Abby Burns (00:13):
From Advisory Board, we're bringing you a Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. I'm Abby Burns.

(00:21):
We've talked a lot on Radio Advisory about how provider organizations can respond to and even plan for financial impacts of policy changes. Last year, policy updates were so fast and furious, we even added a Policy Pulse segment to the podcast. This year, the policy front might seem a bit quieter, but the reality is there's still a lot happening, and even routine policy updates, like the annual OPPS update, seem to be packing punches for provider margins.

(00:50):
Today's conversation is about how health systems and medical groups need to think about managing their margins at a time when policy changes are not only putting pressure on the margin itself, but making the playbook for weathering and navigating those pressures a lot less straightforward. The question at hand isn't just, how do I respond to policy changes? It's, where should I be looking for margin because of those changes? To help us answer that question, I've brought Optum expert Samantha Wyld and Jess Garber.

(01:18):
Jess, Samantha, welcome to Radio Advisory.

Samantha Wyld (01:21):
A pleasure to be here.

Jessica Garber (01:22):
Thank You for having us.

Abby Burns (01:26):
So, the conversation that we're having today is about health system finances, but really it's about the leaders that are trying to inflect health system finances. So, that's actually where I want to start our conversation. Because when you work in an industry where normal margin is typically, what, around 3%, managing finances is really a constant battle. It's never easy. You all are working with health system leaders day in and day out. Start us off by giving us a pulse on maybe how and what these leaders are feeling right now.

Samantha Wyld (02:01):
I think there's not necessarily a commonality across the country. There's a lot of disparity between sized organizations. I definitely find larger health systems are feeling a little bit more optimistic. Perhaps instead of starting at 3% margin, they're starting at 8 or 10% margin, so they've got a bit more padding and cushion, versus when I'm talking to smaller community health systems that often exist in largely suburban and rural markets. They're already operating at that 3% or maybe they're actually looking at being in the red for the end of their fiscal year, and so there's a lot more urgency and a lot more worry and concern about the now than the health systems I talked to seem to be a little bit more worried about 24 to 36 months out.

Abby Burns (02:51):
That's a great point. We talk about health systems as though they are a monolith when we know that's actually not the case.

Jessica Garber (02:56):
Right.

Samantha Wyld (02:56):
Absolutely.

Jessica Garber (02:57):
I think also health systems, while they are under immense amounts of pressure, there isn't that feeling of doom and gloom. They've been here before. They've been hit by policies that might not paint the prettiest picture before. To a certain extent, they know that they'll be able to weather the storm. It's more of how are we going to weather the storm rather than can we weather the storm.

Abby Burns (03:24):
I think that's a great distinction. One of the things I love about working in healthcare is this sort of... I won't call it perpetual optimism, but there's no option for ultimately failing. We have to continue to find ways forward, which can feel increasingly hard when we look at, hey, health systems are under a barrage of financial pressures. Yes, the market shifts, we've been seeing for so long, and then also a lot of policy pressures. I'm wondering what is different about policy-driven margin pressures today. I'm interested in what's different about the policies themselves and what is different about the impacts they might have.

Samantha Wyld (04:01):
When we look at the policy changes, the scale and breadth of certain policies, for example, H.R.1, are far-reaching than what we have typically seen. I know in the state of the industry advisory board, we liken it to... Gosh, I think it's like the GDP of a state in terms of the reduction in funding that is coming over the next number of years nationally and reduced reimbursement that healthcare providers have to figure out, how do we either make up those dollars that are no longer coming from federal sources elsewhere, or how do we reduce our costs in at least a one-to-one ratio so that we can maintain the margin performance that we're seeing today?

(04:45):
And then, of course, there's more micro policy changes that organizations have to be keeping a finger on the pulse of as well, things like annual CMS OPPS changes, which impact the ways that we are treating patients in terms of what is on the inpatient-only list, which shrinks each year, what is actually considered a comorbid or complex condition for which we will actually receive additional days, length of stay, and additional reimbursement for treating that patient, and those conditions are also becoming more narrow.

(05:18):
And then there's also changes in reimbursement. We've been talking about site-of-service neutrality my entire healthcare career, which has spanned nearly two decades, but there's continued movement on that front. And so, there's macro policy that feels bigger and bolder than perhaps what we've seen in the past, coupled with micro policy that's very narrow, but can also similarly have pretty significant impacts.

Abby Burns (05:43):
Yeah, that's a really helpful distinction. You referenced the equivalence of if we call the One Big Beautiful Bill Act aiming to take out about $1 trillion of health spend over the next decade, that is roughly equivalent to the annual economic output of Switzerland, so talking about scale there. And then the micro cuts really, it feels like... I've heard it referred to as sort of death by 1,000 cuts. And so, looking into each of these, really tough to be capturing the nuance of all of these.

