The pandemic has undeniably intensified the changes in healthcare. Now that we’re coming out of it, what are the transformations we can expect, and how do we prepare for them? In this episode, David Burik joins Dr. Charles (Chuck) Peck, Ben Sawyer, and Dr. Darin Vercillo to talk about the challenging trends in US healthcare for health systems and hospitals. David is a Guidehouse partner, leading the Center for Health Insights. He shares how these trends are shaping healthcare both now and into the future, providing practical considerations from which all healthcare leaders could benefit. Don’t miss out on this conversation as you prepare to navigate the changes in the industry.
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US Healthcare: Understanding Challenging Trends For Health Systems And Hospitals With David Burik
I’m honored to be joined by some friends of mine, Ben Sawyer and Darin Vercillo. They are executives at ABOUT Healthcare. Guys, it’s great to be back with you. As usual, we have an exciting great show. I’m particularly excited about it because one of my good friends and colleagues, Mr. David Burik, who leads the Center for Health Insights at Guidehouse, is going to be joining us.
We’re going to be talking about challenging trends in US healthcare for health systems and hospitals. At the end of the program, we’ll be talking a little bit about some future events that we’ll be hosting, where we’ll dive into some of the details around discussion in even greater detail for those of you who are interested.
David Burik is a Guidehouse partner leading the Center for Health Insights. With many years of consulting experience within all segments of the healthcare industry, his experience includes the definition and communication of key strategic issues and the successful execution of solutions. He’s an expert on the successful formation, operation and divestiture of integrated networks, managed care organizations, physician groups and hospital systems.
He is also a key resource in fork-in-the-road situations such as major transactions, clinical integration, management succession and organization repositioning. I wanted to have him on because we are at a fork in the road in general as we move out of the pandemic mode and into a repositioning or a transformation mode within hospitals and healthcare systems. David, welcome, and thank you so much for being here. Let me start with a high-level question. What do you generally see across the country as health systems and hospitals attempt to transform themselves post-COVID?
It’s good to be with you. Let me answer the question probably unexpected fashion. As the events of the last couple of years became clearer, I’ve found myself living in the day-to-day trying to help clients ascertain what’s going to happen tomorrow. Increasingly, I realized that one of the more fundamental changes facing providers was around volatility. The ability to predict and develop budgets and long-term plans was a lot more complicated than it was pre-COVID. At the suggestion of some financial folks, we dusted off an old tool called enterprise risk management, which isn’t typically at a premium for health systems.
If you think about health systems, the principal mode of capital finance of tax-exempt health systems are bonds. These bonds are not offered to speculative investors. They’re offered to folks who are looking for stability. The underlying credit structure is one of its stability. It’s an institutional credit, so it should be predictable.
There's more analytical power now than there ever was in the industry. Click To TweetWhen the underlying market becomes unpredictable, suddenly tools like ERM, which were perfunctory, meaning if you’ve ever read a hospital bond issue and you go to the risks section, it’s material, meaningful and well done, but it’s not like, “I have no idea what we’re having for supper on Thursday.” This is what’s going to happen. At that underlying volatility, it affects who’s coming to work today, what kind of patients will come in the door, and how will they come in the door? Are physicians going to change their practice?
I wasn’t paying attention to these innovators. They’ve been pretty busy over the last few years. There is a 40% Medicare advantage in my service area and 75% of my Medicaid beneficiaries are in managed care. How many of them are going to keep their coverage as we normalize enrollment? These new things are called social determinants of health, ESG, and I’m more concerned about cyber risks than I ever was before. We were trying to take all these things that are different and try to develop, use an old tool to, to better understand how you can respond to those.
There is a funny thing that happened as we started to do that. If you think of the old yin and yang thing with enterprise risk management, looking at the risk, the yang is success on all these things becomes a great opportunity. If you’re a hospital or a health system that sells the labor issues more effectively than other folks in your market, you’re going to do pretty well.
If you’re able to develop access more effectively and get patients better into the system better than others, you’re going to do pretty well. The enterprise risk identifies the areas of volatilities, gets you more into them and understand them better, but then it has the happy result of them being able to help power growth. You didn’t think that was a question about ERM, but that’s the way we’re running.
