before we begin, please note the following housekeeping items. At the bottom of your audience console, are multiple application widgets you can use to customize your viewing experience. If you have any questions during the webcast, you can click on the Q&A widget at the bottom of your screen to submit a question. We do capture all questions and we'll be providing follow up to questions as appropriate. If you experience any technical difficulty, please click on the help widget. It covers common technical issues. You can expand your slide area by clicking on the maximize icon on the top right of the slide window or by dragging the bottom right corner of the slide window. There is a survey widget, which you can use at the end of the webcast to provide us with feedback on today's presentation. Additionally, this presentation uses streaming audio. You may listen to the audio through your computer speakers or headphones. To ensure the best possible system performance, please be sure to shut down any VPN connections and connect directly to the internet. Presenting today will be Dr. Aaron Mauck Vice President and Executive Partner at Advisory Board, Optum. Eric Young, Vice President, Optum Advisory Services, and Michael Bobola, Senior Vice President, Optum Market Performance Partnerships. And with that, I will hand it over to Dr. Aaron Mauck to take it from here.

- [Aaron] Thanks, Heather. Thanks everyone for joining us today to talk a little bit about cost optimization, some of the challenges that we're seeing in 2022, 2023 and beyond, and some of the strategies that you can put in place to address the extraordinary set of circumstances we've found ourselves in, in the last year and going forward. I'm Dr. Aaron Mauck. I work on this a lot. I'm glad I can join you to talk a little bit about what we're seeing from the market. The plan for today is to have a brief presentation where I'll talk a little bit about the dynamics that we're seeing in that market and then have a conversation with Eric and Mike around what they're hearing from the market and some of the opportunities that we see for addressing some of the issues related to cost. Now, obviously there are myriad challenges that we're confronting at the moment. I can't boil the ocean, I only want to talk about a few of them. But from our perspective, there's only a couple that we need to kind of really highlight and orient ourselves towards as we go into the conversation. The three that are probably most salient from our perspective are certainly the economy, the broader economy. The healthcare environment follows the economy to a degree, but is also unique. And there are some unique drivers of cost that we're encountering in healthcare right now that are not orthogonal to broader economic issues, but are a little bit sort of unique and we have to effectively address. But certainly broader economic forces are playing their role, especially the economic forces related to the supply side, the labor market, right? So either the sort of dynamics around labor saw stories today about what's going on in New York. We know what's going on in the labor market when it comes to healthcare, it is challenging but also broader supply dynamics, right? As people consider, you know, outsourcing or insourcing from the supply chain perspective, inflationary effects in the role that they're likely to play. All of them have an impact on the healthcare space, certainly on the provider side, but the broader healthcare space as a whole. And we need to take those into account. That's the supply side and some of the dynamics around supply. They're also demand dynamics that we have to attune ourselves to. Obviously COVID hasn't ended and although we've gotten into a degree of a groove in addressing the challenges of surges and some of the dynamics that happened within the hospital space in relation to this, there are compounded health crises and broad ones that need to be effectively addressed or considered as we think about the future. And those demand dynamics continue to play a role. And then how we're getting reimbursed of course is a factor as well. We have sort of a unique set of circumstances in terms of the reimbursement structure at the moment, both around Medicaid and how Medicare and Medicare advantage is evolving. And that has an implication certainly for the provider space, for health systems and some of those dynamics. And then broadly we have to understand the way in which the ecosystem as a whole is changing, right? Obviously the focus for a couple decades has been on things like horizontal integration, lots of mergers and acquisition. Dynamics are changing though, of course, and we know that that's true as providers seek out diverse business lines to try to sustain themselves more deliberately, but also of course as other agents across the healthcare space, including payers, create their own kind of economies of scale and verticalize. So we'll talk a little bit about all of those dynamics just very briefly and then I'll turn it over to hear Mike and Eric's perspective on some of these issues as well. All right, so let's look a little bit at the economic dynamics. Obviously, you know, as we look at what's happened in the last year and going forward, we see some unique challenges that have to be effectively addressed. Now, if you just looked at raw utilization, it would look a lot like it did back before 2019 or so. If you just look at raw utilization for many systems, not all systems, many systems have returned close to where they were prior to the