← Becker’s Healthcare Podcast
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- [00:02]
A
This is where healthcare leadership comes together. Becker's 16th annual meeting brings more than 3,500 hospital and health system executives and nearly 800 speakers to Chicago, April 13th through the 16th. This year's event includes keynote conversations with Dallas Cowboys legend Troy Aikman and former President George W. Bush. For the agenda and event details, visit Beckershospitalreview.com and click on the Events tab in the upper right, click. We're looking forward to hosting you in Chicago. This is Alan Condon, back with another episode of the Becker's Healthcare Podcast. And today I'm thrilled to welcome back Nicole Stallings, president and CEO of the Hospital and Health System association of Pennsylvania. I'm also delighted to be joined by Igor, Bella Krynitsky and Ran Struhl, who are both partners leading the health practice at the management consulting firm Oliver Wyman. So, Igor, before we begin, I'm going to hand it over to you for those of our listeners here at Beckers who mightn't be as well acquainted with Oliver Wyman, do you mind giving us a little bit of information, information about the company, your areas of focus and expertise?
- [01:11]
B
Of course. And thanks for having us on to have this important conversation. So, as you mentioned, Ron and I, our partners in Oliver Wyman, we're a global management consultancy. Ron and I specifically work in our health and life sciences team that serves health organizations all over the world and certainly here in the US to help them solve their most important strategic problems, undergo transformation, and ultimately deliver better care for everyone. And we're very excited to be a part of this conversation.
- [01:42]
A
Fantastic. Very much reciprocal. So without further ado, we'll dive right in. I think at the time of recording this podcast, it's early February. It's following that Oliver Wyman report commissioned by HAP a couple of weeks ago in mid January. So I believe so. That report, essentially, Nicole, warned that up to 14 hospitals could potentially close in the next five years or so without significant policy intervention, really threatening access to care and the regional economies across Pennsylvania. Nicole, that's my very brief intro of the report. You're a lot more well equipped to kind of answer and share some more detail than I am. But can you share a little bit more about the backdrop of this report and how it came about?
- [02:24]
C
Thank you and thanks for having me back on. You know, I recall when we did the podcast back in the spring, we talked a lot about the importance of telling our story and the story that only hospital and hospital leaders could tell to policymakers. And we also know that we really need to bring data to that story. But the headlines are also telling a story about Pennsylvania, including for Beckers, when they highlighted service reductions and grow maternity care deserts when there were hospital closures. And so we started talking about the need for this report well before we knew what was going to be in HR1 and what that would mean for our hospitals. Because we wanted to understand what was so unique about Pennsylvania. How did we compare to other states? Importantly, we wanted to project that forward and say what would it look like if we didn't have policy change? And then finally, what are the policy areas that would be most impactful given this trajectory? And I have to say it was just fantastic to work with the Oliver Wyman team. They, they really brought deep experience and data to this analysis which really highlighted why Pennsylvania's hospitals face greater challenges than their peers elsewhere and what we can do about it.
- [03:55]
A
Yeah, and I think that's a great kind of jumping off point just to stick with you for this one, Nicole. I know. Time of recording we saw some very, very minimal things pass in terms of the partial government shutdown, some federal Medicaid DH cuts, for example, disproportionate share hospital cuts, elimination for two years. Small stuff happening at the federal level. But what do you see as the most immediate action that state lawmakers could take to really prevent further hospital cuts, closures, really preserving that access to care in Pennsylvania?
- [04:28]
C
Hospital sustainability really starts with addressing the structural deficit that our report highlighted. Largely, it's Medicaid reimbursement that is driving the financial challenges that Pennsylvania's hospitals are facing. And you know, Medicaid reimbursement doesn't cover the cost of care in any state.
- [04:48]
A
State.