It’s great to be with you and Darin. David, it’s interesting that you went right into volatility. I couldn’t agree more. We’re on a Baldrige podcast. We had this conversation at the Baldrige Quest Conference in DC, where they talked about fundamentally, you have to have a leadership and an operating system essentially to help reduce the volatility. That gives you the ability to be more responsive and agile to all these volatile conditions that you described. I know that you guys also are steeped in Baldrige. Any thoughts initially on that?
I didn’t know that had bubbled up as an issue. I’m very glad it does. That’s one of the advantages of the Baldrige structure. It forces you to recognize where there are some things that threaten to become fundamental changes. This is very challenging for health system management teams. There’s a broad statement, but they’re typically not built for volatility. They’re built for stability and to deliver stability. They’re built to smooth out the highs and lows. It’s a big deal that January is the flu season, “What are we going to do?”
It’s not just leadership. It is the reality around how flexible is this big fixed cost called the hospital when flexibility is something that’s in demand. The term that we used a lot in the last few years when we had the surgeons create such pressure on the system. We’re probably not going to have volatility that’s as dramatic as that, but the whole industry is trying to figure out what happened to ED volume while we spent a lot of time trying to reduce people going to the ED. Nobody thinks that they’re correlated and their effort to keep people out of the ED. It’s the reason why people are out under the DID. Maybe it is the reason.
Much of what you are saying resonates with me. It’s interesting to me as you talk about this volatility, which now is coming in many different ways than we used to see it. We’re seeing this same thing in many of the hospitals I worked with and around the country that we consult with. I’ve lost 20% or 25% of my nursing force. I got a call from the nursing supervisor as I was going on a call, “We are out of ICU beds,” which what you meant was we’re out of ICU nurses. We have plenty of beds. We just don’t have nurses to staff.
I wanted to ask you this as we look at this volatility is reduced ED volume. We don’t know how many patients are going to be coming in from the ED, and reduced nursing staff. We don’t know at any point how many staff beds we’re going to have, reduced capacity at skilled nursing facilities. We’re not exactly sure how quickly we could decant the hospital and get patients moving through.
How do you see the balance working out? To your point, the healthcare system and hospital are being the buffer zone, the tool to smooth all of that. All of these different things that we relied on for so long, that throughput in a hospital was turning beds over, but that’s clearly not the case anymore. Where do we look to make sure that capacity can be managed if another flu season does hit, and suddenly we’ve got full EDs and need to move people through?
If we use a term that we’re all familiar with more broadly than its usual application, it’s a safety net. The community hospital was looked at as the safety net. Whenever anything fills in, it fills up. You can always go to the community hospital and they can take care of you, “If I can’t get a doctor’s appointment, I go to the ED. If I can’t get a nursing home, my length of stay will climb a little bit. Who’s watching?” There is an expectation that many community hospitals provide slack. We observed a slack of the whole system. We’re in a situation where we don’t have the slack on most days, so what happens to the system?
The industry is starting to define the problems, but we have worked to reduce ED visits for one decade. There are ED visits. People don’t correlate it to their efforts to reduce ED visits. We are blessed. There’s more analytical power now than there has ever been in their industry. We’re starting to apply analytics to think. There is predictability in these patterns of admissions, and we’re not seeing them.
Using analytics to predict demand better is at a premium right now. Click To TweetMaybe there are new places. Innovators are decanting some of the volumes. When 40% of the Medicare beneficiaries in your community are in MA, it’s going to impact their use of the hospital. Have you analyzed that and worked with that to see how it changes demand? As in most states, most of Medicaid is managed to some degree. Have we analyzed how that’s changing demand?
Using analytics to predict demand better is at a premium right now to respond to that. The other thing that has been interesting is to watch it develop, and I don’t know what your experiences are. Our general observation is that hospitals, for many years, have been trying to get more digital. Probably the biggest investment was in the EHR. The biggest stimulant to that was the availability of meaningful use dollars. It’s not right or wrong. Our observation is most health systems installed an EHR. I’m trying to communicate that health systems look at IT and it’s a silo, “Put in the EHR, ERP, the new scheduling system.”