pandemic. But there's a lot of variation that gets hidden in its statistic like this. And we kind of know that the fact of the matter is that utilization is a little bit different. If you look at inpatient utilization, we have seen significant shifts in some markets away from procedural volumes, towards medical volumes and those inpatient admissions, obviously those have reimbursement structures and those have implications. Things like length of stay have extended. And ultimately under those circumstances, even if you have high utilization, it doesn't mean you're having the same kind of revenue structure that you had prior to the pandemic. And then of course, things like elective procedures or testing volumes haven't fully bounced back to where they were. And those, to a great degree, drive revenue and drive financial sustainability for many hospitals and systems. And we all know that that is playing a role in relation to this. The cascade effect of that has been pretty significant. It's larger than 69% now, we're still looking for the full numbers from 2022, but it's considerable percentage of systems have reported operating margins considerably below pre pandemic performance in some cases. That's certainly true on the non-profit side. It's also true to a degree on the for-profit side, although there are some notable outliers. Now those are challenges that have become existential for certain hospitals. Certainly some certain health systems, but those challenges are not likely to stay in the hospital space. They have cascade effects. Unsurprisingly, every hospital and system is going back to payers and plans and asking for rate increases. That's understandable. But of course that means that at some point the consumers themselves will experience an effectiveness in terms of things like higher premiums and we're already seeing leading edge higher premiums and we expect that to continue. In the long run, right, this reflects a broader contraction to a degree of the loose money that was floating around for some time in the space. And we see much more capital scrutiny in the last year than we have seen over the previous several years. Probably the most significant element of this has been labor, right? Another statistic that probably is a little out of date now, but if you look at the median labor expense per adjusted discharge and compare 2019 to 2022, you see about a 40% increase in the median expense for adjusted discharge for labor costs, it's higher than that now. And if you go to some markets, it's considerably higher than that. Now, there has been a little bit of a labor alleviation, but obviously in certain markets that's still a considerable driver of cost. And even if you get the cost under control, the contractual challenges and some of the challenges that we're seeing of course with union activity are likely to continue and likely to drive some issues related to cost and cost management. Now, the broader economy is also something we have to consider. And obviously when we look at some of the issues that we've encountered, we all read the news, we know what's going on, it's an adverse climate for healthcare. You can just look at some of the data points in the center of this slide here. Those are all broad considerations and of course those are all increasing considerably and not really big signs of alleviation. Now obviously there are two paths out of this. One, we effectively mitigate in a way that stabilizes our economy. And we have the soft landing issues. Certainly there are some signals that point in that direction. Two, we over mitigate and we run into some sort of hard fall from a recession. And really it doesn't matter what you call it. I mean, whether we end up having a sort of a mitigated environment where we have a soft landing or we have a hard recession, the dynamics in healthcare are largely the same and they are driving many of the challenges that we know that we are seeing. Those are not likely to fully alleviate in 2023. And we know that systems are gonna have to be very deliberate on finding strategies to do more with less. Mostly, you know, as we said, this is over-determined, but the ones that are probably most significant for us to look at still in are around labor and labor space. And this reflects a kind of a downward spiral we've been in for some time that we're starting to pull out of, but really are gonna run into challenges for some time to come. This is most obvious in the context of things like clinical labor shortages and of course we have weakening labor pools across most clinical categories. The most significant is probably on the RN space. This, when I talk to health systems or hospitals about the challenges that they see in labor, they'll always point to this slide, say, "We can kind of resemble this model", but let me orient you to what you're seeing here. Broadly what we've heard from CHROs from across the provider spaces that they started to see challenges with staffing in early COVID, probably before this to some extent, there were pretty significant symptoms of 10 years ago in some degrees around staffing. But this became an acute challenge in the early stages of COVID, which drove a certain percentage of individuals out of the space. That insufficient staffing has kind of a cascade effect as we found. Once you lose a staff member, your likelihood of losing more increases exponentially. And this reflects the general sentiment across clinical categories of labor of why they leave. They choose to leave primarily for the reasons that you can see on