- [04:48]
C
But Pennsylvania lags behind other states. And this report demonstrates that Medicaid reimbursement in Our Commonwealth was 11 percentage points below the the national median. So for us, the most important action as well as the most immediate opportunity was addressing the structural deficit. And I say immediate opportunity because our governor just released the budget for our state that has to be approved by the end of June. And so our advocacy for the next five months is going to be hyper focused on ensuring that that final budget includes investments that move us closer to sustainable payments for hospitals and what they really need to continue to provide care that communities depend on. That looks like massive maximizing allowable Medicaid reimbursement, but also really bolstering funding for distressed hospitals. But I'll say our advocacy has to go beyond the budget and address the other factors that were outlined in this report. Be it persistent workforce shortages, really burdensome and outdated regulatory environment, and also restoring balance to our state's medical liability environment. Because once again, Pennsylvania is an outlier. We have the high cost per capita of medical liability payouts among all states. And this isn't an issue of quality. Pennsylvania's hospitals provide some of the highest quality care in the country. But we do need partnerships really at all levels of state government to address the crisis, to advance some common sense reforms. And all of these factors, Alan, are our state policy levers. And it's really state action that can help preserve care in our hospitals in Pennsylvania.
- [06:44]
A
Yeah, just saw that Governor Shapiro recently proposed that budget for the year, I guess. Nicole, just a quick follow up to something you'd mentioned earlier there. In terms of those investments for sustainable payments for hospitals in an ideal world, in a realistic world, what might that look like?
- [07:00]
C
Pennsylvania already has a fund for distressed hospitals. We would like to see a five year commitment to really boosting the funding available there because unfortunately, we know, and this report demonstrate that in the coming years, the financial pressures are going to really increase exponentially for our hospitals. We need to have funding to support care. We also have the opportunity to increase Medicaid reimbursement for our hospitals. Fee schedules haven't been updated in decades. And so we think there's a real opportunity there as well.
- [07:37]
A
Yeah. Yeah. Nicole, last question for you. And I'd love to turn it over to Igor Aran to kind of dive a little bit deeper into the report. But from your conversations recently with the hospitals in your state, how are leaders talking to you in terms of how they're balancing short term cost savings with long term sustainability planning?
- [07:57]
C
You know, one of the first questions that we asked Oliver Wyman to help us with was where the opportunities were. We wanted to hold up the mirror to understand where we as a hospital community could improve. And the report demonstrated that hospitals have been putting in the work in terms of cost savings and efficiency. Our cost per discharge was nearly 30% lower than neighboring states. It was growing at a slower rate. And so that's very positive. But on the flip side, what that means is there aren't a lot of rabbits that hospitals can still pull out of their hat. And for years, some hospitals have had to have some really difficult discussions around their board table and make those decisions around the future of services, partnerships, investments, facilities, because that's the reality that we were facing here in the Commonwealth. But what I know to be true for every hospital is they don't just want to survive in this Very tumultuous time. They really want to thrive. And so we took that to inform the way in which we engaged our state agencies as they developed the Rural Health Transfer Transformation Plan application. Really looking at where the opportunities were, where investments were necessary to act as a bridge for those hospitals to prepare in the future to sustain cuts and continue to be there for their community. We know that those opportunities are around workforce development, infrastructure and technology. And so workforce I'll focus there. First, it's critically important, I believe, as an advocate, that when you approach policymakers and ask for support, you're able to demonstrate what you're trying to do on your own to address a problem. And our hospitals for years have been building local pipelines, partnerships, starting their own schools of nursing and health sciences, and yet there is still opportunity for support from policymakers. And AI is another one. And this is featured prominently in our report. It is a workforce multiplier. Certainly we have many of our members that have dashboards right now tracking the thousands of hours that have been returned to providers so that they can be where they need to be, which is at the bedside. And we know that it boosts both provider satisfaction and also employee satisfaction. But we also know that there's considerable promise in producing additional efficiencies with AI around supply chain and scheduling optimization, the ways in which we interact with payers. But I do have two concerns. One is related to policymakers. We want to make sure that we don't over regulate AI so that our hospitals are not able to innovate. And the second is a digital divide. We have many hospitals that are leaders in the way in which they are using AI, but we have others who haven't quite taken that first step yet. And so I think there's a real opportunity there to kind of bring those groups together and ensure that we're providing them with case studies and governance documents and reviews of different products because we don't want those hospitals to be left behind. And the Rural Health Transformation funding can certainly help us there. But at the end of the day, while hospitals are certainly trying to play a role and to help solve these problems locally, they cannot do this if they don't have margins to make the necessary investment. So this really brings us back to haps role as an advocate to these policymakers and that real focus on reimbursement and policy change.
