Abby Burns (00:13):
From Advisory Board, we are bringing you a Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. I'm Abby Burns. Last week on Radio Advisory, you heard three Advisory Board vice presidents debate the question of whether healthcare is really recession proof. Where they landed was that's actually not the most productive question to ask. Regardless of the technical economic terms, the truth is that healthcare leaders are staring down the barrel of new economic policies, regulatory changes, resulting in market dynamics that will impact your businesses.

(00:49):
And even though seemingly nothing is set in stone at this exact moment in time, you need to be scenario planning for the range of impacts these changes will have. This is especially true for provider organizations. I'm thinking of health systems in particular. And this is where we can hopefully help. Our quantitative experts at Advisory Board have been hard at work developing an impact estimator to help health systems size the range of potential policy impacts on their organizations. Today I'm bringing on the brains behind the curtain, or calculator, Advisory Board experts, Sebastian Beckmann and Deeksha Aleti. They're going to talk us through how they translate the chaos into numbers. And Advisory Board health systems expert Vidal Seegobin is back to help us unpack what the numbers mean for health system strategy. Sebastian, Deeksha, Vidal, welcome to Radio Advisory.

Deeksha Aleti (01:41):
Excited to be here.

Sebastian Beckmann (01:42):
Thanks, Abby.

Abby Burns (01:44):
We have spent a lot of time over the past six months or so telling healthcare leaders that they need to get serious about scenario planning amidst what we can describe as the heightened uncertainty, especially in response to a lot of the action by the current administration. And your team has spent hours upon hours, probably days at this point, making an updating an actual calculator that can help health system leaders understand and size the impact of the Trump administration's policies on their finances. That is huge. So first, just a thank you to you all and to your team.

(02:25):
I'll also say the entire reason we need a calculator is because there are so many different variables that can impact health system finances. A lot of them feel like they're hitting at the same time or they're going to hit at the same time and they're going to affect different organizations to different degrees depending on how big they are, where they are located and so on. Vidal, I actually want to start with you. I want to get a pulse check. You are talking with health system leaders every single day. Where are their heads at? What impacts are they bracing for? What does that bracing actually look like? How would you capture the mindset at the moment?

Vidal Seegobin (03:04):
So I'll say probably optimistically they describe themselves as strategically patient. So they are holding onto watch what signals feel unignorable and then making moves on that front. The challenge is that there's a lot of signals happening simultaneously and not oftentimes in the same direction. So I worry that there's a potential risk of them being complacent on issues where they think they're actually being strategically patient. That said, I think they are increasing their consumption of information. They're curious and voracious in talking to anybody and everybody to understand what they're hearing and what they're doing. And I think at minimum they're thinking about what's in their control to manage and scenario plan around and are aggressively doing that internally.

Abby Burns (03:54):
Yeah, it also seems like there's a lot of appetite to understand, hey, what are my peers doing, seeing, experiencing? Sebastian, Deeksha, I want to understand at the highest level, I guess this is taking us back a couple of months. When you set out to make this calculator to size the impact of the policy, some of the volatility that we're seeing in the market, how did you go about organizing what I might describe as something of chaos into a calculator that can try and quantify the impacts?

Deeksha Aleti (04:24):
Clearly there's a lot going on in the policy landscape, so we wanted to focus on ones that we can follow closely and ground ourselves on. So we took a two-prong approach. So we broke it into these external and internal drivers. So our internal drivers are the ones that are specific to your organization, so that can be your health system size, your payer mix, and your dependence on grant funding. The external drivers is actually then when we broke it out into those policy categories that are in line with the spending cuts. So those we narrowed it down to Medicaid cuts, Medicare cuts, ACA cuts, tariffs, cuts to federal grants.

Abby Burns (05:01):
Is that all of the policy variables that are on the table?

Deeksha Aleti (05:05):
No. But they are the ones that we're most sure about right now or ones that are already in place. So for example, we don't have site neutral payments on there, so it might get added in the future as we start to hear about it a little bit more and we get a better understanding on how we want to anchor them specifically in the tool.

