Healthcare Rethink - Episode 45
For a segment of FinThrive’s “Healthcare Rethink” podcast, host Brian Urban goes deeper into Dr. Grant's story and...
Jonathan Wiik: [00:00:26]
Hello, I'm Jonathan Wiik and this is the Fin Thrive Rethink Health Care Podcast. I'm very excited to be joined today by Kevin Halloran from Fitch Ratings. Wicked brilliant, Dude, that just really enlightens me every time I see his stuff when he's out there and really love his perspective on the not for profit sector. He's got a ton of experience from the bench surrounding just what's going on and not for profit hospitals and just the space in general. And I always appreciate his understanding of the operations of a hospital. Being a former chief revenue officer myself. So, Kevin, welcome. Thank you so much for joining me today.
Kevin Holloran: [00:01:00]
Jonathan. Thanks for having me. And those are really kind words. I hope I can live up to it today. So thanks for the intro.
Jonathan Wiik: [00:01:07]
You bet. I think you're going to do just fine. I like kind of breaking the ice a little bit, you know? Where are you from and where did you go to school? And and give us a little perspective about your background.
Kevin Holloran: [00:01:17]
Yeah, sure. So I was I was born in Memphis, Tennessee. Most people don't hear a Southern accent. That's because we immediately moved to Nashville, Chicago, Atlanta, San Antonio. You sort of get the idea. A lot of folks ask me, are you a military family? I do. So my my father was in a Navy. We didn't move around because of military transfers. It was business transfer. So back at the time my father was in health care. It was long before Cerner and Epic sort of took over the world. And when they landed a big contract, we'd up and move and go to that place and that hospital. And I tell people, literally, I've been talking about health care. I hear about health care around the kitchen table for my entire life. So not not surprisingly, I ended up in the field in terms of school. I watched a lot of college football. I would undergraduate the University of Notre Dame, and I got my my major from University of Michigan. So like I say, there's always something going on Saturday.
Jonathan Wiik: [00:02:15]
Those are good football teams to root for you. My dad was a hospital CEO in the eighties and that meant that you pretty much didn't live anywhere for longer than 18 months.
Kevin Holloran: [00:02:24]
You make it. You make your tracks absolutely nothing.
Jonathan Wiik: [00:02:27]
It was great. You're in. You're in. Are you in Texas now? Is that right? I live in Texas now.
Kevin Holloran: [00:02:32]
Of up in the Dallas area. I am. A lot of people get email from me. It says Austin, so I'm housed out of the Austin office, but I actually live up here in the Dell.
Jonathan Wiik: [00:02:41]
That's awesome. You know, talk. Talk through your kind of backbone, that you're where you earned your stripes there at at NY and and S&P. And I think now you're at Fitch. So just help our listeners understand some of that. Yeah. I also like to call.
Kevin Holloran: [00:02:53]
Out I really got my start in health care, if you will, a hit report health system now called the Henry Ford Health. I owe a lot to the the people there, my mentors, Jim Blazer being one of them. I always like to shout out, say I owe a lot to that organization and to a lot of people. After I did that, I ended up in health care consulting for six seven years with NY later Cap Gemini and its champions of reforms, I think. And I left that when my oldest daughter was born. So I've been doing the bond rating thing for right around 20 years or so because my oldest is one. All the years I spent about 1415 years at S&P made the shift over to to Fitch about five, six years ago. And I had a group here very proud to do that. And I've been running a lot of bonds molest since I said.
Jonathan Wiik: [00:03:42]
But you have Henry Ford great system. I quote them in my book as one of the innovative kind of funding systems to they were one of the first out there to kind of pioneer direct to provider contracting and and really help the employers and their community and just done a great job. That system is doing very well to which is a testament to their leadership and and probably some of the things you left their books what are you reading What's what do you what do you when you get up in the morning, you have coffee. What what are you looking at and what what are some fun books that you read as well?
Kevin Holloran: [00:04:14]
I try to keep one workbook on what bedside and one fun book. So the workbook, you've probably read it yourself. It's a the leadership of everyday leadership by a friend of mine named Brian Rummell. Yeah, yeah. I finished that a couple of days ago and then my guilty pleasure. Look, I was a child of the eighties, so I love the the Irish rock band U2 and their lead singer Bono did a memoir called Surrender. And about two thirds to that right now, we're real estate assets. On my nights, I need to replenish something myself.
