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Thanks for joining us on this week in Health It Influence. My name is Bill Russell, former Healthcare, CIO for 16 hospital system and creator of this week in health. It. A channel dedicated to keeping Health IT staff current and engaged. Today we are joined by Rob dha, retired CFO for UPMC, strategic Advisor for Health Catalyst and board member at Way Star.
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You could also go to today in health it.com. And now onto today's show. Today we are joined by Rob dha, retired CFO for UPMC, strategic advisor for Health Catalyst and board member at Way Star. Good morning Rob. Welcome back to the show. Morning Bill. Great to be here. Are all those things still accurate?
You're still a board member at Way Star? Absolutely. Great, great company making great progress growth. Great to be associated with them and, and Health Catalyst as well. So same, same story, bill. Keeping busy. Well, Westar did a few ad spots on the US Open Golf event this past weekend. First time. I've seen that.
Maybe they've been out there before, but that's, that's big time stuff. It is, I think establishing as a national brand, trying to create awareness with the, the market and the products and, and they, they were well received. Great commercial. So if you haven't seen it, check it out. But yeah, exciting times.
It's really, the growth story's been great, so, uh, it's exciting. And people who are watching this on video will notice that you have a, a new setup. You look great. The sound is great. And you're preparing to speak at the, the Virtual Health Catalyst conference, which is coming up in, actually it's a couple months out, isn't it?
Yeah, it's actually in, in September. And so I've got my new equipment here for my virtual recording. So this is the dry run, um, in using the equipment. So yeah, this is kind of fun. I, and I think everybody's upgrading their, their equipment, just 'cause we do so many of these calls, it's. Kind of amazing, but they really hooked you up pretty well.
All right. They did. So I'm gonna walk you through this. The last time we spoke, last time you came on the show, we were going through the JP Morgan conference, which I think sets up the conversation for the year from a financial perspective. If people haven't heard that episode, I highly recommend they, they go out and download that.
It was, uh, right around the January timeframe. And what I'd like to do is, let's pick up where we left off. So in, in January, we were in a very different place. New administration vaccine was developed. We're in the midst of a distribution process. We didn't know how fast we were gonna be able to get it out there.
Government assistance to healthcare was starting to show up in the financial numbers. Virtual visits had receded somewhat from its peak, but they, they were still significantly above the previous levels that were established, and volumes were still not completely back to pre pandemic levels in, in many cases.
Where do you feel like we're at today from the conversations and, and the things that, that you're experiencing? You know, it's interesting. I, I wish there was kind of a one answer, a homogeneous answer for all the health systems, but it's really a mixed bag and I think it's, you, you start to see some positive signs with volumes returning and, and some level of
Moving from either losses to slightly positive or or reduced losses. And, and when I say this, I'm thinking all without the government assistance revenues. So you see some positive moves, bill, but I, I don't think there's one story to be told. It's really dependent on. The size of the health systems that we're talking about, there's really a different story for what's happening with the larger systems versus the small and medium sized systems.
I think they're different stories geographically, and then as we've talked about, certainly those that have, uh, a payer side or a risk side, it's a much different story and those. Those risk-based contracts and those with insurance enterprises have done very well and have really, it's acted as a buffer with, uh, volume losses over time.
So it's really a mixed story and I don't know that we have enough clarity yet to see where we're going. It's, I. What you do see in general is that the emergency room volumes are down, but the acuity is up. You still see softness in inpatient admission, but I think it's like everything with post pandemic, right?
When you go into the pandemic and you come out of the pandemic, whether it's our dining habits, it's what we watch in terms of entertainment, it's travel. It's return to office, right? All these things. There was a, a standard or a way that things were done before the pandemic and now we're all conjecturing.
What's going to happen as we come out? I think the one thing that we know is they're not going to be exactly the same, right? Everything. Our consumer preferences have changed our. Our entertainment has changed our, everyone has different ideas about return to office, so I don't know why that would be any different with healthcare.
It's not going to be the exactly the same that it was before the pandemic. And then the question is, what does that new new world look like? But I think it's probably six months or a year from now before we'll really see what, what the new normal is. It's, it's interesting, I, I, I literally could pull up articles that say the exact opposite things in terms of where we're, we're going, like around telehealth, around inpatient volumes, around people coming back to the hospital or not coming back to the hospital.
I mean, literally, and, and there's studies. It's like, Hey, we did this survey. We're finding this, but it, it really is, it, it it really is all over the board. And what's what's interesting about it though is if you think of an industry that's ever had . Tremendous inertia. It is healthcare. So you have an industry and an infrastructure with tremendous inertia that wants to carry it back to the way things were.