Abby Burns (05:23):
Yeah. I also believe that they're not included in the most recent version of the bill, so understand we're not exactly sure where this is going there.

Sebastian Beckmann (05:30):
Reminder that we're recording on June 4th and things change every single week. So right now we don't have that included, I could absolutely see that being added to the calculator as we see more action from the executive branch.

Abby Burns (05:42):
That is a great reminder also just to speak to how nimble you all are being as these policies change over time to try and really reflect real time how can we get the most accurate scenario planning? One other thing I wanted to clarify, this model isn't assessing the impact of broader economic trends. Is this focused on policy?

Deeksha Aleti (06:01):
Yeah, that's correct. So the calculator only considers policies that have the greatest direct impact on health system financials. So what it doesn't anticipate for is changes to the wider economy, things like insurance coverage, utilization, benefits and other factors. The point and the goal of the tool was to anticipate this range of grounded impacts, but not to necessarily account for every possible thing that could be happening.

Sebastian Beckmann (06:27):
Yeah. And I do just want to recognize, you had the episode last week with Vidal and Shay, so we know that if there's an increase in unemployment and at the same time we see Medicaid cuts, that exacerbates the connection between job loss and uninsurance rates, which then compounds some of the effects that we're talking about in the policy calculator. So our goal is to give you a directional impact estimate based just on policies, other things equal.

Abby Burns (06:53):
Yep, that's a great call out. Are there other policies that are on the horizon that may get added?

Sebastian Beckmann (06:59):
I would love to be able to account for the impact of immigration policy as well. So there's a large portion of the healthcare workforce that has an immigration background. And we did talk to one member who said, 1,000 clinical employees and 100 of those come from a partnership they have with the Philippines to recruit nurses. And they're seeing a demand impact where fewer nurses are signing up with their partner to recruit into the US and they worry about the visa impacts. If we get gum in the wheels of the legal immigration process the way that we did in the first Trump administration, does that slow the time it takes to get those staff on board or do they come on board at all? That's hard to size. We haven't put that into our calculator at this point, but that's something that we're considering in future as well.

Abby Burns (07:43):
Thematically, what are the different ways that these drivers that we've been talking about are going to affect health system finances?

Sebastian Beckmann (07:51):
Yeah. We connected those six policy categories that Deeksha talked about with hospital financial line items. So for example, Medicaid cuts have an impact both on the cost side and on the revenue side. On the cost side, a larger uninsured population means more uncompensated care, which registers at a cost for health systems. On the revenue side, fewer patients with insurance means fewer patients coming into the door and getting services, which means less revenue for the health system. Downstream we anticipate a second order effect where if states have less funding from the federal government to support their Medicaid programs, they're going to have to cut either benefits or prices in order to balance their state budgets. So that's going to again hit patient revenue for health systems. So you get that cumulative impact, both of which hit margin from different directions.

Abby Burns (08:41):
Yeah, exactly.

Vidal Seegobin (08:43):
One thing that's interesting right now is given the idea of strategic patients, what I find most health systems are telling us they're focusing on is the organic growth elements trying to drive as much revenue and patient volume as possible. So I think everything we would've mentioned about access to ambulatory and revenue cycle and all those bread and butter blocking and tackling activities I think are all the more important for health systems as they try to do the first and foremost thing, which is improve cash position because all things being equal cash will probably get you out of whatever sticky problem ends up coming to the future. And so I think that's where most health systems are placing their pennies and effort right now. And I would also argue where they're thinking about costs, it's about spending time to ensure that those people who should be getting insurance coverage from public insurance models are getting that coverage because we know the connection between insurance coverage and seeking out care is very, very tight and so it is always to their benefit to make sure that that access and that coverage continues.

Abby Burns (09:48):
Right. Looking at, I think, the latest CBO estimate I saw was more than 10 million people potentially losing insurance under the current version of the proposed bill. Let's try and keep everyone that is actually eligible still for insurance insured. Sebastian, Deeksha, what is the data telling us? What are the bookends of how much impact this could actually have on health system finances?