Jonathan Wiik: [00:04:49]
You bet, Brian. He was out at Piedmont, if I remember right. Him and I have crossed paths a couple of times. And I'm going to see him, I think, out in Atlanta here in a couple couple of months at out at the AMA Southeastern Summit. So I'm all I've given him my book. He hasn't given me his book yet. So that's right. Now that you said you've read it and you enjoy it, let me know. So jumping back into it, I think, what do you do for for fun? Like, what's your what's your advice? What's your hobbies? What what do you get out and run or do you you go out and watch football games or Woody into.
Kevin Holloran: [00:05:25]
Yeah. You know, my advice I read picked it up very cold, unfortunately. And I'm also ashamed to admit it, but I picked up cigar smoking again. So if I. If I. If I really need some some cognitive time, I'll go out and smoke, smoke a cigar in the back patio or something like that. If I'm feeling energetic, I'll, I'll go cycling. A while ago I did that a couple of years since Gilbert, but I have a minor practitioner of a martial art called Aikido, so the Loma style. If you though I teach each athlete to lose but when it it all this whole space to based out of stop really really gotten back into it some guilty or smoking cigars and not exercise so I got some work there yeah that's.
Jonathan Wiik: [00:06:07]
That's great Well two things I won't mess with you now that I know that you know Aikido too. I was in Little Havana over the holiday in Florida at a wedding. And a man, they had some nice cigar shops there, and it was neat to kind of see where they were at. I I'm not a cigar smoker, but I'll have one if someone wants to have one with me. So I understand there's nothing like kind of contemplating your day and enjoying a cigar. So.
Kevin Holloran: [00:06:31]
Yeah, yeah. And I'm, I'm, I'm cutting way back. So it's.
Jonathan Wiik: [00:06:35]
Yeah, yeah. Being a health care worker, you know what happens long term.
Kevin Holloran: [00:06:39]
Exactly. I know the dangers. This this wouldn't look pretty, so. Yeah.
Jonathan Wiik: [00:06:43]
Right. Well, let's, let's dive into kind of what you do and where you're at it. Very interested. I was tooling around doing some research yesterday and I noticed Fitch, I think released some more information on the not for profit sector. I'm sure you could probably give us a little bit of highlights on that and just tell us what's going on in there. What are the headwinds and what are some drivers about what's going on? Because they've had a pretty rough 2022?
Kevin Holloran: [00:07:06]
Yeah, we do a couple of webinars and major press releases throughout the year and you know, one of them is our medians, which we do late summer, early fall and in the the time period between shifting in mid year, beginning of a year, we do an outlook. So you probably think about I may have heard of our 2023 outlook that most of the rating agencies you know we have positive we have stable, we have negative but we changed it up just a little bit. So we call it improving neutral or deteriorated. If you just wanna call up positive, stable, negative, that's perfect. But it may and we did say it's deteriorating. I often tell people I wish it was deteriorated instead of deteriorating because I really do think 2022 was was really the low point quite frankly for the sector. And I should say, look, every time I say a sentence, someone will be able to disagree with me. Well, that wasn't for us. That didn't happen to us, but in generalities. I think when you look at 2022, it'll go down as in a probably worst a year from from an operating standpoint. And our prediction really is 23, while no walk in the park and not going to be easy at all, should be better than forming one or two. And what are the headwinds? They're not hiding from us, right? It's Labor. Labor or labor. What the heck? Throwing one more labor because it's so important. That's what we've been talking about. You know, nine times out of ten. That's that's the catalyst for why our operations really in the tank or the other one obviously from an expense pressure is generating relations. Like I'm in my fifties, I remember some generational inflation. So the second time for me, but for a lot of folks, we haven't seen this in a 40 years and it's having its impact.