Samantha Wyld (06:10):
Absolutely. And to Jess's earlier point of, surprisingly, when we speak with CFOs, VPs of finance, chief executive officers, there isn't necessarily this feeling of doom and gloom, in part because operating in tough financial constraints has in many ways become the norm. So, this is the next big headwind, but our role in our work with organizations on margin is not to scare folks, but to help folks understand the level of threat their organizations are facing today and three to five years out so organizations can plan accordingly.

Abby Burns (06:46):
I'm wondering just to sort of make this real, I think most folks have a pretty good sense for the macro policy that we mentioned, the One Big Beautiful Bill Act and the various component parts. Can you give me an example of a micro policy that maybe providers are experiencing the impacts of, but may not be able to draw the connection to?

Jessica Garber (07:04):
I think one thing that is top of mind for me right now and several organizations that I'm partnering with is the new CMS guidelines for provider-based billing at what you call your off-campus sites.

Abby Burns (07:21):
Jess, just to be clear, we're talking about HOPD billing at outpatient clinics that are not on the hospital campus?

Jessica Garber (07:29):
Correct.

Abby Burns (07:30):
Okay.

Jessica Garber (07:30):
CMS has, starting in 2027, a new set of regulations which require those off-campus sites to attest to a host of different regulations that CMS lists, as well as each site now needs to be registered under its own NPI, cannot be registered under the hospital's NPI. So, there's quite a large investment for many organizations there to continue to enjoy the reimbursement perks from provider-based billing. And while we feel that that's pretty big, I think for many organizations, they don't feel that same urgency, and the repercussions of that are that they will no longer be compliant. They might find themselves in the position that CMS will no longer reimburse for those services.

Abby Burns (08:29):
The administrative requirements to essentially be compliant with this rule that's going to start in 2027 might seem like no big deal, but it will require an investment in sort of proactive actions on the part of providers.

(08:42):
Jess, you mentioned the potential repercussions of this micro policy change. Play that out a little further for us.

Jessica Garber (08:49):
Sure. The writing on the wall that we're seeing when you think about CMS requiring these sites to file under their own NPI is that it very much could lend itself to CMS then tracking at the site level who exactly is engaging in provider-based billing, and it is almost like an ID or a tracker to then say, "Well, these are the off-campus sites. We're no longer going to reimburse for provider-based billing at those off-campus sites." And it's getting towards site neutrality, something that has been very controversial but talked about for decades.

Samantha Wyld (09:33):
Yep. Put another way, Abby, organizations are either evaluating if they're already in a provider-based billing construct. Does this still make sense for us with the increased complexity and compliance regulations? It also might make organizations who haven't yet migrated to that model but are considering doing so, which, believe it or not, there are still large organizations, pondering, "Should we be moving to provider-based billing?"

(09:59):
Just 24 months ago, we helped a very large health system in the Northeast migrate to that type of structure. Because when we did the analysis, we uncovered almost $30 million in incremental reimbursement annually for that organization. Now, they required a few million dollars of investment in just setting up to realize that to be compliant. But in a world where folks are operating at 3% margin, it's hard to turn down $30 million year over year. However, if you are sitting today at the back half of 2026 and you haven't implemented yet as you do your analysis and as we look at things like imaging coming off the table for even being eligible for provider-based billing, what's the next service line to follow, and will that number essentially shrink down so that it's no longer worth the investment or the compliance headache, to be frank, to maintain that type of billing structure?

Jessica Garber (10:57):
And that is where the strategy comes in. On the flip side, we're working with another organization, a children's hospital in the Southwest, that is in the process of scaling back their provider-based sites. Because strategically knowing the investment that must be made to do this compliantly and knowing their payer and patient population, they no longer think that the additional reimbursement is really worth the investment in their market.

Abby Burns (11:30):
What this is all pointing to, I think this is such a helpful example to show how individual policy changes have large margin impacts and pose important strategic questions. I don't necessarily expect every leader to become an expert in every policy coming across their desk, although you can tell me if I should be thinking about that differently, but I think what this example shows is margin management is not simply a finance function anymore. It really has become a strategic function for health systems.

Samantha Wyld (12:01):
I think what we're finding is, increasingly, we have to couple margin and strategy in a more deliberate and intentional way and think about how do we execute on our tried and true margin management strategies of years past that have served us well, and where do we innovate or where do we look to policy as a signal for where we should be innovating further that has perhaps not been a part of our playbook in the past? There are a few areas where this comes to light again and again in the conversations we've been having with leaders across the country. I think those three areas are really around pricing strategy, clinical documentation, and coding. And then, frankly, many organizations are finding the way in which they are operating themselves is actually an opportunity. And by that, many organizations have an opportunity to look at, have we grown in a scalable way?