What we’re trying to do now, given there’s so much discussion based on reality around labor, we’re trying to say, “Most hospitals have all these IT pieces and approach them as silos.” It looks like the map of Europe in 1914 or the Balkan States. Why don’t we take all those investments? As opposed to saying, “Installed ERP check,” why don’t we say, “How do all of those services make labor more effective and make caregivers more efficient? How do all those things make consumers happier?”
It’s interesting. We’re taking labor shortage and competition for digital consumers. We’re saying, “Let’s look at all the stuff we already have from the lens of being a caregiver.” I don’t know what your experience is, but in most places we see, caregivers have been trained, but the whole suite of investments has not been tuned to the caregiver as the musician.
That’s an astute observation. What our experience has been, and I’ll use a metaphor that we use internally, it’s as if the consumer is on a boat on the stream going past the islands. They don’t know which island to land on. On the island are the EMR and the existing IT infrastructure. They don’t know which dock to land on. They don’t know where to go once they get on the island.
Once they’re connected in, that’s when the care pathways and the billing kick in. In a consumer-based environment, being able to direct traffic, in other words, when you have demand, where do they need to go, and then match that to the available capacity across the enterprise is something we refer to as enterprise resource orchestration.
We’ve been having conversations with Gartner, Glass and other market analysts about this because it fundamentally changes what the command center used to be because the command center was very acute care centric. Due to the change in an acute care setting environment with essentially acute care being a safety net, but a rapid transition of consumer activity outside the acute care setting, this capability of agile demand to capacity optimization, which is what enterprise resource orchestration is all about, is going to be essential. It is for health systems in the new digital age to be able to have a real-time health system like pervasive situational awareness essentially.
You’re putting the words together differently than I did, but that’s very much in sync. Pre-COVID, we were working hard to try to get more interested in command centers beyond the transfer center. In transfer centers, we see many instances of folks being able to get patients from other hospitals into the right bed, but once they’re in, it’s not there. Your dialogue stretches it even further. There’s also a notion that you have to become a patient for the command center to be relevant. At any point in time, 98% of the people in your community aren’t in the hospital.
An example for the reader, let’s say it’s a patient that has a cardiac condition in the old pre pandemics. They’re bedded. They either go to a cardiac bed or a critical care bed, but in the new world, you want to assess whether the outpatient cardiac lab could have taken that patient. You’re optimizing your capacity across your enterprise, not just starting with the bed and then figuring out how to get them out of bed and into some other care setting. You start instead with, “Do we have the capacity in real-time right now, then where does that patient optimally go?” That is the safest bet for them both from a care standpoint, quality standpoint, cost standpoint, etc. That seems to be the evolution that we’re seeing.
Let’s say we have that. That’s probably going to require to be material and meaningful, some degree of flexibility in staffing, and the technical expertise required to do that.
The new term that’s coming out is composability. The notion is that you have both people process and technology that are adjusting in real-time to consumer demand because, to your point, labor is the lowest common denominator for any capacity. In other words, to Darin’s point, you don’t have an available bed unless it’s a staff bed. You don’t have an available MRI unless it’s a staffed MRI.
You keep going across all the different capacity items, whether it’s services or anything else. It’s always tied to a person. When you get into predictive analytics, you can start to look at that formula and say, “Based upon our staffing today, knowing that it’s been significantly disrupted, this is what our capacity is across the enterprise and all of these different areas where we normally are bringing patients to make sure they get the right care.”
A lot of institutions don't even realize that the patterns of care are changing. Click To TweetIf we pull on the string, the history of hospitals, to some degree, was to create an efficient workshop for physicians and nurses. They were big because, at the time, things were unpredictable. If you put everything into one place, we’ll sort it out. We live in a world where there’s an outpatient surgery center on every corner. That complicates the equation. Those surgery centers need anesthesiologists, nurses, and surgeons. They’re probably very consumer-friendly, and they create options. This distribution of resources away from the hypothetically efficient core creates inefficient operating models that proliferate and make this composing term much more complicated.
We started off before we got on the show about this collision of the payers, providers, and also outside players coming in. to your point, the outside players, whether it’s Walmart putting clinics on their campuses or it’s Optum and United Health buying physician practices and so forth, what they’re essentially doing is expanding the access for people, but it’s outside of the traditional healthcare system for a catchment area. We’re seeing this right in front of our eyes, where health systems have to change rapidly to protect their catchment area and optimize the use of their resources to serve their community. Otherwise, they potentially can become an acute care safety net commodity.