Kevin Holloran: [00:08:51]
I tell people it really pales in significance when it looks at the labor. That's really the other one really is volume. So we'll talk about that, I'm sure, a little bit tonight. You know, volumes are completely back with their back to a large extent near pre-pandemic levels for a lot of people. A lot of it's shifted inpatient. The outpatient is fine. I don't really think of that as volume as being badly just moved. I think we're we're a bit obsessed. I think what it look like compared to 2019. That's true. That's really even germane anymore. It's it's three years now like this moved on we've moved on to different health care world. But what we see is anytime there's an uptick in this heavy medical inpatient load, it really does start to play havoc with what we can serve respect with. You get that medical surgical mix due and it doesn't take a lot, you know, maybe 10% of inpatient beds above what's planned really starts to mess with the operations just a little bit on what you can bring in house. Those are probably the biggest key drivers we're watching. We do think they've been we're making gradual improvement on all of those. I'm not a I'm not a clinician, but I read a lot and it does look like the RSV is starting to come down and winds are starting to come down. But unfortunately, starting to go back up with these and Scrabble variances, we're calling them the TSB'S. And that's going to keep us a little disjointed for a period of time and so that it's under control of this will.
Jonathan Wiik: [00:10:22]
Yeah, that's great. Yeah. The the latest variant. I love it. They called it the Kraken.
Kevin Holloran: [00:10:27]
Jonathan Wiik: [00:10:27]
It reminds me of that little eighties movie with the Owl. Exactly. Yeah, with Poseidon and stuff. But, you know, I think they are saying that one might have some impacts to hospital utilization. I remember working at the hospital. The Chief Revenue officer. As as morbid as it sounds, you know, when the parking lot was full or ambulances were going in and out, that was that's why we were there. Right? We wanted to treat patients when the parking lot was empty and there weren't people coming to us, not that we wanted them by ambulance or anything. You know, we don't hospital should be sitting around. I mean, they are built to help and care and their staff to that volume. And a lot of that, as you know very well, is fixed expenses. They don't flex up and down like a lot of other industries. They're a hotel, a restaurant and a doctor's clinic all rolled into one that rolls 24 seven. Very, very difficult to sustain operations with those headwinds like you're talking about with Labor. And if the volumes aren't there, that just exacerbates the problem, obviously, because you've got you've got high expenses and low revenue and everyone knows what happens on a balance sheet when those two things are happening at the same time.
Kevin Holloran: [00:11:37]
Absolutely. And I've been saying and folks been seeing me today, but a lot of times I can't see it. But it's also the right kind of volumes. And I don't necessarily mean I hear him. It's very much plays an important aspect of it. But you want the right mix of medical, surgical, and if you're a hospital that's got that chassis, if you will, built on heavy surgeries, high acuity and you're full of medical, that that ratio just gets disjointed and you're absolutely spot on it. 75% of your your income coming in is at a fixed cost and you're given a fee by Medicare, Medicaid, self-pay middle pay, sometimes as they call it. And you know, your expenses, you just got to need it all. And if they go up, you take it all in and you get pass it along. I kind of joke that, you know, occasionally I get a yard, got a of my grass and they give me a gas surcharge of $5 and he's like two blocks away. And you know, we.
Jonathan Wiik: [00:12:29]
Kevin Holloran: [00:12:31]
It's not costing him any more. But anyway, hospitals just can't pass it along that way. It doesn't work like other industries that most people are familiar with. So it's a very delicate balance, a very low margin business to begin with. And when just something gets a little out of whack, it really has ripple effects throughout the entire business that.
Jonathan Wiik: [00:12:50]
Right. Good point. You mentioned chassis. I think that's a good segue into the next question, just how hospitals are structured. And we saw them kind of have, I would say not explosive, but pretty dramatic growth pre-COVID. I think they were having one of their better quarters and probably of the decade right before COVID hit, volumes were up. Towers were getting built, wings were there. I think they're they're borrowing power. The media and ratings, I bet, were pretty high as well. They were doing, doing, doing good. We are not in that situation now. I, I follow Fitch, Standard Poor's and Moody's and all those and watch the downgrades. And we saw that happen through COVID for obvious reasons. We're seeing some recovery, as you mentioned. But can you help our listeners kind of understand the relationship between a bond rating, borrowing, expense, borrowing power and growth and how those things are related to operations all the way down the line? I think that would be helpful.