Abby Burns (13:02):
There are no small fish in that pond that you just laid out for us. I want to talk about each of these three in our conversation today, and let's start off with the first one, with pricing strategy.

Jessica Garber (13:13):
I think a concrete example that we've been partnering with an organization on is they are looking really both across their local market, what are their prices across different service line compared to their competitors, but also against peer organization across the country, are they being reimbursed similarly by the payers? So they learn that, yeah, pretty much they are being reimbursed fairly, maybe even a little bit lower for those services, but that doesn't mean that they should just go raise prices in their market to compensate for some of that lesser reimbursement, I guess is what I'm trying to say. What they learned is that, in their market, they are priced high compared to their competitors.

Abby Burns (14:03):
Oh, interesting. So, it's important when we're thinking about benchmarking, benchmarking against who?

Jessica Garber (14:08):
Exactly. And the conclusions that they came to is that, for certain service lines, for certain specialties where they're a differentiator, it makes sense potentially to be priced higher, and they could compare themselves across the country and say, "Yes, this is sort of fair based on competitor hospitals." Where it didn't make sense is for services that are commodified, like an X-ray, like a primary care visit, where although they're a destination site, can kind of get those services everywhere.

Abby Burns (14:41):
Yep.

Samantha Wyld (14:41):
And I think to Jess's point, this is a great example of... Abby, you asked what's the difference between margin and strategy. And this is a place where if you're solely in pursuit of margin transformation, you might say, "Let's just focus on negotiating with our payers to get the best possible allowable rates, aka price, that we can get. Let's charge as much as we could be charging." But on the strategic side, if you're finding that you've got facilities that are brand new and shiny, like this client partner has that are largely vacant, and you're determining part of why that is the case is your price has actually discouraged patients from seeking some of those lower-level services at your site, then does it actually serve you in any capacity to have the best allowable rates? You have to resist the urge to just want to get the best reimbursement, but also understand how is that actually impacting utilization and patient preferences.

Abby Burns (15:41):
Yep, and especially as we look at... Most health systems that I talk to are heavily focused on improving referral integrity. Well, you need to have the source of the referrals in order for referral integrity investments to ultimately pay off. I think that makes a lot of sense.

(16:43):
The second strategy you named, Samantha, I have to say is one that surprised me. You brought up documentation and coding, and I flashed back to... I think it was 2017, I led a research study on the importance of documentation and coding for population health management. Here we are nine years later, talking about documentation and coding. Why is that important in our 2026 conversation?

Samantha Wyld (17:07):
What's different about thinking about clinical documentation today than, say, 2017 is typically coding and documentation were viewed as these levers that we could pull to actually drive incremental revenue capture. And what's shifted and what we're seeing today, again, largely driven by changes that we're seeing from a policy perspective of more and more services and procedures that are moving off the inpatient-only list and now can be performed in outpatient settings, changes to what actually counts and qualifies as a CC, MCC, or a comorbid or major comorbid condition, which essentially, for anyone who may not be a deep revenue cycle nerd, means you get paid extra because that patient is going to require more resources and likely more time to care for than if they did not have that comorbid or major comorbid condition. The list of what counts for those conditions has become smaller, and also essentially the bump in how much additional reimbursement you're receiving from CMS to care for those patients, in many cases, is going down.

Abby Burns (18:15):
I didn't realize that, which feels especially important because we know that the average acuity level of, in particular, Medicare patients staying in the hospital is going up. That feels like that would have pretty important financial impacts.

Samantha Wyld (18:29):
The game has changed when we talk about coding and documentation from an opportunity to turn over this rock and find a multitude of dollars underneath it from an incremental revenue perspective to, now, it's really increasingly becoming something that we think of as a tool in our toolkit to help with margin preservation. Most organizations are deteriorating from a medical surgical split, meaning they have more managed medical patients in their inpatient beds than they do surgical ones. And there's no comparing the case mix index, which drives your reimbursement from a surgical patient to a medical patient. No matter how fantastic your documentation is, you can't document your way to a surgical case mix index, and that's happening nationally.

(19:13):
I would say the other thing that we're seeing is small shifts in what's considered the relative weight, so again, at the risk of getting too revenue-cycle nerdy, but essentially the value that CMS credits for the diagnostic-related group that a patient is grouped to. So, if you go in and you have sepsis and that's ultimately what's coded as your reason for your inpatient admission, what we're seeing is the value at which we are basing how much the hospital gets paid for that septic patient has gone down, and it's gone down by a few hundredths of a point, which might not seem significant.