the top of the left of the slide here. Number one reason for attrition is perceived insufficient staff. If you look at the other reasons, they're pretty much aligned with that to workload intensity, emotional toll, don't feel supported. All those are related to having a degraded care team, largely as a result of insufficient staffing or inconsistent staffing. And as you lose more staff, the net effect is largely that you end up having to invest in a different kind of fashion to keep units whole, which has meant increased spending on agency and travelers across 2021 to some degree across 2022. Much of that has gotten alleviated because systems have started to develop their own staff plans. But let's face reality here, there are no quick solutions to this, right? It takes time to develop the right kind of labor pool and right kind of chain of command to ensure that you're getting new staff in, attracting staff early. Probably going into high schools or even middle schools to attract the right kind of folks. That's gonna take 10 years, right? This is gonna be a long-term play. We may see some staff come back, but the fact of the matter is this is going to be a challenge for us for some time to come. Now this is generally talked about as the great resignation. It's not just hit healthcare, it's hit a lot of sectors. It may have hit healthcare much more considerably, but it is generally perceived to be some sort of mass retirement resignation wave. The fact of the matter is that this is a little bit of a misnomer in the context of healthcare. We drill down into the numbers, we have not found vast attrition from the sector as a whole. What we have found though is a pretty significant realignment in terms of where staff want to go and where they choose to go. Largely away from the traditional incumbent hospital or health system towards some of the disruptive or new inference, right? That have a shiny new value proposition to potential employees. So hospitals and post acute care settings have had it the worst. I hate to even bundle them together 'cause post acute care settings have gotten hit significantly worse than hospitals in some ways. But they run into the greatest challenges. And of course things like med-surg units getting hit the hardest. Physician practices to some degree, but those folks aren't really leaving. They turn out to be moving. A lot are looking at things like big tech or big retail or startups as an alternative opportunity, an alternative space to go to, which may offer a different and kind value proposition. Some have certainly moved to ambulatory. And as we see the growth in ambulatory, this is one category which saw a net increase in labor over the course of '21 and '22. And we anticipate that to continue as the footprint, the care footprint evolves away from the traditional hospital to some degree towards outpatient services and towards the ambulatory space in particular. So it's much more greater realignment than a great resignation. Obviously, however, this is going to have implications for cost structure for hospitals and health systems. Thinking deliberately about that value proposition for employees is gonna be a huge factor here. And certainly there is going to be some investment requirements to bolster the labor pool and the labor supply going forward to ensure that we can still stay stable and hold. And that this isn't sort of a continuous drag on expenses. So this constitutes a pretty significant challenge. I'd say there are many supply side challenges and I'm sure that Mike and Eric will be able to speak to them to some degree also in addition to staffing. But certainly staffing has been one of the salients. On the demand side, we see slightly different pressures. Obviously COVID is still a factor. We're seeing surges. I live in the northeast and of course there has been a surge up here over the course of the last couple weeks, with the new variants. But it's not just that. And in fact a lot of the concern that I hear from hospitals health systems is around things like behavioral health. In particular the challenges associated with staffing supply or just unit supply for things like inpatient behavioral health services. Just having enough folks to be able to manage the challenge. So you see the data in relation to this of course on things like self-reported symptoms of anxiety or depression. But the fact is rising risk or higher acuity in behavioral health needs have grown really sizably and we just don't have the supply match. And this constitutes a pretty significant challenge. Obviously with the changes in the legal environment. There are reproductive care access issues that are going to have implications state by state. And from you think from a regulatory perspective or just a care delivery perspective, you have to be much more attuned to those dynamics across individual state lines. And if you're a big system, this has challenges associated with it. And then of course there are broader public health concerns above and beyond COVID. If you ask any pediatric provider, they'll tell you all about it, right? All of these constitutes significant challenges for us as we devise a strategy for both maintaining our financial sustainability under a set of clinical challenges that are evolving rapidly and ensuring that we're still engaged in the right kind of care provision, have the right kind of footprint. I think this will constitute a challenge. Obviously smart folks from across the finance and strategy side are thinking deliberately about all of these factors, but