- [11:38]
A
Yeah, no margin, no mission, and indeed, no mission, no margin. From what I heard from one recent cfo, Nicole, so greatly appreciate your insight there. Respect all the work that you do at hap. Igor ran to Nicole's point. There's a lot in this report clearly outlines the very real challenges the Pennsylvania hospital providers are facing. But I think also clearly outline some of the unidentified some of the opportunities for investment, for progress down the line, too, I guess. Igor, maybe to you first around, whoever wants to kind of fill me in in terms of methodologies for this, outlines that. What methodologies did you use to project that 12 to 14 hospital closures over the next five years and maybe if you could share what assumptions underlie that estimate.
- [12:24]
D
Yeah, that's a great question, Alan. Thank you and delighted to be here. I would say first, it's important to note that that number 12 to 14 hospital closures in five years is a number we hope we won't get to. So that's under an assumption and scenarios where there are no interventions and no support of the nature that Nicole was illustrating earlier. So should there not be any change in course and speed, we may indeed see that, and we definitely hope we won't, per your question specifically. So we don't have a crystal ball. Right. And so we can't predict the future entirely, but we, we can do a number of things, which we did. We looked at historical financial performance of hospitals across the state, unsurprisingly, and obviously that's a national phenomenon. When a facility is consistently operating at a loss year after year, that's a very strong predictor of about to be close. And we've seen that in Pennsylvania and we've seen that elsewhere. And we have identified a group of larger than 12 to 14 hospitals in Pennsylvania that are suffering through these significant financial pressures. We also looked at the nature of the entity that owns the hospital and its ability to sustain a facility that may be challenged. And we know that single hospitals or smaller entities are more challenged to overcome and support areas where they are challenged financially. And then finally, we also looked at the historical rate, right. And unfortunately, Pennsylvania has experienced a closure of between two to three hospital facilities per year over the last decade. So just by that extrapolating forward plus identifying a group of hospitals at risk, we came to should there be no intervention, we may see a 12 to 14 hospital closure. I do want to add, Alan, it's important to note the hospital closure statement takes a lot of attention and headline, as it should. But we should know that hospitals don't close in a day. Hospitals don't operate perfectly one day and then close the next. Those closures are preceded by a long deterioration in a sense of the services they offer, the access they offer, the scope of physicians and expertise that they offer. So while it comes to the news and people's attention when the hospital close, the community has suffered or felt the consequences of that deterioration in services over a period of years leading up to that closure. So the closure or the impact of impeding closure starts years before the facility actually closed their doors and continues of course, afterwards.
- [15:21]
A
I think that's such an important point, Ron, in terms of, especially in some of these smaller, more rural communities, hospital leaders, the community itself, really do everything in their power to keep that, to keep that hospital open. No doubt we'll see a slow trickle down effect of service cuts and whatnot before it unfortunately ultimately becomes an enclosure. But I think that's an interesting kind of area for a quick follow up question on the larger impacts of hospital closures. Maybe Igor or Ryan, could you talk a little bit about the variety of factors that were looked at here in terms of those larger impacts, whether it be jobs, the local economy, healthcare access. Would love to get a little bit more insight there as well.
- [16:00]
D
Yeah, yeah, again, that's a good point, because it's not just healthcare at the end of the day. Right. So first of all, we need to note that again, these hospitals that close not always, but often tend to be in smaller towns, rural areas, where in many cases it is the major employer. And we've predicted hundreds of millions, up to 900 millions of wages lost if these hospitals indeed close based on kind of the wages that hospitals provide, generally speaking. And in these communities, the hospital as the main employer really supports the economy. And there's ripple effect, secondary and tertiary ripple effect of what happens when these wages go away and people can't afford to support their local communities. There's also other implications, of course, to healthcare. While the local hospital closes, the surrounding communities and the surrounding hospitals feel that. So the local residents need to drive longer to ED's or to deliver babies, and the surrounding hospitals feel the pressure because the need is still there. Typically, the fact that the financial situation is not supporting a hospital doesn't mean that the people that live in the community don't need health care. So they need to drive further away and the surrounding hospitals become fuller. The experience at the emergency department or elsewhere deteriorates and their surrounding communities bear the brunt of a hospital that closed in a neighboring community. So there are essentially implications both on the economy, on the wages, on the development of the local town or community, and in the surrounding communities, in their own access to care as well.