Kevin Holloran: [00:13:42]
Sure. So a bond rating itself is one of the one of the major bond rating agencies. Just our opinion that your ability to repay debt and the key words are on time and in full. We usually talk about in full and we get down to the on time, but you get really low on the rating scale. Can you make your bond payment next month, that sort of thing? I have those conversation in that bond. A bond rating itself, The higher your rating it means, the lower the risk that we feel is there generally is a price is better. It means their cost of capital is cheap. And certainly as rates have changed, you know, the delta between the AA, which is an exceptionally good rating and a triple B, which is not bad. So investment for it is starting to widen. So the importance I think of ratings has gone up and look, $100 million debt issuance, even a single basis point can make a difference. And if you're talking about a spread of 30 basis points, maybe between a couple static or a rating means a lot, quite frankly. What are ratings based on? I tell people it's like three legs of the stool. So who are you and what's your market share? You know, are you a price maker or price taker, as they say? What's your balance sheet look like? Is it strong and you repay all of your debt outstanding? Is it got some fish into it? And then, of course, your operations and that's what we've been talking about a lot lately, is how how strong or how weak are the operation.
Kevin Holloran: [00:15:06]
But if they did service your debt, you know, multiple times over, that makes you very strong. You put pluses on all three of those legs. The stool, you're very likely in that high a double AA category. You start chipping away at that or have negatives. All of those three to the stool, then you're down and you're not investing very potentially speaking. So if it pays for those towers that you talk about, it pays for your expansion, it pays for some of your IT things like that. So you want to have strong operations here, apples to apples, although right now we're going through rate changes. And then as it moves, people tend to sit on the sidelines a little bit. Let's see what where is it going to camp out at? And I don't think we're there yet, but I agree. We're as you know, we're a very capital intensive sector and we can't sit on the sidelines for long. And it reminds me a lot of 2008, 2009. So to your point, job and leading up to 2008, 2009. Yeah, there was a it was a boom town for hospitals doing very, very well. Lot of debt issuers, a lot of expansion. They all slammed to a halt for about two or three years. We built that back up and we've slammed a halt again. And so we sort of get through this new normal is with the economy, with COVID, with operations have been great.
Jonathan Wiik: [00:16:23]
I like that understanding. I think I explain that a lot of my work now, I explain it to my team at the hospital as well. It's like, you know what? What does this mean? And I go, It's just like your credit card. Credit card and just like mortgages and or, you know, going to purchase a cards. That's a lot of credit ratings just like anybody else. And and and it matters that that percent point matters because they're borrowing tens of millions sold over hundreds of millions of dollars, as you mentioned. Start talking about dollars. I'd love to get your perspective on CFOs. You could put your CFO hat on. They seem a little stressed lately. So what advice do you have kind of for the hospital CFO now, given the market that we're in? And it sounds like there might be some bright spots in 2023 as we maybe come out of what happened in 2022. But what should a CFO be thinking about over the next two or three quarters?
Kevin Holloran: [00:17:14]
Yeah, it's never an easy day to be a CFO, even when it's good. So whenever I get directed by this, I sort of give what I call platitudes. You know, number one, don't manage to a rating. I I've heard that in meetings, we'd like to do this, but I don't want to jeopardize my whatever rating. So I'm not going to do that. And that's very short term thinking, quite frankly. You likely, you know your organization better than I do. I do my best to understand who you are. Analyst I try really hard. I study it. But you walk the walk, you're in the boots. You know it far better than I ever will if it's the right. Move to mate, and it does jeopardize your reign. Better for that short term pain. So you don't regret it Five years from now. Ten send from now. Wow. I really wish I had done that expansion or that install or that word bit. I think the other one is embrace change and some people have heard me speak before and bring up the Kodak story. It was well known and well documented when I was a kid. You know, Kodak was the number one brand that was out there while the biggest and best companies to work for.
Kevin Holloran: [00:18:20]
And people probably know the original, if you will, mission of Kodak is the preservation of memory. It's very simple. A lot of people maybe don't know the problem, knew that Kodak actually developed digital cameras and they scrapped the idea because they were very much caught up in a while. We're a paper and chemical company now. That's what we do. And so the less it is right, embrace the change. And even as one piece of your business might be kind of going down, the other one elements for them to expand. So embrace your mission. Embrace the change. Rough corollary to health care. Not as good as Kodak one would be. We're very wrapped up in inpatient. You know, we love our bricks and mortars. There's a lot of dollars tied up with them. There's a lot of interest in and so to speak. And yet everything's moving outpatient. So, look, if your service area and your mission, your demographics say, hey, build the inpatient, get rid of the outpatient, we don't need to look at that. So do I need to embrace this, take a hard look at it, not into wedded to have one. I think the last little look when we'll talk about this, I'm sure is know what do we do about labor? And I tell people, look, there's there's short term strategies which we've all been doing, recruiting and retention.