they do have implications that are pretty strongly financial and effect cost structure that we have to consider as we go forward. Now these are clinical implications. There are some broader payer related implications we have to consider as well. And this reflects the coverage mix we currently have under the conditions of the public health emergency and the ways that's likely to evolve over time. So, I think there are exogenous factors that have driven the cost structure in an adverse way that are principally clinical. Things like extended length of stay have had big effects, things like care team challenges have had big effects. But there have also been factors related to payer mix that are playing a role. Mostly the shift away from employer-based insurance onto managed Medicaid that occurred during the public health emergency. As you can see, primarily as folks lost their jobs early in the pandemic, most of those moved on to managed Medicaid and the public health emergency allowed for a suspension of existing rules on managed Medicaid. Which allowed those roles to stay very large. And there was a pretty significant increase. Well, public health emergency will end, who knows when? It's certainly not ending this month, but when it ends, those rules will come back into play. They'll take a year to come back into play and there's gonna be a lot of mess that has to be cleaned up state by state to make sure that this works. And folks will either go back onto employer-based insurance, many are eligible for employer-based insurance, who are now on Medicaid or will go back to the exchanges or go back to nothing but whatever they go back to, of course that means that the reimbursement structure is gonna change, payer mix is gonna change in ways that aren't quite considerable and we have to be attuned to it. Now all these dynamics, growth around demand, around supply and just the broader economic circumstances in which we find ourselves have implications for how hospitals are trying to manage this weather, this storm, if you will, and find some ways out of it that are both a path back to growth in some cases, but certainly a path just back to financial sustainability in others. And that's driving some probably in the direction of M&A. Now there are certainly arrows pointing in both directions when it comes to broad M&A. There are challenges with doing it. You have to ensure that your cultures are correct and obviously our particular field is littered with the bodies of failed mergers and acquisitions where things like culture got in the way and we all know, but there are factors that may drive M&A deals to increase as well. Mostly related to the sort of financial considerations and opportunities for coverage. Now we mostly, these are not gonna be small deals anymore. The number of small deals we could even have is pretty limited. Just the scale of the enterprise has changed so much that what we're looking at is more mega deals of certain types. And we have seen several over the course of the last year. So although the number of deals has increased, the size of those deals has increased pretty considerably and hat has potential to continue to evolve over the course of 2023. Now there are some regulatory considerations we have to be attentive to. We have seen a much more activist FTC in this administration that we've seen for some time and they've signaled that they are going to go in an antitrust direction when they can. And obviously that mostly relates to things like mergers where you have continuous geographies, where there's some crossover in the markets. Any where they have a pretty strong proof of concept on how to challenge those and have successfully challenged those in the past. This may explain why some of the deals we've seen over the course of 2022 looked a little weirder than they had in previous years. Either non-contiguous geographies or kind of unique sort of spaces in the market. It's much harder for them, the FTC to challenge those. Similarly, it has been very challenging for the FTC to find a good wedge in for things like vertical mergers, which is driven to verticality pretty significantly as well. So all of these are worth us considering as we go into our conversation in a few minutes. But this more or less reflects the the lay of the land and some of the unique challenges that we've seen over time. I think with this in mind, I wanna turn it over to the audience for a quick polling question and ask you all of you on the line, which of the following is most central to your organization's cost rating? Where controlling fixed costs some of the sort of pressure that we saw early in the presentation, identifying more opportunities for removing costs or realigning costs to more strategic areas or just improving your efficiencies or something else. So just take a minute, put in your response, just click on it and we will go to our results in about a minute. Okay, looks like we plateaued it about 30, which makes sense. That's still, that's 55% that's better than the voting population in the United States. So let's shift it over and sort of hear what the results are. Take a look. All right, a little bit of variation. Controlling fixed costs is pretty low, which may not be surprising. There's only so much you can control, but it's interesting to see. But looks like there's pretty much almost even split across those other three categories. I'd be curious actually for Mike and Eric, does that surprise you or is that consistent with your perspectives on what you'd expect out of this?