Deeksha Aleti (10:13):
So if we take a mild scenario across the board, we could be looking at a negative 1% to negative 5%, whereas a severe, we're talking much larger margins ranging from negative 12% to 20%.

Abby Burns (10:24):
That's a negative 20% margin?

Deeksha Aleti (10:26):
Yeah. And this is just assuming a low system exposure. So these are pretty conservative estimates which are likely to grow as you add on larger impacts, higher system size, more payer mix.

Sebastian Beckmann (10:39):
Just to add to what Deeksha's saying, so she's talking about the change to the median health system margin, which is at that 0.1%. So you will have health systems with a 10% margin, they can take an 8% hit to margin and still be in the black. But you'll also have health systems that have a minus 10% margin today, they're looking at catastrophic margins.

Abby Burns (11:03):
Different systems are going to have different levels of exposure to these different policy areas. What kind of systems are going to be disproportionately impacted or hit harder than others?

Sebastian Beckmann (11:15):
So intuitively it'll be those systems with more exposure to the programs that are on the chopping block. So those systems with a higher Medicaid payer mix for example.

Abby Burns (11:25):
The other area of exposure that comes to mind, Sebastian, is research grant funding. I imagine that disproportionately hits AMCs. How do you think about that?

Sebastian Beckmann (11:36):
There's two levels I would think about. The first is research funding. And there's been great work put out there on the disproportionate impact on a small number of organizations. I think it was Hopkins and Columbia are just bonkers numbers they're going to lose out on. And then you see a pretty quick decrease from there on the research side. The second layer though is programming that's funded by federal and state grants. So this is things like mental health care, behavioral health, addiction services, any kind of population health services. A lot of those are funded primarily by federal and state grants and a lot of that has been cut. So that's flying under the radar a little bit, I think, there's an impact even beyond those research organizations to hit those that have a lot of different grant funded programming that isn't going to be revenue generating on its own.

Abby Burns (12:23):
Anecdotally, I've been hearing that there is increased interest from philanthropy organizations in funding things like behavioral healthcare. Which is potentially comforting, although comforting might be too strong a word, given some of the impacts you just laid out.

Sebastian Beckmann (12:41):
Yeah, definitely. And I think that's how you should be thinking about this. So I think you should be thinking about both what's the total impact that I'm likely to experience? And then what is the breakdown on my system of these different policies? And then how do I mitigate the impact of those specific categories? So how do I approach philanthropy and private funders to support the programs that my community has come to depend on? How do I support Medicaid beneficiaries and re-enrolling in care so that we mitigate the impact of work requirements on enrollment rates in our community? Which then has that downstream impact on your finances.

Abby Burns (13:17):
Let's just say again, June 4th, these policies aren't certain, they're not set in stone yet as the budget bill makes its way through the Senate. That said, Sebastian and Deeksha, you're painting a pretty tough picture no matter how the policies ultimately shake out of where health system finances are going to wind up.

Sebastian Beckmann (13:35):
Yeah.

Abby Burns (13:36):
With that in mind, what are the sorts of things providers should be thinking about to prepare now even before we know what's going to be in the final bill?

Sebastian Beckmann (13:45):
Yeah. So first you have to prioritize based on impact. So what are the parts of my business that are going to be hit hardest? And second, you have to prioritize based on time. So for example, if you're a health system with a lot of Medicaid exposure, then you need to prioritize any kind of action that's going to mitigate the impact of that. So that's the re-enrollment, maybe even with policy advocacy. That's starting a growth campaign to regain volumes in payers to compensate for the revenue decrease you're going to see on the Medicaid side. Conversely, if the greater impact for you is in tariffs, then this is probably the time to spend executive time on supply chain governments. This is time to investigate and work with your GPO partners in order to come up with the right arrangements that you have stable pricing for as long as possible.

Abby Burns (14:36):
So that's based on the size and where the impacts are going to come from. You also mentioned time horizon, where does that come in?

Sebastian Beckmann (14:43):
That's about when these are going to affect your organization. So tariffs, for example, they're in effect now, but they're not going to hit your supply chain until you have to renegotiate those through your GPO or through your direct vendor contracts.