- [17:49]
A
I'm curious, how does Pennsylvania's Hospital financial profile compare with other large states with similar demographics, similar Medicaid populations. Are there other states facing challenges as ac as Pennsylvania is, or is Pennsylvania more at risk considering the variety of challenges we just talked about and then Nicole identified at the start of the conversation and in this report, Igor, maybe anything to add from you there?
- [18:15]
D
Absolutely.
- [18:16]
B
So hospitals all across the country are in distress. There are, as Nicole said, some factors that are unique to Pennsylvania. One is just across the board, both public and private payers, Pennsylvania's hospitals get paid less for their care that they provide, the excellent care that they provide than the average for the country. So excellent care, below average reimbursement. And also Pennsylvania's hospitals end up with lower bond ratings than hospitals across the country. So again, that makes it more expensive to borrow, harder to invest in the necessary people and facilities and capabilities. So you have this reimbursement issue. You have some additional costs that Pennsylvania hospitals bear. In particular, the medical malpractice environment in Pennsylvania is particularly complex and ends up being very costly for the hospitals. And then as you project it forward, the situation becomes even more complex. When you look, for example, at the impacts of hr, one, for Pennsylvania, it hurts in two ways. One is it further reduces the reimbursement, and two, it will really shrink the pool of people who are eligible for Medicaid. And so as many as 300,000 Pennsylvanians could lose their Medicaid coverage. They still need health care. They just won't have a program to pay for it anymore. So you have this combination of reimbursements that are below and the costs that are rising, they're creating the structural deficit that Nicole talked about.
- [20:04]
A
Granted, no crystal ball, and we know the level of work that's being done behind the scenes and on the front lines from fantastic leaders like Nicole, like Hap, from an advocacy standpoint, does this report look beyond 2030 if no policy changes are made, no significant policy changes, should we say what does that financial trajectory of Pennsylvania hospitals look like beyond 2030?
- [20:29]
B
So we, as Ron mentioned, we defined a range of scenarios. There is a scenario in which, as you say, no helpful changes are made, and then things continue to deteriorate. Because it's not just about health care. It's about the state's economy. It's about jobs. And as if we fail to protect access to great health care, that means employers are less interested in locating in the state and creating jobs. And that just continues this vicious cycles where there's less money to pay for great healthcare, fewer jobs, and it continues. We projected this vicious cycle of economic decline that accompanies the decline in access to healthcare. We also looked at a happier scenario where there are necessary steps taken by the various stakeholders by the state. The hospitals are able to take full advantage of the promise of technology and get to a more sustainable financial footing. And then of course as you start going from kind of a five year time horizon to more of a ten year time horizon, you start seeing much bigger swings potentially from things like clinical innovation, technology, demographics, policy becomes a lot harder to predict. But the overall direction, again we hope that sanity prevails and we make good choices and set the state itself and the hospitals on a path towards sustainability rather than this vicious cycle of imbalance and structural deficits.
- [22:14]
A
Yeah, let's hope. I think hopefully that the happier scenario when the sanity prevails ideally is the best path forward and hopefully we move somewhat towards it over the next couple of months. No doubt with a lot of the great work that you two have done with this report that happened, our leadership with Nicole. Nicole, maybe a last question before we wrap up. Just technology has popped up time and time again in Ron's comments and Igor's comments and your comments. No doubt such an opportunity when we think about AI revenue cycle helping with some of the staffing shortage maybe that some of these acute community rural hospitals are experiencing I guess kind of where do you see for the, the biggest impact for technology to play in offsetting somebody's costs really helping to preserve access to care in the, in the near term for some of these struggling hospitals?
- [23:01]
C
Yeah, we, we don't envision it as an option. It really is a mandate we believe for hospitals to be able to optimize technology and in particular AI. We were certainly pleased to see some action taken at the federal level to enable more around telehealth for example. That's, that's critically important. But there's so much opportunity with AI and so that's certainly going to be a focus for our organization and partnering again with these leaders that we have in Pennsylvania and elsewhere for, for our hospitals as we move forward.
- [23:35]
A
Yeah, I think Nicole Ra and Igor, a real pleasure speaking with the three of you today, shining a light on some of the very real challenges facing Pennsylvania hospitals and access to care. But also some of the great work that's been done by the likes of hap, Nicole and hopefully moving towards somewhat of a sanity prevailing and some better scenarios and investment where it needs to belong for hospitals. Thank you so much for your time. Really, really appreciate it. Look forward to catching up with you again down the line. Thank you.