At the beginning of COVID or the pandemic, a very wise CEO was describing how they were eagerly working with retailers on their access points, kiosks, and digital folks. They didn’t call them disruptors. They call them innovators. I said, “What’s your motivation for this?” It’s very succinct what he said but very powerful.
He goes, “I’ve been employing primary care physicians, partnering with FQHC and investing in my ED for twenty years in an attempt to get primary care for all the patients in the community. More or less, my penetration is 40%. If I can use these tools to get the other 60%, it doesn’t matter if they’re mine, but it’ll work out if I’m working with them.” In a lot of institutions, folks don’t even realize that the patterns of care are changing, so they’re not participating in that.
That begs the strategic question. In other words, you are expanding your primary care access, but the people making those decisions about where the patient goes are not yours.
They have an algorithm that might say the last place they’re going to go is your place.
We were looking at stats and the Healthcare Management Academy published some of the results from a lot of their surveys of the C-Suite. It’s titled Leading Health Systems Face Financial and Competitive Threats with Future Uncertainty, which is exactly what you’re talking about in terms of volatility. There are three things that they talk about. There are three headings on this. The first is economic headwinds that, on average, there’s a 15% increase in the cost of care for patients versus pre-pandemic because of escalating labor costs. That’s number one.
Number two is the demand transformation, which is what you’ve been talking about, that there has been a lower volume in the post-pandemic area, 24% in inpatient admits and surgery. That’s huge. It’s 22% of ER visits, 18% in outpatient surgery, 10% in outpatient visits, and then the growth in outside competitors is also the third column that they talk about of substantial increase. To your point, that is setting the chessboard of strategy in terms of post-pandemic responding to all this strategic demand. It seems.
Not to get too economic about this, in the model where there was a big box, because that was the most convenient way to deal with uncertainty for the pre caregivers and nurses are most efficient and build the capital or one big building, that also created an atmosphere where it was easy to cross-subsidize. When you start breaking this stuff out, it becomes more challenging to cross-subsidize, so a tax-exempt health system has to look at the services that provide the margin. They wake up after the pandemic and discover price transparency.
The price transparency probably started out and a lot of folks didn’t think of it very seriously. It doesn’t take much for it to have a material impact. If one health system may make a lot of money on 340B, we’ll save that for another volatility conversation. Many make a lot of their margin. Their real margin is made on outpatient ancillary services. What’s the first and easiest thing to drive price transparency that moves market share? All those things we’ve been talking about come out and they’re met with price transparency that didn’t go away. It turned into no surprises pricing and scanning a little theme.
I wanted to ask this question because I know all the chief strategy officers that are reading and are probably thinking about this. If you’re them, you’re a health system or hospital CEO, how do you need to think differently about your strategic planning for the future? The cycle of strategic planning used to be 1, 3, 5 or 10 years. We’ve uncovered a lot of the uncertainty and volatility that’s out there. If you’re them, what do you think about and how do you think about the cycle of strategic planning going forward?
I’ve done a lot of strategic plans over a long period of time. I realized that they were very often mostly efforts at consensus-building earlier in my career. You had a management team that thought they knew what they needed to do. They had to get the physicians on board and get the support of the board. You had to get these three constituents to line up. The physicians were busy and had pitch opinions. The board had more time but felt constrained from a knowledge perspective. The strategic planning process was to get everybody confident about the plan. There wasn’t typically a lot of excitement or mystery. There wasn’t a big reveal of what the plan was. The reveal was getting everybody at the same point at the same time.
Leadership is able to figure out how to tell the story. Click To TweetThose consensus-building retreats with the weekend retreat at the Greenbrier and the shrimp cocktail at every meeting, I, I don’t think those will serve the client well. You can keep this from cocktail, but you have to create an environment where folks where light bulbs are going off, “Sixty percent of our admissions come from ED admission, ED visits are down 20%. What’s going on? I don’t know what to do. We better ask for a rate increase.” That scenario isn’t going to work. The strategic plan has to better understand demand and our role in the marketplace. Even in locations where the population is stable, they’re shifting on how folks are getting their care.