But you have these market forces, these massive market forces, whether it's the insurers that we've talked about, whether it's these private equity investments around disrupting healthcare, whether it's employers who are looking for a, a, a new way into the future. Heading in the opposite direction. So it is really this, this clash of two overwhelming forces.
So I don't think it's easy for, for anyone to predict how it's gonna turn out. So, so the economists out there, the Kaufman Halls and others are projecting negative margins through the end of the year. And again, for, for larger health systems, that's not that big of a deal. They have the cash reserves and they can get through that, but for the smaller players, that's a significant conversation.
That's a boardroom level conversation to have those negative margins. Going through the end of the year, what kind of impact will that have overall on healthcare? And I, I'm not gonna ask you to predict whether it's gonna be negative or positive margins, because again, it really depends on the market and a lot of other factors.
But if there are negative margins through the end of the year, what kind of impact will that have? I think you're going to see, and, and we've seen this already. A, a widening of the gap between the haves and the have nots. And so these market pressures just make it more and more difficult for small systems to one, weather those losses, but two even, uh, emerge on the other side and, and be able to make the investments and the changes and the, the moves to digital that are needed to survive in this changing world.
So I think it's, unfortunately, the large systems will figure things out. They will thrive, they will acquire. Entities that it makes sense geographically, but you're gonna have an issue with rural areas, with smaller health systems and, and unfortunately, I think even the gap between commercially insured in terms of the services and the amenities that they have and the hospitals they can access and those.
Medicaid population and the uninsured. So I, I think it's, in a way, this widens the, the gap in terms of the, the level of care and the types of care available to, to the population. Well, we could, we could go down that road for a while. Let me, let me pull back a little bit because you, you mentioned some acquisition things and we're starting to see that come back online.
That really went by the wayside for the better part of 12 months, if not 18 months. Beaumont, which is Beaumont.
LifePoint and Kindred Healthcare. Are these distinct deals or do they represent something, some larger trend that we're gonna see? I think the larger trend are these systems, and this is on the acquire side, really being, having proactive boards. That's. See the, the challenges in the future and are looking to protect healthcare in their areas.
So I, I see the strategy from the, uh, acquired and one of the things you, I've seen in a couple of these Bill is that they usually involve some massive IT transformation as part of the strategy. So I think . It might have been the Ochsner deal that was, there was an epic install that that happened prior to it, or right along with it.
And so this is a smart move for these acquired systems when they, they need a digital transformation or they haven't adopted Epic yet, and as part of that transaction, they're able to acquire that guarantee that the acquiring entity is going to fund that IT transformation. So I think you're gonna see, uh, a number of.
I'll call moderately successful mid-size health systems, where the boards are gonna make strategic decisions to say, look, I'm looking 10 and 20 years into the future and I want to maintain healthcare in my region. And the best way to do that is to partner with a large, strong national or, or super regional kind of entity.
To, to guarantee healthcare in, in the future. So I think that is, is part of what's driving the strategy. It's going to be difficult again, for the, the systems that are already financially distressed to find a partner, right? Because why would, uh, why would a successful system, unless there's a great, uh, geographic growth play, go after that distressed system?
So I do see more of it. I see . A world is gonna be very difficult to survive with hyper competition. And so m and a is the way to guarantee the future. Now, for the acquiring entity, I think is where you have to question some of the strategy. I've, I've personally never been a fan of, of the sort of mega. Y geography, acquisitions.
One of the, the, the biggest synergies of an acquisition is when there's contiguous markets and you're able to leverage infrastructure easily. You're able to leverage branding. You're even able to leverage your physician population and your specialists by being able to. Have clinics in those areas. Now, some of that you could say telehealth will, will help with.
And, and maybe that, that, uh, the amount of distance has been narrowed or shortened because of the telehealth capabilities. But I think it's a difficult play for some of these large dispersed systems to make a, a go of it financially. So I, to me, the jury's still out on whether these make sense for the kind of national plays.
Plus the, the risk of acquiring a financially distressed organization, I would think we saw Hahnemann close and there was so much ink around that and so much negative press around that. I mean, if you acquire a a distressed hospital, one of the things you're gonna do is you're gonna look at the effectiveness and the geography and where they place things and you're say, Hey, you know what?
We should close these five things. Bring the service lines together and do these kinds of things, but those kinds of moves become a lot harder in the public eye, don't they? Well, those, those deals usually don't get done right. Where somebody comes in and as, as their entry to say, well, look, we're going to affiliate with you.