- [Eric] Yeah, I think it's pretty consistent with what I would expect.

- [Aaron] Yeah, probably reflects like the diverse markets that we're seeing folks coming from and these sort of unique challenges. I gather that everybody who chose this probably would've chosen all of those simultaneously 'cause they're all sort of pretty core priorities in relation to this. That's right. All right, well with that in mind, I wanna turn it over to Mike and Eric a Little bit more extensively and start hearing I think from you because both of you are out in the market a lot. And are hearing about some of these challenges on a day-to-day basis. So maybe we start with a question, we'll start with you Mike, and then maybe you can turn it over to Eric. I know both of you, because both of you work pretty closely, you're probably hearing in your day-to-day interactions where clients are confronting these challenges, what are you hearing from them? Which are seem to be the most significant challenges that they're confronting at present?

- [Michael] Yeah, thanks Aaron. And going back to that last question in the poll, it doesn't surprise me only because each of the different health systems we work with have pretty unique challenges based on their geography and really what those local market challenges are, their demographics. Certainly I can see different priorities emerging depending on the folks that are on this call today. Here's what's consistent though. Number one, the rising costs that we're seeing out there severely impacting the ability for these health systems to invest in new areas of growth and innovation. I think there's been a lot of chatter the last 24, 36 months around things like AI, ML how to improve clinical outcomes, a lot of it being technology based. And as the capital starts to dry up and people start to get squeezed a bit, all of those investment dollars are going back to sort performance areas that just basically keep the lights running, make sure they're optimizing the systems they've invested in, and it really is stifling some of those future growth plans. We're also seeing it really limit the ability for health system to take gambles and bets on new exciting technologies to try to get those step changes. Only because now we're facing a point where, whoever they choose to partner with whatever technology they wanna deploy, they're stuck with it. The cost of changing directions or moving strategy is just too high and there isn't enough capital out there to spread around. So there's certainly some hesitancy, some slowdowns in that decision making and I think some fear and trepidation around making the right investment when there's so many new things emerging every single day. So rationalizing where to invest and how to purchase in that growth and innovation space is becoming more and more difficult for them. The other area I'd say is in talent getting squeezed for cost in a place where, as you pointed out, you know, talent is reorganizing and realigning where it wants to spend time and energy. So as you're competing with different VC and PE back organizations in some local markets where you want best in class IT and digital services, but you might be in the same neighborhood competing against the Amazons, the Dells, the IBMs of the world becomes quite challenging. So getting squeezed from all directions here, but we do see some hope coming around the corner that we'll talk about in a little bit. Eric, any thoughts there to add?

- [Eric] Yeah, I think, more the strategic and the cash implications, I think you covered really well, Mike. I think from my perspective, the focus on margin improvement seems to be pretty aggressive today as well, right? We see pretty big gaps from a margin expectation standpoint. We see a lot of hospitals struggling with, you know, lack of margin means lack of cash as well. And because there's multiple challenges today, I think what we see quite a bit is that there has to be multiple solutions as well. And with sort of the quickness of how all this came about post COVID as well is requiring quick solutions in short term order to be able to right size the financial situation organizations as well to stay in compliance with, you know, their debt covenants and other, you know, legal and regulatory requirements that they're required to stay in compliance with as well. So historically, right, I've been healthcare 33 years, this is probably the most challenging time in healthcare that I can remember. Historically, you've been able to just focus on one item, right? Typically as rep cycle or supply chain or some workforce productivity focuses to kind of correct the margin gap to kind of accomplish your goals. But today you have to have multiple solutions are needed to sort of close that gap. And as you mentioned, Mike, innovation is critical to how we close some of these gaps over the long term with all the challenges that Aaron kind of covered early on in the presentation as well. So, those are my thoughts.

- [Aaron] Yeah, so basically everybody that's happens to now lean in everywhere to effectively address that and that constitutes a pretty significant challenge. Mike alluded to, you know, the issues related to one's ability to drive strategic priorities forward being significantly compromised in relation to this. I'd be curious, Eric, how are you encountering that? Are you seeing that in your conversations as well? In what ways is this impacting their broader future strategic approach?

- [Eric] Yeah, I think from, you know, at a high level with the majority of our clients or my conversations, we're feeling a lot of pressure on the cash position overall, right? Due to margins, due to the COVID stimulus dollars sort of ending overall. And so, I think what we see is there's a lot of decision making that needs to happen as it relates to strategic investments, right? New capital purchases, investing in new service lines, recruiting, you know, different types of physicians specialists to your market or even just new market share growth as well. So, going through, you know, having to kind of decide on which initiatives are top priority and then investing those dollars is wisely as you can to get the greatest return that you need for your communities in your market, I see is a big challenge that a lot of organizations are facing today.