Kevin Holloran: [00:19:33]
The international nurses, the nurses. But it's all sorts of labor, really. There's medium term fixes as well, too. And that has to do with either payers and seeing if they can't bump up the payment rates, having those hard negotiations. But what I really sit down and again have that cigar and think about life a little bit, you know, I think we just need some transformational differentials here. We love incremental change in the health care space and will lead to this transformational change. Not easy to do. It's not easy to convince maiden reports to do, and certainly not easy to inform that. But I think we have to sit down and sort of, you know, let's let's take this put it to the side. If I could do it again today, what would it look like? And start thinking transformation. So I say embrace that, you know, what do we call it? Graduates will be had that big area of interest go really, really go after them. Absolutely. Absolutely.
Jonathan Wiik: [00:20:29]
Yeah. Transformational I love that's a good segway to into the next subject I want to dive into is just you know how should or how do you see like health systems transforming over the next decade. We saw a lot of M&A activity before COVID. I think it kind of hunkered down during it. And everything I'm seeing, I don't know what you're seeing is saying that's going to uptick again. But, you know, I think it's this big fish gobbling little fish in that debt's got to be spread out. I talked to a lot of folks that are positioning themselves not for purchase, but certainly partnerships, I would call it, to to kind of spread the the risk and also gain market to where they are. They're a little bit more solid at when when the footing starts to become a little bit unstable like COVID. Give us some thoughts on Mandai and transformational medicine. A little, Yeah, absolutely.
Kevin Holloran: [00:21:20]
So, you know, there's an old joke that everybody's talk of everybody about everything. And then I think that's true. And when we go out, everybody is talking to everybody. Let's say there's been some changes. You're right, in the last hunker down is a good way to look at the last couple of three years. First of all, just a crazy time where we don't know what's happening and we've never lived through a pandemic and we're getting our hands around that. And there is a bit of regulatory pushback right now. I'm not saying it's good, it's bad. It just is what it is. So, yeah, everybody's talking to everybody. We expect it'll pick up. But I do agree with you that the Fed will continue to gobble the small. That's going to happen largely unabated. It doesn't get any kind of regulatory or a g sort of radars. It's where you get sizable to sizable. And I think maybe the differential that we're seeing today is if you're going to get gobble up where you want to go, that is the best way. You need to bring something to the tape. Ten years ago, 15 years ago, it used to be that small standalone hospital. I fought the good fight, but I finally got a partner up with someone, you know, they'd make five phone calls, you know, to the for profits, the big academic other systems in the area and that they get the five offers in and they kind of take the best one that fits them.
Kevin Holloran: [00:22:32]
And now you have to bring something to that mix. And maybe it's a geography. I think that's probably the predominant one. Maybe it's a skill set while you really do great physician management and we doubt where you got a health plan and we've dealt we walk with those things together. They've got bringing something to the table. The number of return phone calls are starting to turn down and the deals that are more or less tasted. So it was. But I think maybe the most interesting thing that's taking place right now, I've been with kind of the political zeitgeist that's on here is we're not really seeing, you know, inter market mergers. And with the big one that you've seen lately is is the Atrium Advocate merger. We spent hours at Albert out of different markets or six somewhere miles apart. There's no what we call natural synergies there. I can't really consolidate programs, closed hospitals, whatever the case may be. But I think, again, if you talk to the different parties that one one party, they there's we're not doing it for financial reasons. We're doing it for altruistic reasons, really solving a lot of the problems in health care that we've all stayed and faced and struggled with over decades. Now, I think that really gets into that transformation to be had.
Kevin Holloran: [00:23:43]
They're trying to do things that haven't been tackled and solve for appropriately. I think we'll see more of that. That's a fascinating one to watch. Word from the outside to see was that was that spurring war or is that a one and done? I think personally we'll see a lot more of those. And again, I think we see a lot of a big scope. What what gets interesting I tell people is when you have a merger I time the Dallas but a lot of markets are like Dallas so basically about four players with about 25% of the market each. And that next step is huge because if one and three merge, they're 50% of the market. And by gosh, that happens. Two and four are going to merge just to keep parity. And so I think markets have a natural evolution up to about four or five large players and then they sit still for a while and then the next move because for them to see it happen quickly. So a lot of markets have matured to that level. And I think, you know, we'll we'll see where markets get to that point and then we'll see what happens when we go forward, because those are interim markets. There isn't pushback right now, but that is where a lot of the savings are that we're trying to leak out of the system. But.