We're also gonna close five of your facilities. So those deals tend to not get done. Bill Hahnemann, we could have a whole other session on that one and, and why it happened and, and what the true value is. But I think . , it is really about going in and understanding that there's some kind of a value in, in that acquired entity.
And if there are money losing today, can you do things in terms of, again, uh, reducing cost, leveraging shared services where you can flip them to positive and, and there's an opportunity with a national brand. Like a larger health system brings to make that a more attractive destination for patients. But, but again, these are, these are tough to turn around and, um, that's why I don't think you'll see many of the distressed organizations.
Hahnemann was a different discussion entirely. I don't know, we could debate whether there was ever an intention to turn it around. Right. So, yeah, because it's, it was private equity and, and the value of that real estate, given the turnaround that was going on in Center City, Philadelphia.
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I think there could be an IT motive, and you sort of alluded to this, there could be an IT motive for mergers and acquisitions moving forward. You have these cyber attacks and some of these health systems are sort of just throwing up their hands at this point and saying, look, we can't make the investments necessary to protect ourselves.
We can't make the necessary IT investments in the EHR infrastructure and the PAC systems. We can't upgrade these things. It was one thing to put 'em all in place as a result of meaningful use 'cause you got dollars for it. But now we're coming into that lifecycle point where we have to upgrade all these things or, uh, enhance all these things.
Plus we have to protect them from a cybersecurity standpoint. And do you think there's a, a model other than an acquisition that health systems can put together or will put together where there's a technology partnership, if you will, but not.
I'm not sure I could think of a model that would do that bill, because there's got to be a financial benefit to the acquiring organization for that affiliation. And it's, it's gotta be broader than just leveraging an IT spend. So it's kinda like what is in it for them? It's, it's great for the acquired entity or for the.
The entity getting that management services agreement. It's a broader discussion around where I think the nation's headed with healthcare, and we are headed towards having mega systems and super regionals because it's, it is a high cost, high fixed infrastructure business, not just with it, which is ever growing with more and more risks and, and more and more opportunities and capabilities with technology, but also with physical plant, with
Patient amenities with medical technology, healthcare is a very expensive industry and, and there is a level of fixed costs that you have to invest in and then, you know, create volume and revenue levels to, to overcome that, to stay profitable. So I think we're headed towards a new model, which is we're going to have these mega systems.
And then the question is . because again, healthcare is essential for everyone. How are we going to deliver healthcare to these rural areas, to the areas that, again, aren't well-served, that don't have acute and critical care nearby? And so is that again, this new model of telehealth with Hub and spoke it, it needs a re-imagining of the delivery of healthcare.
And the one thing that's in the way is this, this. Well, two things in the way is the current infrastructure of facilities and locations where you have rural and, and, and small hospitals. But you, you also have a situation where you have them being the largest employers in these, in these neighborhoods and regions.
And so now you're talking the . Political discussion about losing jobs. And in most of these neighborhoods and cities, they're the largest employer. And so now you're talking about job losses as well, to be able to create that new vision for the future. So if, if, I would say it's interesting times, if not.
Scary times for healthcare in terms of where it's headed. The, the only thing I can predict is that will, it will not be the same that it was. It won't stay the same bill. This is massive and major disruption that's occurring and, and how it ends up on the other side, I think is subject to all of our best guesses.
If you had a five-year plan in place, would you potentially be reevaluating all of that right now in light of what's going on? I. So if I'm, uh, again, again, I think the, the conversation's nuance to my large system or medium or small size system. Yeah. I would still think you're having the conversation, even if you're a small system, uh, because it's alignment, it's who you're gonna partner with, it's how you're gonna get access to resources and those kind of things.
If you're a larger system, aren't you? Five. It's hard to look out 10 years, but looking out five years and saying, okay, healthcare heading in this direction, result.
Things that are going to happen from a regulatory standpoint and new models of care that are gonna come out from the government, we should be heading in this direction. I wouldn't wouldn't. In both cases, you'd be looking at potentially a significant, not a significant change in strategy. It may or may not be a significant change in strategy.
Absolutely. I think as a, as a small to medium sized healthcare delivery system, I'm looking at my future. I'm looking at the path forward, and I, and I have to be looking at who I'm going to be partnering with to, to think that you're going to go it alone in that five year tenure year period, I think is ambitious and maybe naive.
So it's, it's really about what is the path forward? How do I partner to benefit my community to keep healthcare, to keep . As many services as possible close to home, potentially inpatient capabilities close to home. As a larger system. What I'm thinking of is, and I don't know that they all are, but the way I look at it, bill, is that this is a battle for being a.