Abby Burns (19:51):
I was going to say, that sounds pretty small.

Samantha Wyld (19:53):
But when you multiply that times the number of patients that you are typically seeing that fall into that DRG grouping, and then you multiply that times all of the different factors that actually end up being what you get paid for that patient, what we're finding is it actually can be rather significant.

Abby Burns (20:12):
Samantha, do you have any examples that can help make this feel real?

Samantha Wyld (20:16):
Absolutely. To help put a finer point on it, we're working with an organization that is a regional health system in the south. We work with a lot of different organizations across the country in a similar fashion where we help identify, in a data-driven manner, providers in the hospital setting who the data suggests they could ultimately provide more complete and accurate clinical documentation to represent the acuity of their patients. So, in other words, they look like a data outlier, and we have a robust process to actually review records for their patients. We have clinical subject matter experts and nurse CDI experts who review that and understand, is there really a there there? Where there's smoke, is there really a fire? And based on that, we then conduct personalized education with the providers on the very specific concepts relative to their area of specialty practice that they could improve upon. And we have typically, over the course of our decades-long partnership, seen sometimes two-digit percentile improvement from a case mix index for those providers from the work that we're doing.

Abby Burns (21:21):
So, you're looking at the provider level, and when I say provider, I mean individual clinician level to drive behavior change when it comes to documentation and coding. Because as much as we can focus on documentation review after the fact from the administrative side, we also have to look sort of straight to the source, to the clinicians themselves, when we're thinking about initial capture.

Samantha Wyld (21:42):
Absolutely. What's been interesting in our work over the last 12 months is we went through our same tried and true data-driven provider education and engagement process. And when we looked at the results comparing our initial quarter of data post-education session compared to their pre-education data, instead of seeing some of the double-digit CMI improvements we've seen in the past, we saw a very modest improvement of only about a half a percent of case mix index improvement, which of course inspired our team to dig deeper and understand what was driving this type of performance. And one of the things that we did was we looked at, for that group of just those educated providers, if we took their patients in their pre-education period and we compared what their case mix index would have been using the 2025 DRG and relative weight assignments, which changed in 2026, to what they would have been for that same patient population without any intervention or education in 2026, those providers for those specific patients would have seen an almost 12% decrease in their case mix index, which would have lost that organization $2 million in essentially associated reimbursement.

(23:02):
And so, when we look at that, gosh, about a half a percent CMI improvement doesn't sound so exciting. But when you compare that to potentially losing 12% in your case mix index, it was a wonderful illustration of you've got to find the opportunities to improve, to just maintain and keep that same CMI performance that you've historically been seeing.

Abby Burns (23:27):
You used the word earlier, micro policies, but that change to the CC, MCC weighting doesn't feel so micro when you put it in context like that. And so, one of the themes that I'm gleaning from our conversation is getting to this level of deeper granularity and digging beneath the surface.

Jessica Garber (23:44):
Yes. I think you're capturing that while many of the revenue-generating areas, whether it's pricing, whether it's coding, documentation are still important. We have to look at it from a different strategic way. Because doing things the same way unfortunately will not only not see more revenue, but it won't even allow you to maintain that little bit of margin that you may have today.

Abby Burns (24:16):
That brings us to the third strategy that you named, which is essentially trying to yield economies of scale from the growth that we've seen health systems undergo over the past 5, 10, 15, even 20 years. I will say, this is a question that we are getting more and more. Conversations about post M&A integration and yielding economies of scale, I feel like they kind of ebb and flow. I would say they're flowing at the moment. Talk to me about where you are seeing unrealized opportunity as you're having these conversations with systems.

Samantha Wyld (24:46):
I think one area that's been really interesting in the have we grown in a way that is scalable is we've been working with a number of organizations to assess some of their really corporate shared services. So, this spans things like human resources or, here at Optum, we call it talent capital, supply chain, revenue cycle, marketing, IT, and really identifying, have you moved beyond what we think of as the first generation of shared services, which was largely let's choose the model that exists within our health system, typically within our flagship facility that was the largest. Let's assume that's working well, and let's centralize everything and just replicate that model. And so, it was really a lot about head count and centralization and reduction of process variation.

(25:38):
Where there still seems to be quite a bit of opportunity, really nationally and even with some of the most progressive and innovative organizations that we've talked to, is understanding how to actually go a level deeper into sort of second-generation, if you will, shared services, which is really more about how do you provide more value to the organization and create a scalable process that actually is better.