Jonathan Wiik: [00:24:53]
Good. Yeah. Speaking of gobbling, we haven't talked about the pears much, so probably be good to talk about what's going on there. I've watched that relationship. I don't think it's ever been wonderful. I've seen some innovations where especially the hospitals that are running their own health plan, I call them like providers. They they understand where they're at, especially with their Medicaid population. They're working maybe a paper performance, some engaged ACOs. I talked to Brooke Ward at Washington Health, and they're doing some really innovative things up there in the Midwest. But what don't you see happening with the payers? I think we're down for a showdown this year, just given where hospitals are at and margins with payers don't really want to slip. I think we're pretty far apart. But but help help me understand that.
Kevin Holloran: [00:25:42]
Yeah, we are far required. So I referenced earlier and everybody knows that again, your your payer is basically it's a fixed number that comes in from the vast majority of payers and that that small sliver, 2530 if you're lucky, 35 or 40% from commercial payers, that's negotiable. Even those are locked in sometimes to multiyear contract. So on any given day, how much can you increase your revenues just by charging more or having a different price is exceptionally limited right now. With so much of your expense base on words, items are extreme duress and it's still going to be bad. You naturally look to the payer and say, Hey, can you help us out a little? And we've heard stories plenty of times where providers are walking in the door and say it's time to renegotiate. And, you know, we want 15% or 20%. And sometimes it's a tactical decision. I mean, you kind of get your foot in the door and you work your way down. But we're hearing, hey, I went in for 15% and they came out with -5% is the opening salvo. That's that's a lot of space in between. It's probably going to end in divorce, as they say. So I do expect payor negotiations to be extremely contentious. I do expect to see people exiting markets playing hardball, so to speak. And then I always get asked a question about what does that mean for operations.
Kevin Holloran: [00:27:05]
It's not good for operations, but you hope it's a temporary thing and a multiyear sort of exit, so to speak, and that you need somewhere in the middle. And our best data showing that we are meeting in the middle maybe on the low end. I'm a provider probably at the high end if I'm a payer with somewhere just below that inflationary number, 6%, 7%, that's a pretty good top place. All right. I can't get all of the back in one fell swoop. Maybe I can negotiate another contract in period instead of three years, every other year or every year and slowly chip away at that. You know, when when COVID first hit and we didn't know what it was and we saw will operations get dislocated, there was a little bit of a falling, I think, in the relationship. We actually heard some people, you know, actively talking about the payers maybe coming to the rescue. We're making lots of money right now because no services are being delivered yet. We're still collecting our monthly dues, so to speak. Maybe we can help you out. And then look, here's game around and 2021 came around, volumes came back and that talk just went away. Very contentious negotiations. I expect, again, a bumpy road over the next couple of years. And you have to ask the question.
Kevin Holloran: [00:28:15]
But it's the same real thing when it comes to to labor. Yeah. So that's another sort of thing that's locked in, so to speak, for for multiple years. Those that were locked in at lower rates during the worst of COVID and the early years were more favorable than those that negotiate out on the open market every day. That's come full circle. And we're seeing a lot of these negotiations being very contentious, very high rates of California, They had over 15%, up to 20% bumps. And we are all seeing what's going on currently in New York and striking this on that. I expect those two dynamics, the payer and the union labor negotiations would be contentious to duplicate, to be expensive, and we'll see some resetting at that stage of the game and build from there. But, you know, they'll take your eye off the ball and it's every day I think you get a turn in unison and say, what's the day? What's the new reset level? Is it 15% rate increases across the board or is it a 5% rate increase? Will be the first person blinks and that becomes the de facto level. Then everybody says, Well, that's what we did here. So that's what I want going forward. It quickly becomes a level playing field from that perspective, and I think we're just about to get there. But frankly, it's almost.