Close to the patient or the member. And so let's talk about the insurers. Who is going to own the relationship? Is the health system going to own the relationship, be close to the consumer, or is the insurer going to own the relationship? And that starts with the digital front end. So. As the patient begins to think about healthcare, do they think about the health system or do they think about the insurer owning end-to-end their healthcare experience?
And the previous strategy for large health systems is that, look, I want to own pre acute, post-acute and everything in between. So it's this broad spectrum. I want to own all the services and I want, I wanna control quality and cost by owning all these services in in my home, basically. And it makes it easier to control and to.
Improve. And so the battle now I think is with insurers to say, the insurers are saying, look, we've got a better way. We actually own that life end to end, and we think we can provide a better way. So we're going to be closer to the consumer. We're going to provide the digital front end and and the relationship, and then we're going to steer that patient to the
Lowest cost, highest quality areas and sites to get healthcare services. And so that's a much different model. And so if I sit back as a traditional health system with the fixed costs that span that entire pre, pre acute to post-acute, if I start losing volume because somebody else's steering patients to other sites, that creates a real financial problem for me in terms of generating profitability.
And, and to me that is, again, this is the, the battle or the Goliath that's coming because the insurers continue and they've done this through the pandemic, and they're continuing at a very rapid pace to acquire provider capabilities. And it's, it's across the spectrum other than what I call quaternary.
ICU, they're gonna continue to rely on the health systems for those services. But everything else, bill, they're saying, look, we're, we're gonna put our bet on on another horse in terms of primary care and, and really owning the wellness of the patient and also owning that care path, where the care is going to be delivered and who's going to be delivering it.
So. Long answer to your question. As a board member of a large health system, I've gotta think about that. Can I truly own the patient end to end? And if the answer is no, how do I reimagine my system to do what, what you do very well and be the premium provider in that area? I. To ensure that I can stay close to the patient and that my cost footprint after start rethinking what assets am I going to own, what capabilities am I going to own and, and does it look the same five years from now as it looks today.
I love this discussion. I'm gonna put this in the context of an article, which I, I shared with you, which is a Harvard business reviewed article. Just came out on the 5th of June. It's five questions board should be asking about digital transformation. I wanna walk through these because I, I think they're, it's, it's interesting because in healthcare these, if we are going to maintain the relationship with the patient and, uh, create that digital, uh, not only the digital front door, but the digital experience across the entire continuum of care, we have to think about digital transformation to be talking about that.
And these five questions, I think are a, a pretty good backdrop to that. The, the first question is, does the board understand the implications of digital and technology well enough to provide valuable guidance? Now, I would assume now on your larger boards. And those in major metros, you're gonna have some technology players on that board who, who have seen digital transformation in other industries, or are actively active participants in digital transformation from a technology perspective or a data perspective in helping organizations do that.
But do a lot, do boards have this level of understanding of digital transformation and what it's gonna mean for the healthcare industry at this point. Well, I think again, it depends on, on probably the size of the health system because it's going to be correlated to the types of people that are on the board.
Medium and small businesses, yes, they have some transformation, but you know, they're usually later to the party on that. So you're looking at. People that have been on large corporations or large institutions, college and universities or other health systems where because of that size and, and the competitive markets they're in, they will have been through some kind of a transformation, whether it be digital now or something that was considered a transformation 10 years ago.
So I think it's the experience of those board members. Not necessarily having an IT background, but I think a business transformation background or having come through, through and from other industries that have had massive transformation and challenges. So it's really about, I think the experience of those board members, both the industry experience, but also their, what's kind of wars they've been through, so to speak, in terms of transformation in their own industries because.
There's nothing better than experience, I think, in these cases, the successes and failures that they've already seen in their own businesses and being able to relate those to the boards that they serve on. So it's absolutely critical. Management is ultimately charged with the transformation, but I think the board's gotta provide that level of guidance and, and insight and expertise, frankly, to, to help management chart that path.
The, the second question here is. It's probably good for us to bat around a little bit, is digital transformation fundamentally changing how the business creates value, and specifically how the business of healthcare creates value. And they cite one director who says the digital aspirations of the business aren't bold enough.
Businesses often settle on aspirations that are based on last year's performance plus, plus or minus five to 10%. But the pandemic has shown us that business leaps when. They go on to say too many board conversations fall to technology and how it can improve efficiency and cut costs. Investment horizons at many companies tend to be too focused or short term.
Amazon, in contrast, has had seven, has a seven year horizon for its investments. So digital transformation, is it gonna be sort of table stakes moving forward? For health systems to compete with the United Healthcare and the Optums and, and the Aetna CVSs and the others who are, are trying to figure out how to get into that, that direct relationship with the patient.