The biggest single one demographically is Medicare advantage. The strategic planning process doesn’t tell you how MA varies in your community, changing demand and how your community members access service. That strategic plan has failed. The other element about strategic planning, which I think is critical, is historically 9 times out of 10. The manifestation of the strategic plan was bricks and mortar, “For this year’s plan, we need to expand that. We need to build why.”
There’s Austin and Nashville were instilled probably benefit from bricks and mortar, but I think we’ll be spending more on analytics and continuum of care services with the capital dollars that a hospital has, which has to come through the strategic planning process and hasn’t always been a premium consistently.
Ben or Darin, do you have any last questions that you wanted to address with David?
One thing I wanted to go back to David that you said before, and it is a part comment, a part question. You talked about the fact with regard to health systems looking at what they’ve invested in the boxes and checked along the way. It’s two parts of what you’ve talked about. One is this idea of introspection into your organization of, “What have we invested in? Are we connected? Quite frankly, are we getting the yield out of the things that we put money into, whether it’s technology or other things?”
Going away from trying to get consensus from mom and dad. Now we have to not be a teenager and we have to adult and introspect into who we are and why we invested in things. Are we getting out of what we need? One question I would ask you is how do you then advise leaders of health organizations to be able to do that introspection, to be able to get value out of what they’ve invested in, as opposed to going out and spending more money on those areas at the same time to what you described, now they have to look outward at things that they’ve never looked at before, like MA and they’re changing landscape and, and pivot as well?
Your first question reminds me in one regard in terms of this uncertainty and volatility. What are some of the things that happen? If you think over the last years, one of the biggest innovations in our industry is the rise of the hospital. You didn’t go to school to become a hospitalist. There wasn’t the National Hospitalist Act of 2021. It happened because it solves a problem at scale. Now it’s about managing the hospitalist. They drive quality and performance. It’s the second dimension of hospitalists and it was an organic involvement. It’s fantastic. Another big organic evolvement we have are these crazy observation beds.
Folks aren’t even sure how to design them. There’s no blue book on how to design them. It’s innovation. A way to help folks understand that it’s okay is to look at wide-scale innovations that they have done organically in their own institution. We can evolve. We can meet the needs of the community where they’re at and look at what we’ve done. Where we are bogged down is where we get into legacy projects, like the building and they will come mindset, which by the way, also has an IT variation. Where leadership comes in, and maybe this is where we’ll take it. Leadership is able to figure out how to tell the story, “Team, we’ve done this before. Now we’re doing it at a broader scale on different issues. Let’s go.”
Ben, last comment for our audience.
I wanted to remind the audience that we have a Virtual Executive Roundtable on May 24, 2022. It’s a Tuesday at Noon Central. David, we’re going to be following up with you to see if you might be available to join that panel. We have a couple of other healthcare CEOs joining because this discussion is timely and important to healthcare leaders who are trying to navigate some very turbulent waters. You’ve done it before. Organic changes have solved a problem at scale that you can do again, but you have to look at the data and understand exactly how demand and market are unfolding. Readers will benefit from that going forward. I look forward to following up with you to see about your availability.
I look forward to it. Thank you.
David, thank you so much for joining us. For those readers that were very intrigued, like we all were, on what David had to say, you can get your questions to him and he’ll respond to those things. The Baldrige Foundation has a senior event coordinator named Erin Sellers. Her email address is ESellers@BaldrigeFoundation.org. Erin is great at receiving those inquiries and channeling them to the right person. If you have a question in follow up to this show and want to know more, please send that to her.
Thanks, David.
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About David Burik
With more than 30 years of consulting experience David Burik has been at the forefront of the healthcare industry.
David’s creativity and ability to respectfully challenge and facilitate decision-making are recognized throughout the healthcare industry, His role within Guidehouse has grown significantly due to his unique ability to forecast client needs and draw solutions which is second to none in the industry. David has championed several strategic projects and has proven himself an expert on the successful formation, operation and divestiture of integrated networks, managed care organizations, physician groups and hospitals. Having contributed to numerous publications, including HFM, Modern Healthcare, and Guidehouses thought leadership, David is a recognized thought leader and strategic expert on the issues of healthcare reform and consolidation, governance, post-acute care, academic medical centers and enhancing access.