(26:06):
One good example here that we've talked about with organizations is human resources. In a shared services environment, sure, you can look at your head count and understand, are we more lean in our recruitment team in a shared services environment? We typically see anywhere from 25 to 28% labor cost reduction from just moving to a shared services environment, but that's not the main kind of second-generation lever, that's first gen. Second generation is really, am I actually achieving higher retention rates through my HR shared services? Have I reduced turnover? Because one of the biggest benefits of operating in a scalable larger model is you have a career ladder that didn't exist before. And so, that's one example of this iteration and the maturation that we're seeing organizations go through in their journey for shared services.

Abby Burns (27:00):
I love that you ran at this example in particular because I think, a lot of times, when we hear the words economies of scale in the context of post-merger and acquisition integration, a lot of people automatically assume we're talking about head count reduction, we're talking about savings through labor force reduction. And where you're actually going is there is probably an element of that or there's often an element of that, but let's look at the savings from actually the flip side, which is workforce retention and not incurring the cost of turnover and not incurring the cost of having empty seats to fill that go unfilled for longer periods of time.

Samantha Wyld (27:33):
Absolutely. When we do this work with organizations, yes, of course, the first layer is always let's just look at your staffing and let's benchmark that, but we all know benchmarks are guide rails, and, honestly, shared services benchmarks out there are not the best. They're directional, certainly. So, what we look at is really how do you make sure that you're advancing your skill mix. It's not just a head count.

(27:56):
Another great example that I often work with my colleagues around is managed care. How do you have the most seasoned folks who know how to manage things, like reimbursement strategies around should we go to the provider-based billing, should we get out of that, and also where should we aim for the highest allowable rate versus where should we have a welcome-mat rate that actually encourages people to come in so that maybe we're not making a ton of margin on a volume perspective, but we're capturing new patients, that's a different skill set than just having folks who can read contracts, and so moving and advancing folks along that skill mix so that you're ultimately achieving better outcomes and whatever the right KPI for outcome management is for that shared services function.

Jessica Garber (28:43):
Right. I think to what you're saying, Samantha, many organizations centralize to centralize, and then you stop, and then you're left with, yes, maybe you have a little bit less cost, but you've got a central team in many different pockets that aren't really being efficient and aren't really going to that next level and driving performance across the organization. So, I think that is a question that I would pose back to anyone listening is, what are you doing with that centralization? How are you taking it to the next level?

Abby Burns (29:20):
Jess, you've brought us perfectly to where I want to close our conversation today. We've talked about a lot of kind of nitty-gritty strategies that at the top line sound like, "Hey, we've been doing this work for decades." But actually when we dig in, we understand why doing this work in 2026 is different from what it looked like to do this work in call it 2016.

(29:39):
My final question for you all, what separates the organizations that will be most successful in navigating this incoming wave of both macro and micro policy changes?

Samantha Wyld (29:49):
My prediction is that organizations that are going to succeed are going to be those that think very strategically about what are the forces that could inflect margin for us, and how do we have a deliberate and forensic approach to identifying how much money is under that rock, and should we go after that rock today. So, being very deliberate about what your organization's margin transformation priorities need to be will help separate those who are going to be really top performers.

Jessica Garber (30:20):
One other successful attribute is Samantha and I talk a lot about moving some of what we've talked about today and some of those really operational margin best practices from just an organizational lens to a service line lens. And I think that successful organizations will start to plug and play margin and put accountability of margin management on their service lines in a specific way.

Abby Burns (30:50):
Well, Samantha, Jess, thank you for coming on Radio Advisory.

Samantha Wyld (30:53):
Thank you so much for having us. It's our pleasure.

Abby Burns (31:01):
It strikes me that if we just look at the topics and the tactics that we talked about in our conversation today, pricing strategy, documentation and coding, getting economies of scale from mergers and acquisitions, it seems like this is a conversation we could have had at any time in the past decade or even two decades. And yet, it still felt like a 2026 conversation because the reality is the policy changes the providers are experiencing right now, this year, and the year to come mean they'll need to take a fresh look at how they actually implement these strategies in order to see the margin gains that they may have relied on for a long time.

(31:39):
Now, we covered these three strategies in our conversation today, but there are certainly more. Feel free to get in touch with us if this is something that you're working on because remember, as always, we're here to help.

(32:10):
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(32:14):
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(32:20):
Radio Advisory is a production of Advisory Board. This episode was produced by Rae Woods, Chloe Bakst, Atticus Raasch, and me, Abby Burns. The episode was edited by Katy Anderson with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Dominique Del Gaudio We'll see you next week.