I think it's, um. There's also a risk of, of kind of overshooting the target too, by being too bold. So I, I saw the article where there was a mention that the, the dreams and aspirations aren't large enough, but there's real peril bill in, in aiming too far ahead and, and trying to be too predictive. And then you end up with something that isn't adopted by the patient or the consumer.
So I think there's a balance that you have to have. To me, I, I like to think you wanna focus your digital or your transformation on two things. One, which is cost effectiveness. So can that transformation substantially reduce cost or make you more productive? And secondly, what can it do to improve my relationship with my end customer, my end patient?
Does it facilitate an interaction, a patient visit, a consumer experience? So you want, to me, that's a, the twofold focus of the transformation is around . Getting close to the patient and enhancing the, the brand and the experience so that they walk away with an affinity for your organization because it's so easy to use or it's so easy to access.
And then does this make us more efficient, more effective? Does it reduce cost? And so to me, those are the two guide rails to face as opposed to try to . Be too prescriptive or predictive about what the world's going to look like in seven years. Because I, I would argue, bill, that there are as many wrong guesses as there were right guesses about the future.
And so let's go back, let's go back five years and would we have guessed that we'd be where we are now? And it's just tough to, to be in the prediction business as opposed to be in the value creation business. And again, the this is time tested, improving the relationship with the customer slash patient and reducing costs.
Those are two winning formulas in in business. They always have been. I think they always will be. So to me, that's where the board and management need to focus. Have the threats. Changed at all? Changed? Is it still a payer provider potentially and new entrant tech startups and those kinds of things? Has the landscape changed at all?
I think it has, and I know I, I, I like to joke that we, in, in healthcare on the provider side, kind of celebrate every time we hear that haven has not been successful or that Apple is retrenching or Google's retrenching. But I don't know that that actually. Again, you take these large entities and you instead disperse them into a bunch of smaller efforts.
I think again, there is real peril ahead for health systems and the private equity, uh, money is there. They're investing in digital healthcare. The insurers, I keep going back to them, they are, this is a battle for the future of healthcare and . All I, I'd suggest for all of your listeners to just simply read the analyst's reports and look at the investor presentations every quarter from the insurers.
And it gives you a good guide, uh, a good map of the strategy of the insurers and is absolutely to utilize their owned assets. It's an aspiration that . They lay out specifically the percentage of their own assets that they're using today for their members versus what they aspire to in the future. So it's absolutely has a bullseye on the traditional provider business.
So to me that is the, and I don't wanna even call it a threat, if we're thinking of this as a consumer, uh, and patient as an employer, this competition's gonna lead hopefully to better healthcare better. Outlook on costs. The, the pwc outlook for this year had a 6.5% increase in in cost this year, again, unsustainable in terms of GDP for us to be happy, we're satisfied with a 6.5% increase in cost in terms of a forecast.
So I think. The, these startups and these investments attempting to disrupt will only accelerate. And this is really, uh, a battle for the future of healthcare. And, and, uh, the things that we see come out of it will lead to the way healthcare will look five and seven years from now. Yeah. So from time to time I come across articles and I set 'em aside so that, uh, I.
Axios story about hospital billing and how top hospitals hound patients with predatory bill Billing was the title. Now, I think the title was a little unfair. I mean, right at right in the middle of the first page of the article, it says, 10 hospitals represent 97% of court actions against patients. So it's not like it's a common widespread problem, but.
There is a perceived problem, and anytime that happens, it gets national headlines and it represents it. It sort of reflects in the industry. But one of the things I liked about this article is they ranked the top 100 hospitals, uh, again with help from Johns Hopkins on, uh, five items, billing, quality score, predatory billing, grade hospital safety grade, charity care rating, and average bill markup are, are five of the things they had in there.
And then the other thing they say is that private hospitals have significantly higher markups than government or nonprofit hospitals. And I, I just threw out a lot of stuff there and I'm not even sure I wanna form a question yet. I'd, I'd love to get your sort of reaction to, to that story and the things that they put out there.
I thought it was a good article. I mean, you could argue over the individual measures that were used, and you're right with the, the lawsuits. It's literally there were, you know, two hospitals in Virginia. I'm not sure about the state of Virginia and why they're . There's so much litigation around patient bills, but, so I don't know that that's a large issue in healthcare, but it was thought provoking and, and it really an area that I have not seen many articles in the past that dealt with the kind of measuring the quality of charity care in, in the mission of these hospitals.
So I thought the measure on charity care was really interesting. And it's probably an area where we should see more. And if you think of what it really did to me, bill, is I thought about all the announcements that we see about new initiatives in healthcare. We, we hear about the new big buildings that are going to be built.
