Rae Woods (00:16):
From Advisory Board, we are bringing you a Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. My name is Rachel Woods. You can call me Rae.

(00:27):
Let's be honest, it feels like healthcare is changing at breakneck speed. It's not that the forces are new, we're used to policy shifts, new tech, changing patient demand. What's different is the pace of change and the fact that all of these forces are colliding at the same time. And at Advisory Board, we spend a lot of time talking to leaders about how they're responding to pressures like these. And today, we want to share some of that with you. We want you to understand what your peers are doing, how your partners are acting, even what your competitors are doing in the face of these industry shifts. And to do that, I brought two members of our state of the industry research team, Morghen Philippi and Marisa Nives.

(01:08):
Morghen, Marisa, welcome to Radio Advisory.

Morghen Philippi (01:13):
Hey, Rae.

Marisa Nives (01:14):
Thanks for having us.

Rae Woods (01:19):
The two of you and the broader state of the industry research team have spent the last several months talking to leaders across the industry, dare I say across every corner of the industry. Let's start high level. What is the overall tone when it comes to the state of healthcare right now? What's the vibe?

Marisa Nives (01:37):
I think the vibe is a little more certainty than we may have had in the past. Leaders this year have a game plan. They know what's coming down the pike from HR1 in a way that they hadn't in the past.

Rae Woods (01:51):
I'm a little bit surprised to hear you say that because I'll be honest, when I'm on the road and I ask leaders to describe the state of the industry, they are quick to use some pretty dire terms. I hear broken a lot. I heard dumpster fire once. But you're saying certainty.

Marisa Nives (02:09):
I think last year, leaders were very preoccupied with planning for every scenario, which is a really hard place to be in when you don't know what the future holds. Now, most leaders would describe the future that they're looking down as difficult, chaotic, dumpster fire, but at least they have a little bit more certainty on what it is they have to plan for.

Morghen Philippi (02:31):
I would actually add on to what Marisa said, that this feels like a moment of resiliency. When we talk to healthcare leaders in 2026, all I hear is resiliency. And to be honest, it's not what I expected to hear. I expected doom and gloom. It is a hard time to be in the healthcare industry. And yet when I talk to leaders from every corner, as you said, they are all saying, "Listen, at the end of the day, we need to deliver care to patients and that is what we will do. We will figure it out. We've done hard things before and we will do them again. We can do this."

Rae Woods (03:10):
Do they feel resilient now or do they recognize that they need to get to resiliency?

Morghen Philippi (03:17):
I think that they feel that they have no other option, Rae. They feel like failing is not an option for their organization, for their communities, for their patients. And so though the road ahead may be very difficult, the strategic pivots they need to do, all of these different mindset shifts, all of these different strategic initiatives they need to take on might be challenging. They're saying, "We have to. There's no other way."

Rae Woods (03:41):
Yeah. Does the tone shift when you speak to different leaders? I'm thinking different levels, a director versus a CEO, different sectors, different sub-sectors?

Morghen Philippi (03:52):
For me, I think it is less about variability between a CEO or a VP or between a payer and provider and more about the specific organizations we speak to. So regional health plans, for example, have very different answers than a national health plan. Understandably, regional health plans are feeling a lot more squeezed than national health plans. So they're saying, "Listen, these are dire times for us. We're going to really have to get things together." Whereas a national might see a lot of opportunities in the fact that a regional is struggling.

(04:25):
The same thing applies to providers and other folks across the industry. It really is market dependent, it's size dependent. There's so much variability across organizations and different groups.

Marisa Nives (04:37):
I would say that's even true when we talk to the organizations who work with payers and providers, which we have talked to quite a few different types of partners. They are having to manage a portfolio of clients that are in very different places, whether that's a rural healthcare provider, whether that is an academic medical center, a pediatric hospital. Those people have a lot of different needs and partnership health systems are managing across a wide variety of those challenges.