Jonathan Wiik: [00:29:35]
Yeah, I agree with you. I think to another interesting thing that happened with pears, you mentioned them coming to the rescue. They didn't they didn't think about. But I think the other thing that happened, too, is that they experienced, you know, their MLR is dipping quite a bit and then they they they they add kind of to scramble. So you're seeing them invest in areas that they traditionally have it which which might end and be good when I'm seeing them now what I've heard now and why I think they might even be further apart as I'm I used to work for a payer too. You know, you can only make up money at a payer given the line if they have the same line of business shifts as well. They're they're having a shave off of their employer sponsored insurance. They're seeing lots of things going to Medicare and Medicare. If they don't operate a medicare Advantage plan, they're seeing kind of some of their premium get shaved away also. So they're taking some of that out. And you don't have to agree to this. I'll take the keep up, but they're taking some of that out on the providers. I think in utilization, they're starting to turn the heat up a little bit because the only way payers really can remain at the same profit level is either getting more members or paying less claims. Right. Because it's a very simple math problem. And I'm seeing denials double in some areas. And the write offs, I've seen a utilization review on inpatient. Often those things, the administrative burden kind of grow a little bit. I think that's that's going to stay. I think the labor thing might might weigh in a little bit, but I'm really nervous for hospitals surrounding the relationship with the payer. If they're going to be asking for rates there, they're on their heels with this kind of You've denied 10% of my claims last year and I want 5% more now. They've got that. Two things they're asking for. It makes it harder. What are your thoughts there?
Kevin Holloran: [00:31:21]
Yeah, you know, so it's a different sector, so I don't really follow it. But anecdotally we've heard the same thing. Look, Kevin, as a provider speaking, if I could just get paid what I'm owed, right, we would be in a markedly different place right now. But we feel like they're fighting denials on on everything, penicillin, let's deny it, that sort of effect. And and yet I am always a glass half full guy. And so I look at these things and I say, what's your point? Payers, providers, they do have a symbiotic relationship. You bet. I need to put my patients somewhere. You need the patients. We need to get paid more. I mean, they at some point have to buy the common ground, right? I've always been of the opinion that when you're just arguing about numbers, so to speak, you will eventually find the common ground. You're arguing about philosophical differences. Well, those when people dig their heels in and they have a, you know, root cause differentials, but if it's, you know, 7%, 7%, you'll figure it out. That 7% is 10% or it's somewhere in between. But you'll come to some agreement because at the end of the day, you really sort of have to, quite frankly, that, like I say, you know, hospitals, we talk about the staffing shortage. It's hit everybody and so mean. Again, I don't work for bread, I don't study the payers, but I'm sure that they have staffing issues as well, too. And maybe one thing that feels, well, it's just an I everything because we don't have time to process all the bills. All right.
Jonathan Wiik: [00:32:42]
So I'm going to look at it. Yeah. Yeah. We, we need more.
Kevin Holloran: [00:32:44]
Time to process everything through. So I'm not casting any stones at them. I'm sure they're doing what they've got to do. But at the end of the day, I do think there's a there's a mutual relationship, a symbiotic relationship. They will find some common ground, but Lucky won't be without somebody taking a pound of flesh here or there. So it will be been very bumpy. So I'm just hopeful.
Jonathan Wiik: [00:33:03]
Yeah, I agree. I think I always say when I start hearing that it does become kind of more personal or emotional versus factual. And the conversation and I start having conversations about, you know, imagine a world without payers to where we didn't have a negotiating party for employers and for, you know, to kind of keep providers in check a little bit to where you can't have this utilization price and you're seeing government regulation kind of come in because of some of that as it payers have kind of throw their hands up. Look, I can either not pay it or you know, I've tried to keep capped on this, but I keep getting rate increases every year exponentially and 8% across the board price increases. I'm not sure what we can do. So I think we'll see some of it. There's some active lawsuits with with the No Surprises Act and some of the independent dispute resolution stuff that that seems to be play tennis between HHS and your state grants a little bit but we end up and.