- [Aaron] So that, on that precise point, do you have any advice on how to evaluate those expenses and start to create those lists of priorities and how to sort of put your pennies in the right place given your experience?

- [Eric] Yeah, I think that you have to have a really good strategic plan. I think that the data and the analysis that you put in that plan relating to demand expectations and market share growth has to be pretty specific and accurate overall to help make those decisions as well. Each community is different, right Aaron? And each community, the community needs are much different with the exception of behavioral health and some of the other items we discussed overall. So I think as it relates to how they evaluate their priorities, I think they need to focus on their community needs assessment, you know, what their community needs? What are the most actionable items that they need to focus on as well to be able to make sure those investments are appropriate, not just for the health system, but the health system serves a community. And so make sure those investments are right for your community as well.

- [Aaron] Hmm, that's good. Mike, do you have any thoughts on that as well? Where do you think organizations should begin when they're starting to evaluate these expenses?

- [Michael] Yeah, one thing I think that's important is making sure that organizations zoom out. And, you know, what we're often seeing is these focused initiatives in certain areas of clinical or administration or IT. What's critically important I think, is for leaders to zoom out and make sure they understand the implication of the entire strategy and how that impacts all of the constituents, functional areas and cost centers. Sometimes areas of improvement or focused cost cutting in very specific parts of the organization have unintended consequences and impacts on other parts. So oftentimes we see these initiatives that are fantastic in this piecemail narrow view, but not understanding how it can impact things either upstream or downstream, where the clinical workforce intersects with the revenue cycle workforce, which intersects with the IT workforce. Those are all critical parts of that strategy that need to be considered. The best way to address that, frankly, and we're seeing more and more of this in the marketplace, is really making sure that we have this multi-functional governance set up so that we have constituents from both the clinical teams, from the administrative teams, from the infotech teams, all participating so that everybody can offer up their view and perspective on what that strategy's gonna look like. And it's not just self-serving some individual fiefdom within the health system, but really taking a look at it in the context of that whole health system strategy to understand how is this benefiting the patient, the providers, and ultimately the economic health of the system.

- [Aaron] Right, and of course, as you sort of suggested. If you have good effect multi functional governance, it's not only gonna impact economic health, but probably the organizational health of that as well. You get every stakeholder kind of aligned and happy with what's going on. So there are many sources of cost, obviously. The two that I alluded to in the conversation to some great degree or workforce and supply chain, which as we know constitute, you know, something like 70 to 80% of all healthcare costs overall. Maybe going back to Eric, maybe you can provide some insights on how organizations are managing costs in both of these areas right now. What are they doing that's successful?

- [Eric] Yeah, I think where we see most of the success in supply chain and labor is really sort of getting back to sort of traditional fundamentals in those areas. This is part of it, not all of it, but a big part of it today. And so for us it's about, you know, what we see as successful is a focus on governance of those initiatives. We talked about multiple initiatives to solve multiple, you know, challenges overall. So is there an effective governance? So, you know, governance overlay that sort of monitors and manages all these activities. Is there transparency throughout the organization? I think transparency in today's healthcare market for healthcare employees is very important because leadership can't solve these issues alone. Especially in workforce when you're doing workforce process mappings and process redesigns, you need staff to help you focus and help re-engineer their workflows overall. I think change management communication plans are very important. Again, those are all related to transparency at a high level as well. I think data is important. I think healthcare systems are challenged by data, accurate data, you know, having data scientists and analytical group that can produce real-time information to be able to help ensure that the organization's focus from a margin improvement perspective or a growth perspective is important. And so I think having some investments in analytics is important. And I think predictive analytics are more important today than ever with the challenges in the workforce and the challenges from a supply chain and purchase services arena, right? The better you can predict, the better you can plan for growth or you can plan for patient contraction as well and be able to proactively address those issues before they become, you know, too big of an issue overall. And I think lastly, you know, accountability in the healthcare system I think is key as well. It has to start with leadership, it has to be pushed down throughout the organization, but accountability within healthcare as it relates to these initiatives, margin improvement or growth focus needs to be real to be able to sort of sustain sort of the results that organizations need to right size their margin, right size their balance sheet so that they can invest in the future.