Abby Burns (14:57):
Which might be now depending on luck of the draw or it might not be for another three years.

Sebastian Beckmann (15:02):
Right. And I think Vidal will keep me honest here, but I think those are typically on a five-year cycle, right?

Vidal Seegobin (15:08):
Yeah, usually.

Sebastian Beckmann (15:10):
The other side of that is the policy timing. So when we look at the Big Beautiful Bill, the Medicaid cuts happen at different times. So ACA cuts happen pretty much right away because we're not going to see those subsidies renewed. And we're also seeing that narrow enrollment window, which is also going to reduce enrollment. Medicaid cuts may not take effect until 2026, 2027, 2028, 2029. It's a little bit still in the air and it depends on the cut. So work requirements probably sooner, federal match cuts probably later, punitive immigration cuts may a little bit sooner again. And I think you can look across, when do those hit my organization and how much time do I have to prepare? When do you think about your executive team, when you think about who is your CEO talking to, who's your CFO talking to, prioritize that person and that conversation based on the magnitude of the impact and when it affects your organization.

Abby Burns (16:04):
Yeah, I think the magnitude of the impact is a really important point to layer in there. One of the things that I've heard you say before, Sebastian, is systems need to ask themselves how far in the red can I go and how long can I stay there? It's a dramatic way to put it, but I think it's an accurate way to put it.

(17:44):
I want to get a little bit more specific for a minute. I hear you saying prioritize you're most exposed, think across strategic time horizons. What do you want health systems to specifically do?

Sebastian Beckmann (17:58):
First is you should be running your own scenario planning. So we're happy to do this with you based on the benchmark data that we have. But what we're doing is we're looking at what's the likely impact on a health system based on the median expenses, the median income for a health system of your size. So you know your data, you have your data, run the same exercise in depth and we're happy to get you started with that.

Deeksha Aleti (18:25):
And I just want to add that the beauty of the calculator is that it gives you options. It's not just one encompassing outcome. We can isolate the different policies to see what that individual effect is to align with what Sebastian was saying about timing. So if you see one policy about to hit now versus later, you can adjust that in the calculator using the different scenarios we have in there.

Vidal Seegobin (18:48):
And if I could add a third point, I'd say so one thing that I find is a justifiable behavior that I think we even noted in some of our conversations, Abby, that you led, which is we're not going to want to communicate anything until we're 100% sure of what it is and how much it is going to impact us. And I think that there's an argument to make that that is actually not the right thing to do because, A, you need more people to be enfranchised and involved in these changes because they are so varied and complex.

(19:19):
I think second, you're going to want to make sure that everybody knows that why things are happening and why changes might feel impactful to them so that they can be aware of it, but also I think more importantly, they can feel enfranchised in finding the solution. So if I'm thinking about supply chain optimization, people at the frontline may be aware of the opportunities to either streamline or better stockpile or allocate more effectively than you could at the board level. And so I think in fact your bias might be to not communicate until you have 100% certainty that in fact you should probably do the opposite. Communicate often frequently.

Abby Burns (19:56):
Yeah. When you're talking about communicating, you're talking about healthcare leaders communicating to their own workforces, right?

Vidal Seegobin (20:01):
I think their workforces, I think to other peer businesses, to their board, to members of municipality, all of this stuff, you'd be hard-pressed to argue you would not benefit from talking to as many people as possible.

Abby Burns (20:14):
This is a point that Liz Fowler actually made when she was on the podcast a couple of weeks ago was, I understand the tendency, I'm just going to keep my head down and do my work and hope it's okay. But that's a pretty tough posture to defend down the line. And instead having the conversations, raising your hand is the way that you let your partners, let your teams know what you're dealing with, how it might impact, and essentially identify opportunities to work together to solve the problems.

Sebastian Beckmann (20:41):
Yeah. And to say that explicitly, that is also communicating in the form of advocacy. So that is communicating for policy change potentially based on the effect it's going to have on your organization. The last time we saw anticipated median health system margins this negative was COVID. And that was during the Trump administration and the result was the CARES Act. The result was a bailout of the health system part of the ecosystem. This time we're anticipating similarly low margins because of policy impacts.