Kevin Holloran: [00:34:02]
You also have I think in a dialog that that's it's not going on. It will go on. It certainly is in some states about that we've readdress this do we need some sort of mash law here And I think you know, I've been doing this now quite a bit of years and I think we're closer now to having that open dialog and discussion than we have in several years. Now. I know the state of Oregon's passed a bill saying, you know, health care is a right and I could be getting to set the stage to really again try to expand its or try. Models against for sort of what? Scramble some eggs. Let's break some eggs. Try something different. See if it works. And, you know, maybe it does, maybe it does. But let's have that dialog. Is there a better way so that we can expand that axis? I don't like it on my soapbox, but you can roll all the numbers and say, where do we stand compared to other countries and things like that? And we don't look good, right? I don't want to go there. But you have to start asking these questions. And I think at the end, this is the combined.
Jonathan Wiik: [00:35:02]
Yeah, I think they're good questions to ask. My book talks about doing your homework. I think, you know, politics aside, countries that have done universal health care and other things have different tax structures in the United States. We're very capitalistic, tax sensitive, I would argue country. And whether you're red, blue, purple, orange, red just depends on where you're at and that funding is there. And I think there's programs that work. I think the benefit exchange plans have demonstrated that. I think direct employer contracts like Henry Ford has demonstrated that Wal-Mart's a good model. I love hearing from them about how they've cut a benchmark. The country and our are sending people to where there's good outcomes, good costs, good reimbursement, good payers, those types of things. We do have to crack some eggs and make some omelets and health care. I think we kind of fix it a little bit and and I'm not so sure. It's just let's give everybody coverage because that's not really fixing the fundamental issue of quality outcomes and cost. Right. And we've got to kind of look at that triple aim as we move forward. And as much as the government would like to tell us that that's what they're going to work on, they typically deliver 10 to 20% of what they say, what they get. So we'll see.
Kevin Holloran: [00:36:13]
It's easy to say, very hard to do because you're right, it intertwines the very fabric of what we've all known for our entire lives. Changing that and redirecting a worship that it takes six miles. So it's like I.
Jonathan Wiik: [00:36:27]
You bet. I'm going to close this out here in a minute. I just. What advice do you have for health systems CFOs? You know, even the hit sector that I'm in now, I've worked in all three payer. Hospital and it but you know what what what do you what do you what do you you talked about embracing the change maybe expand on that a little bit as we close out this podcast. Just what what would you leave with us that that you think the market should really look at as we go forward?
Kevin Holloran: [00:36:53]
Sure. I think right now is two things. You know, One is we're we're so very focused on what's right in front of us, which is, again, the operations and the labor and the inflation, and don't let that become all consuming. So I like I tell people as much as I want to hear about how you're going to fix it, quite frankly, the story that we've lost is, you know, what do you want to be when you grow up? What's the strategy that's more important now than it's ever about, you know, because we've got to we're going to get through this. It's not going to last forever. And so what do you want to be when you grow up? What's that next step? And I think we're also full right now with a little bit of a rewind to have those no regrets strategies, maybe. I don't know exactly how to do this whole thing, but I do know that, you know, focusing on operations is a bit bad. You know, you know, warchest, balance sheets, a good thing for these hiccups in the I know, break relations with my doctors or break relations with my payers are a good thing. So, you know, focus on those no regrets strategies but but don't don't ignore that long ball so to speak. I was talking with someone today. I got to for the first time in three years, I got an actual multi year forecast and it was like, Wow, what a breath of fresh air. And I was a ten year forecast and like, I don't know, I haven't seen one of those in a five years to begin with, but nothing more than like next month during COVID. So I think we're beginning to slowly get back to that. And I think, again, we've got to keep focused on focus on the horizon. Well, as much as you sort of take care of David.
Jonathan Wiik: [00:38:18]
You bet. Kevin It's been an absolute pleasure. You know, wealth of knowledge. I got to get you back. I think listeners will agree. You just you just know the industry so well, and it's just fun having a dialog with you. And maybe we'll talk about how how much better we're doing, you know, in the summer or something as we move forward. Again, I'm Jonathan Wick. This is the FinThrive Rethink podcast. Kevin Hall today. Kevin, thanks for your time.
Kevin Holloran: [00:38:44]
Thanks shop and pleasure to be here. Happy to come back anytime. Appreciate it.
Jonathan Wiik: [00:38:48]
Have a great week.
Kevin Holloran: [00:38:48]
Healthcare Rethink - Episode 42
Hosted by Brian Urban, Director of Innovation & Emerging Markets at FinThrive, the latest episode of Healthcare...