We hear about the, uh. Innovation centers and the investments that are being made in technology and startups to create new revenue streams. So we hear many of these business-like investment initiatives, but what we don't hear from a lot of the nonprofit hospitals are these bold initiatives around the mission and around the community and around charity care.
Right? Everybody reports in the nine 90, their information, but who is ? Is taking pride. Who is a trendsetter? Where are the new innovative charity care programs? Where are the, the new bold, uh, $50 million, $100 million Investments in community health and in charity care. And I can't think of any that I've heard.
Now, again, I'll go back to the insurers. The insurers will talk about these things in terms of social determinants of health because they own the patient life. . From a broad standpoint, and so investing in these charitable type things like housing and food security. Um, benefit them financially with lower medical expenses, but we don't really see that level of investment from traditional fee for service nonprofits.
So to me, what the article represented was really the first time in a while that a major publication has attempted one to quantify nationally the efforts. Of, uh, nonprofit hospitals, but really to me it was thought provoking. And this is probably an area of, if I'm a politician or a legislator, I may pick up on this to say, why isn't this something that with that tax exemption that is, is, is studied more, that is, uh, assessed more and that.
Hospitals are held accountable more for, so that I thought was the best part of the article. You can argue, bill, whether they're all the right measures, but directionally I thought it was, um, a, a good first start in something that probably needs a broader discussion. Yeah. Actually as you bring that up, I'm, I'm looking at the, the numbers and they're sortable by charity care rating and, and those kinds of things.
Do you think there's a sign.
I'm sort of scanning through this right now. Well, I don't know about this article in particular. In the past, I've, I've read articles where they've said that some of the, for-profit hospitals are delivering as much charity care as a percentage as the nonprofits are, which is, uh, a bit of a startling statistic, but I just view that nonprofit health systems haven't put.
Charity Care, charity and, and these social programs front and center. Now, there was some talk at JP Morgan. You heard more, more of that this year, uh, especially in light of the, the last summer and the George Floyd situation. There was, I think, more talk at JP Morgan about that. And it takes times to translate these from ideas and, and, and board mandates into action.
So I, I think, let's see what happens going forward. But yeah, that in the, the past analysis that that's been done has said that some of the, for-profits are rendering as much charity care as non-for-profits. Yeah, that's interesting. Uh, so interesting article from that perspective. The other one's probably a little more down to earth, a little more pragmatic and.
Article here about denial rates. So research has shown that about 85% of denials are preventable, but successfully preventing them requires strength in leadership and improved skills of hospitals prevention and recovery teams. Hospitals reimbursements reported a variety of high dollar concerns when it comes to denials.
Uh, 32% of respondents cited that their top concern is coding. And they also cited necessity of acute IP 20%.
Clinical validation. Um, and there's some other things in here, but they're saying it's in, in the danger zone in terms of somewhere, you know, north of of 10% denial rates. Is this just basic blocking and tackling at this point? I think part of it is, and this this goes to show the continuing importance of the revenue cycle.
So this, this could be a great pitch for Westar, but having that level of competency and excellence and process and it's, it's not only systems, but it's also people, people process and technology and the revenue cycle. The way to avoid those denials is to have a world-class revenue cycle department. Uh, and, and so that's really, uh, to me, blocking and tackling that's involved.
And, and we know that not all health systems do. So part of it is that, but you know, the other part of it is the cat and mouse game that has always been played between provider and insurer. And, and I know some of the, the larger insurers are accused of just denying a. Straight outta the bat. Straight outta the box basically is a way to extend the payment cycle and create, uh, difficulty and friction in the payment process.
So I think there's some of that as well. And it has to deal with the relationship that the, the provider and the payer have, and it's important to foster those relationships between the, the billing shop and then the disbursement shop on the insurer side. And then certainly with volumes being down, the, the kind of ying, ying and yang is always, when volumes go down, upcoding starts to rear its head.
So some of this could be because of the pandemic and the volumes. There's either an assumption or there's some truth to the fact that there may be some upcoding going on on the part of the hospital. So I, I don't, to me, this isn't new news, bill. This happens. It's sort of an ebb and flow all the time with the interaction between the payer and the provider.
But it gets back to, again, there's also a power dynamic as well. And as the, if the provider in that region has more power in terms of their, uh, presence in the market, sometimes uh, the friction reduces. And conversely, when the payer has more, more power in that region, sometimes these problems become more pronounced.
So, Rob, to close out our time, I wanna come back to the CIO. CFO conversation. So we potentially have negative margins through the end of the year. My budget had gone pretty much a majority operating and less and less capital, especially after the big projects were done. Uh, but we're still doing those big projects, right?