Abby Burns (21:11):
Coming from the Trump two administration?

Sebastian Beckmann (21:15):
Right. And I think that you can use that as a starting point for this is important for the health of our industry, not just for my particular organization.

Abby Burns (21:22):
Yeah. We've mentioned the board a couple of times, Vidal, I'm curious as you're having conversations with health system boards, how are they thinking about this?

Vidal Seegobin (21:34):
I worry a little bit that they're replicating a similar dynamic that we saw in COVID, which was going to levels deeper into managerial and operational questioning as opposed to wider strategic future thinking. And that's exactly what we saw in COVID because there were just so many operational challenges that they were dealing with that it made sense to do so.

Abby Burns (21:56):
Fires to put out.

Vidal Seegobin (21:57):
Yeah. I worry that that might be happening again, but for a different set of reasons, which is there's just so much uncertainty at this moment right now, let me try to be, "Helpful," where I can, which is to help in terms of the execution and operation of the business. That may or may not be the right angle going forward. On the flip side, I think a lot of boards are composed of people who have out of industry or out of sector expertise connections. So if I want to pull forward the thread that Sebastian shared about advocacy, you should be leveraging your board to the maximum extent to share the message and taking a look at that calculator to quantify how much impact you might be experiencing so that everybody's fully aware of what we might be facing to the future.

(22:39):
Just as anecdotally, last week I was doing a board briefing on the future of healthcare and the board realized very quickly that they were not in constant communication with their philanthropic foundation and board. There should be going forward greater coordination between both of these boards in terms of identifying opportunities where donations and gifts can help offset some of these losses or help spend some of the capital that may not be available tomorrow.

Abby Burns (23:06):
Yep. That's an important one. And interestingly, I find that that's an area where some health systems have really built up the muscles there and some are comparatively much further behind. It's also an area where Advisory Board has done a lot of legacy research. Looking ahead, at some point these theoretical scenarios are going to go from theoretical to real. What are the strategies that health system leaders are going to be needing to lean on to respond? We've done our preparations, how should systems think about responding?

Sebastian Beckmann (23:37):
I think of three things. So the first is you need to reduce absolute costs, not just cost growth. So that sounds really easy when I say it on a podcast, I know that that is super hard to do in practice. But when we're talking about the kind of impacts that we see to revenue, you have to make up for that somewhere else. The second thing is getting commercial elective volumes in the door. And unfortunately in the short term, this is a zero-sum strategy. So some health systems are going to be able to do this and others are not. But you can use that to compensate for revenue decreases elsewhere and ideally drive growth in general.

Abby Burns (24:14):
Yeah. I think also, Sebastian, just a note there, that is going to be more doable in some markets than others.

Sebastian Beckmann (24:20):
Oh, for sure. Yeah. And again, so easy to say, what you do in a crisis will just grow harder. That is not an easy thing to do. We do have some best practices and some strategies. We have some resources on a 100-day volume campaign, #WereHereToHelp. But that is the hard thing to do. The third thing I wanted to point out was just be prepared to rationalize services or facilities. This may be the time to make hard trade-offs.

Abby Burns (24:47):
Sebastian, just to put a fine point on it, you described the worst-case scenario or Deeksha described the worst-case scenario for margins as catastrophic. I imagine not every health system can survive catastrophic impact to margin.

Sebastian Beckmann (25:02):
Yeah.

Abby Burns (25:02):
What does that mean?

Sebastian Beckmann (25:04):
Well, I think everyone has some time to prepare. The worst of these impacts come through the Medicaid cuts, which are further down the line. So those three things I just said, everyone should be thinking about those now. At some point that's not going to succeed for everyone and you have to ask yourself if your margins are so deep in the red, is it time to sell? Is it time to close?

Abby Burns (25:26):
Which is a really hard thing to contemplate and a really hard decision to make. Sebastian, Deeksha, what parting advice do you have for health system leaders and strategists as they're trying to navigate this moment?