- [Aaron] Now Eric, you mentioned both data and predictive analytics, both of which have been highlighted for several years as opportunities for just improving care productivity, even by small margins that could have a pretty significant effect. And we kind of know that existing analysis suggests that even a small percentage increase in productivity could probably offset the cost problem as we currently encounter.

- Yeah.

- [Aaron] I'd be curious maybe starting with Mike, what are some strategies that health systems can put in place now to improve efficiency, help to remove some of the administrative burden that we see and start to move the bar on productivity a little bit?

- [Michael] Yeah, and coming from a many years spent over in the provider side in the revenue cycle and finance departments. My focus has always been on how do you allow the clinical workforce to operate top of license? So how do we create an environment where we're eliminating rework and making sure that administrative burdens aren't continuously transferred back to that workforce? Some of that's through technology investment, but, I wish I had something more profound to offer here. The truth is, it really goes back to basics and making sure that we start by mapping and understanding processes. How are people spending their day-to-day and then ensuring that that work is transferred to the appropriate personnel and the right level so they can operate top of license. Frankly, what we see often is that, again, stepping back and trying to understand the whole system of what's happening from a clinical to administrative standpoint, you have to really focus on the fact that as we have new contracts and managed care, new payer engagement rules are developed, new technologies to capture information and coding are created. We have to understand the impact of that on the clinical workforce and make sure we're not continuously burdening them with things that are taken away from their core purpose and focus on patient care. One other thing I would mention here is that often as we start to focus on data and analytics, a lot of time we tend to pick those metrics and those things that best serve our interests. So I think it's up to leadership to be the biggest skeptic in the organization, make sure that, you know, as they say, if you interrogate the data long enough, it'll confess to anything. So I do think that there's a huge burden on leadership to really take a look at the metrics that they're operating against and frankly subscribing to multiple sources when they look at things around length of stay and quality and really trying to triangulate where the issues are. And not just focus on all of the good, but try to really interrogate and be skeptical about areas for improvement.

- [Aaron] Yeah, data hides a multitude of sense, doesn't it? Often enough. Eric, what about your thoughts on this? You have some ideas?

- [Eric] Yeah, I think Mike kind of mentioned a little bit too, right? Open yourself up to benchmarking is still key. You know, what level you establish your goals from a benchmarking standpoint is important. I think when I think about sort of the operating model in sort of the normal day-to-day operations of a healthcare executive, right? I think sort of this continuous process improvement on cost management should be sort of core structural fundamental activity of every executive team. And so, I think, again, being a previous healthcare CFO for more than half my career, right? We, you know, historically tend to be reactive to things. We wanna be proactive, but then we're fighting fires all over the place. And to me, I think, you know, creating rolling forecast in sort of the predictive analytics that I've already mentioned in trying to identify where the issues are gonna develop over the next 12 months or within your five year plan so that you can begin to build the task out to solve those solutions today proactively. And then develop the levers within your organization that you're gonna pull to try to help mitigate some of those future issues. I think that's key. I know our organizations do it, they try to do it. There's a lot of competing priorities, you know, as a healthcare executive, right? With joint commission and there's a lot of things that happen within an organization as well, but sort of staying on top of that rolling forecast, making sure you identify, you know, issues proactively so that you can solve them sooner, I think would be very helpful to solving the margin issues.

- [Aaron] So there's lots of strategies for managing costs. One of the things that we get questions on a lot is timing sort of practically reassessing your cost management strategy, of course takes a lot of resources away, it is a engaged process. How often do you think you should assess your cost management strategy over time? What should be the cadence of this knowing that it is a sort of a resource demand? Maybe Mike, you can start and offer your perspective and we'll turn it to Eric.