So EHR migrations are, uh, capital projects. As our ERP implementations and some of the larger systems still fall in that category. But there was a significant push, at least within our health system to move everything to operating as much as possible into the operating budget. Which means that my conversation with you, I would project, if you and I were running a health system right now, would be one around, okay, how can we be, uh, strategic around reducing our, our cost of running the IT asset.
Year in and year out. So the things that we just need to do all the time, we have to figure out how to be really hyper efficient, use automation, use the new tools that are out there and use them to their fullest. Not necessarily looking for new tools, but using the ones that we have. So we're, we're gonna be more efficient with what we have.
But there, there could be a case where you're coming to me saying, Hey, we, we need you to reduce some of your operating, uh, income. And if I haven't planned effectively as a leader, that usually means, um. What looks like sort of reactive cuts based on what's going on in the market, if that conversation's going on, how do I as ACIO convince you as ACFO that, Hey, you know what, that's again, I believe that's a, what I would be saying to you is I believe that's a short term horizon that we're looking at.
We need to, we need to look out a little bit beyond that. Yes, I agree. We need to cut our operating overhead of running our existing systems. In.
Future time is, is that the kind of thing that would resonate from a conversation standpoint with the CFO? Well, to me, the great CIOs realize that, again, they're not buying clinical capabilities to build an empire or for the benefit of the CIO. It's for operations, it's for the, the CMO, it's for the hospital administration and the hospital president.
So to me, the CIO becomes the facilitator and the translator to say. Hey, I'm gonna bring operations to the table. These are critical to operations in terms of how we're leveraging, whether it's Epic or Cerner or other clinical systems. And to me it's, it's a consumption discussion as well. If we're investing in these new systems, are we cons actually consuming them efficiently?
Are we consuming their capabilities at all? Have we fully implemented? And once we've implemented, are we actually leveraging the systems that we've purchased? So to me, . The great CIOs bring together the CFO and the operators to say, Hey, there, there's finite level of investment, whether it's capital or, or operating.
I think the, the good CFOs kind of look through that. This is, it's still a cash flow investment, but I. Is it necessary? What does it do to the clinical operations? How is it enhancing? Yes, we're gonna have patient safety investments that we need to make regardless, but for other systems in the clinical areas, is it somehow can we prove that it's enhancing quality, that it's improving the productivity of the physicians?
These are the the questions that need to be answered. That's the ultimate goal. Of the investment in that software. So to me it's, it's actually creating that communication between the, the operators and the CFO. So there is, uh, an ability to prioritize those investments and ensure . We're gonna make the right calls with finite dollars around the IT investments that actually move the needle in terms of the patient experience or the delivery of clinical care.
And, and I think we all know from past experiences, there are some systems that are absolutely critical to that, and they're leveraged. On a daily basis by all of our clinicians. And we know there are other systems which are more kind of a niche I'd call them, and that maybe some of the physicians are using them or some of the specialists.
But it isn't something that has a demonstrable, uh, ROI. So to me, the CIO is, is a, the best ones are communicators that can tell, tell that story so that the executive team, and I think team is the key word, financial. Technology and operations can make, um, great decisions around those finite dollars. You know, it's, it is interesting.
Chime had their summer forum this past week. This will be aired a couple weeks from now. But, but still, the Aaron Mary, who's the CIO at Dell Medical School and, and ut University of Texas Health System down there was talking about they were getting back to their normal process. Prioritizing things and, and the reason for that was during a pandemic, everything was sort of reactive and we were sort of changing how we looked at things.
And he goes towards the end of the pandemic, had people saying is we invest this, this of importance. And he said, we need to get back to those conversations where everyone's sitting at the table. And, and yes, we do, we now have rational conversations around the budget and the budget being applied effectively to the resources to meet our mission and meet our objective and, and having those conversations.
And he, he said, you, you really can't get back to that enough, that rational conversation. Are our investment actually delivering on our mission and objective and not that all these investments. But some are gonna move those, those move the needle further than others. And that's the conversation that we we're returning to post Pandemic and, and Bill, frankly, there's still a, A lot of systems will keep an IT budget centrally, and so they'll call that a corporate expense.
It's a corporate expense, and I would argue. Conversely it, it's actually very little as a corporate expense. You're gonna have an ERP system and an HR system, and you can call that corporate, if you will. But what we've found is, and again, go back to the earlier discussion we had about this expanse I have of, I'm in every business.