Deeksha Aleti (25:42):
So at the end of the day, they're just going to need to assess the impact of these policies and the severity on their organization. And so we want them to use this calculator to help them do that. And so we propose a three-step model. So first, define the external policy drivers you want to see the impact of. That could be whether they're hitting now, if they're going to hit, you have options. Then you want to size those. Your mild, moderate, severe. And then adjust that based on your specific system's exposure. So that's going to give you that range of potential impacts on your organization so you can use that to help you prepare and what do you need to prioritize now or later.

Abby Burns (26:23):
Vidal, we've been focusing this conversation on impact to health system finances specifically. But usually when we're talking about healthcare, we use the word ecosystem. I want to tease out a little bit of as health systems experience these direct impacts to their finances, what are the effects on the other parts of the that we need to be really mindful of?

Vidal Seegobin (26:46):
Yeah, I think this is the most difficult and perhaps the most important question to try to figure out. The term I'd want to pull forward is the idea of zero-sum that Sebastian mentioned when it comes to commercial volumes. The posture that could potentially be among the worst case scenario is a lot of retrenchment and individual margin protection that every individual actor in the healthcare ecosystem pursues with the unintended consequence of passing the costs onto someone else. What that creates is a highly, if not more than we are right now, adversarial relationship between payers, providers, life sciences, pharmaceutical companies and the like.

(27:27):
And a lot of the cooperative action that you would ideally want to have and that we've been trying to push towards with healthcare to see improvement will actually backslide because we are really worried about protecting our own bottom line. And I really am going to do things like pull forward all the contracts, shift all of the price increases to somebody else. And the other thing I just worry about in general is in those kinds of bigger entity, full body contact competition, the end loser is almost always the patient and communities because they have very little power and discretion to influence those decisions and actions.

Abby Burns (28:03):
Yeah. It feels like a tall ask to have healthcare stakeholders not only think about their own interests and their own survival, but also the common good is basically what I'm hearing you say. But I think that is ultimately necessary given healthcare is an industry that is centered around taking care of people.

Vidal Seegobin (28:21):
Yeah. On the flip side is, say, so if I was going to wear my optimist hat, I'd say part of what we were hoping for when we talk about value-based care is getting everybody on alignment around the same kinds of outcomes and coordinating around outcomes. I think this is a little bit of a stretch, but as you think about at-risk contracts that people start to bake into as a way to manage the cost increases or a way of thinking about utilization management more effectively through these gain sharing or cost sharing contracts, maybe the more optimistic scenario in the future is that we see in some pockets more coordination and collaboration as a grouping function or a crowdsourcing function to offset all of this uncertainty and disruption we're experiencing in the economy and the wider ecosystem.

Abby Burns (29:08):
Well, Vidal, Sebastian, Deeksha, thank you for coming on Radio Advisory.

Vidal Seegobin (29:13):
Always a pleasure.

Sebastian Beckmann (29:14):
Thanks for having us.

Deeksha Aleti (29:16):
Thank you.

Abby Burns (29:22):
I mentioned that Sebastian and Deeksha and their team are constantly changing this calculator, that frankly makes it tricky for us to share it widely or at least to put it on our website. But we take seriously our role in helping you understand how your financial position could change and what you can do in the near term to stave off the worst case scenario in the long term. We are happy to share the calculator, to discuss the latest on what's happening with health policy, and to help you prioritize your next move. If you're already an Advisory Board member, the best way for us to do that is for you to reach out to your relationship manager. If you aren't, send us an email at podcasts@advisory.com. That's podcasts with an S. Because remember, as always, we're here to help.

(30:29):
If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts, and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Abby Burns, as well as Rae Woods, Chloe Bakst and Atticus Raasch. The episode was edited by Katie Anderson with technical support provided by Dan Tayag, Chris Phelps and Joe Shrum. Additional support was provided by Leanne Elston and Erin Collins. Special thanks to Natalie Trebes, Max Hakanson and Shay Pratt. We'll see you next week.