- [Michael] Yeah, I mean, I can speak with certainty as to what it can't be. And it can't be this annual or semi-annual planning cycle anymore. I think we have to approach it much the way digital governance has sort of emerged here. You start to look at things on a daily, a weekly, a monthly basis that's impractical for more organizations of, you know, mid to small size. They just don't have the time and resources. So again, we go back to technology and data and I think getting clear on what metrics we want to measure? Making those key parts of either weekly or monthly reports and then creating those committees or empowering people, lowering the organization and closer to where the operations are occurring. Empowering those people to make decisions, to adapt the strategy or to test impacts to those metrics is gonna be critical. But certainly, you know, we still see in some cases these semi-annual and annual planning cycles that are just too slow in this modern era to address the needs of the health systems. Especially with the mounting cost flows that we've been talking about here. Eric, anything else you'd add there?

- [Eric] No, I agree. Sort of, you added quite a bit to my last point, right? The rolling forecast versus just waiting to budget your budget season or, you know, your semi-annual financial review. I like to focus on sort of the predictive analytics in the rolling forecast overall I think is important. And I think just this accountability around sustainability is important too. I think we've all, when we are on the providers side, we also, you know, would make improvements and then sort of those improvements would decline over time as sort of bad habits and bad processes kind of creep back in. So I just think this continuous monitoring of the improvements that you've already made to ensure that they're sustainable and holding to the estimates that the organization has projected so that their value is returning to the margin as expected is important too.

- [Aaron] Yeah, so we've talked a lot about a variety of strategies for addressing cost structure. The most grandiose strategy for addressing cost structures largely related to M&A as we know, which is sort of the nuclear option in some degree, but M&A has significant challenges. We all know that those are there. I'd be curious from your perspective, as health systems start to weigh their options to address these challenges above and beyond simple M&A, you know, what are the other paths that are available to them, viable to them as they move in that direction, do you think? Maybe start with Mike and yeah.

- [Michael] Aaron, yeah, you nailed it. M&A as a nuclear option, there's certainly economies a scale to be gained through that, but there are also a ton of hidden integration costs. And as anyone that's been around in the industry has seen here, some of the largest mergers have taken years to achieve some type to really achieve the same efficiencies and gains that they modeled out initially before coming together. And that's for a myriad of reasons, but an important aspect of that is also culture. How do the leadership teams come together? Do they still support the same local community missions? That's a tough one. So that really leaves us with a couple of options here. I think there's the traditional DIY strategy, which I think is fine. If you have the talent that can execute on the strategy. If you have the capital necessary to take those big bets and those big gambles to move beyond incremental cost savings or incremental revenue improvement, that's fine. And there's fantastic advisory services that are out there to help guide you on those paths, but you do have to have the capital and the time. I think the other option that's emerging that you're seeing in the marketplace here is partnership. So how do you find a partner that shares the same cultural values, the same mission, the same acceptable behaviors, but can put capital to work, can help share risk either of execution, risk of investment ROI, but really find a way to access the marketplace to find someone to help advance the mission without having to go holy on your own, both from an economic, a talent management and a risk execution standpoint.

- [Aaron] Yeah, Eric, I wonder if you have some thoughts on this as well?

- [Eric] Yeah, and yeah, and most are similar to Mike. I think that leadership bandwidth is challenged today as well. And I think the turnaround time for the margin improvement is short term, not long term as well. So I think that can challenge sort of the M&A activity. In the short run overall, I do think there are a number of partnership opportunities, joint venture opportunities and other innovative ways that I think will enter the market this year and next year that will help healthcare organizations maybe stay independent still serve their communities in the way they do today, but have additional partners to help them either prop up their balance sheets, support operations or to do some of the fundamental departmental activities that don't need to be on site or have to be within a certain community as well.

- [Aaron] Yeah, yeah, I think there are dynamics on both sides. It's gonna be interesting to see what the future holds in relation to this. Certainly I hear of many systems and hospitals that are looking for options aside from full M&A and those exist out there and we're gonna likely see evolution probably in both directions going forward. Well, there's been a great conversation. I do wanna open it up to some questions from the audience. It looks like we already have some. I'll quickly turn it to Heather before we move into the Q&A for the remaining time that we have.

- [Heather] Great, thank you so much. Before we get started with the Q&A portion of today's webcast, we'd like to take a moment to remind you of the survey located beneath the slide deck area within your audience console. We'd love it if you take a moment to provide us with feedback on today's presentation. As a reminder, if you have a question, you could submit your question via the Q&A widget located on the left side of your audience console. And with that we'll go ahead and get started with the Q...