I'm in pre acute businesses, I'm in post-acute, and I'm in every specialty. Well, there are are in many cases, software packages that are supporting those individual lines of business, and there's a. There's an EHR that's supporting your clinical business. So when I talk about, and we've done this in the past about service line profitability and true business profitability, having that visibility, uh, in terms of, again, activity-based costing and knowing that if I've got a, a cardiology IT system, I need to burden my cardiology service line p and l with the cost of that IT system, not call it a corporate expense.
And so to me, again, it's understanding that cost of, of it. It's, it's a cost of operations and making sure it's in the right bucket so that I'm assessing the relative profitability of all these different pieces of business that I'm managing. So you probably hear this a lot because I've taken the conversations we've had on the show and I've had conversations with CIOs and some other executives, and they just look at me and go, that's too hard.
What you're saying is too hard. It's too much, too heavy of a lift. Have we gotten better at it? Have the systems gotten better? Have the processes gotten, gotten more baked, that it's not as heavy a lift as it as it once was? Absolutely. That's, that's healthcare from 25 years ago. Talking. Frankly, it's a losing mentality to say that there aren't, I mean this, I'd say this is easy.
I mean, there are systems, I'm not going to name them. There are systems that are IT specific and we used one at UPMC and during my tenure that was IT specific that helped us to allocate those costs to the actual consumers of the IT infrastructure. And we also even went into the, the servers who was consuming the computing capability, right?
Because it, it matters and so it's not too hard. That's a cop out. It, it's actually relatively easy if you've got a committed management team and a committed finance team, and it's, uh, it's actually extremely insightful. There are learnings that come out of that consumption analysis that really change the way that you think about the different businesses that you're operating in because it's pretty easy to run a profitable business if you strip out these significant costs, isn't it?
I, I laugh when you see these. Even in the external financial statements, you'll see a, a line called corporate and it, and it's a very large line item of expenses. And again, there are some truly corporate expenses, your c-suite and, and in some areas which are strictly overhead, but. A majority of your costs are related to your clinical delivery and, and those need to be burdened on the clinical p and l or on the service line p and l.
It, it's actually far from being too hard. It's actually, to me, it's, it's quite straightforward and part of it is the 80 20 rule. Right? Don't get bogged down in the 20. Just let's, let's take the easy one, the EHR. Shouldn't be that hard to split that across you. You get usage reports that are coming in almost on a, on a minute by minute basis of the system.
You could do it to that granular level or you just say, Hey, here's the cost of running ther for the year, and divide it out. On, uh, based on any number of factors. Absolutely. The greatest thing about it is it makes the p and l owner accountable for the IT spend. And, and why, why shouldn't they be? Right?
Because if the CIO is accountable for the IT spend, well, and, and I'm the clinical leader, well, I'll take everything. I'll take the Cadillac and, and I, I'll take more because it's actually not in my budget. You wanna create a culture of accountability so that clinical leader, um, and you want to empower them to say, well, look, I really think this is critical to my success, so I'm gonna invest you, give me a number of dollars that I'm going to spend, and then let me make decisions around what the priorities are.
So I am going to invest in these three things, and I'm not going to invest in. These three things and when the budget is housed somewhere else, it becomes really difficult to do because again, then it's his or her problem, not my problem, because they're the CIO and they have the budget. No, the CIO budget should actually be very, very small.
Well, that's, yeah. I hope that not the IT spend, not the IT spend. No, I know corporate budget. No, I get that. Where does the investment in the future go? Where does the, the, the new digital tools, the new AI and machine learning, the new data and analytics tools where we're trying to transform how healthcare is delivered with data, uh, where, where does that future investment go?
As an executive or as a ci CEO, what I would say is . Because I could answer to you, like, put it in clinical, if it's a clinical investment, put it in clinical. But I think from ACEO thinking about this, I wouldn't want to stifle innovation and, and maybe wouldn't wanna box them into my current results to, to make them less able or likely to make an investment in the future for that.
So it's RD budget. Create, I would likely create a separate r and d budget and innovation budget to allow us to experiment and to do innovative things without the burden of the current day p and l, if you will. So that's innovation. Sometimes an area you wanna seed in a in another p and l and not have the constraints of the day-to-day profitability that's on the rest of the business.
And then you just have to be careful whenever you create those pools of money, people. Tend to find them and, and somehow pull them into operations and pull them out somehow, or, or use them as a dumping ground basically. Right? But it all gets back to good, good management and good oversight. And if you have those, you, you can do this stuff successfully.
Rob, always a, uh, great opportunity and I appreciate you coming on the show. Great to have this level of conversation with someone with your experience. Great Bill. Always enjoy our conversations, so thanks. What a great discussion. If you know of someone that might benefit from our channel, from these kinds of discussions, please forward them a note.
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