Rae Woods (05:08):
So I think it's fair to say that the leaders you spoke to are feeling stretched thin. Just how stretched might look different depending on who you're talking to. But across everyone, they know we've got to get this right in order to support our patients, our communities, our providers, our employees, et cetera. Let's name what's driving that tone. What is really new? And what's just more intense?

Morghen Philippi (05:33):
This gets back to my comment on resiliency, Rae, right? You don't need to feel resilient if everything is easy. The reason folks are feeling resilient is because everything feels like it is changing. It feels like things are a little bit unstable perhaps. Yes, we know we can meet the current moment, but what is tomorrow going to look like?

(05:54):
And I'd say the things that folks bring up every single call I think starts with policy. We're talking about all sorts of policy at the federal and state level. So that's changing very quickly.

(06:07):
The other thing that comes up in every single call is technology and innovation. Technology and innovation, specifically AI, are changing so rapidly that leaders are struggling to keep up. They say, "What is tomorrow going to look like? I have no idea, but I know I need to be prepared for it."

(06:25):
And then you have changing patients. You have the demographic side of things. We've talked about this a lot at Advisory Board. You have younger folks that are sicker, you have an aging population, but you also have folks who are changing what they think they want from healthcare. We have different expectations. Patients are expecting new things when they walk into the room and a lot of that is influenced by all things happening outside of the incumbents, all of these digital disruptors who are coming to the scene.

Marisa Nives (06:55):
Yeah, Morghen, that makes me think of something we heard on a recent research interview with a healthcare leader who said that they had been in the industry for over 20 years and this is the most change that they've ever had to navigate.

Rae Woods (07:08):
Wow.

Marisa Nives (07:10):
Again, there is more certainty. There is more certainty in what's going on in policy, what has been written into law. But to Morghen's point, there is so much changing in a relatively short clip of time. A couple of years may feel like a long time to us, but for healthcare leaders, no, that's a fraction of the time they've spent in the industry, so change is the only constant these days.

Morghen Philippi (07:29):
Where I actually feel like we hear this a lot is in the sectors of the industry that work with providers. When we talk to MedTech folks, when we talk to facility planners, anyone who interacts with providers, they're the ones naming very clearly for us that the providers they work with are unsure how to move forward because everything is changing so quickly. How do they build their facilities to keep up with the rate of change? How do they choose their MedTech partnerships and their innovative tools at a pace that keeps up with this change?

Rae Woods (08:05):
And that speaks to the ripple effects that we spend a lot of time on Radio Advisory talking about, that the direct impacts for providers are going to trickle down and impact the MedTech partners and the facility planners, et cetera. There's still a lot of, maybe I'm going to use the word anxiety about what's going to happen next in the state of the industry, especially if you start to add on ripple effect after ripple effect.

(08:26):
But one of the ways that you use to describe the tone for health leaders was actually one of confidence. And I think that confidence actually comes back to knowing what they need to do in the face of the Medicaid cuts that are going to begin in 2027 that were part of last year's HR1 or the One Big Beautiful Bill Act. It will be hard to execute against those changes, but at least leaders seem to know what they need to do. Is that right?

Marisa Nives (08:52):
I would say so, yes. I think the strategic playbook isn't different. You don't have to throw out what you've been doing in the past. It just feels like there is a lot more urgency. And in some ways, urgency's a good thing in healthcare. It's kind of pushing you to make the decisions that you might not have had to have made in the past.

Rae Woods (09:10):
Urgency for what?

Morghen Philippi (09:11):
Urgency to do the things that have been sitting on your to-do list. It's to do the strategic initiatives that you've been thinking, "Gosh, I wish I had the time to do those. I know it would make me better at X, Y, Z. I know it'd improve my bottom line, I know it would improve patient care, but I don't know how to get it done." Leaders don't have a choice anymore.

Rae Woods (09:32):
And there's an obvious example of that for me in the context of doing the difficult work of helping with the administrative burden of preventing undue Medicaid churn. People losing coverage is a problem now. It will just be more of a problem in 2027 when the rules change.

Morghen Philippi (09:48):
100%, Rae. And this gets back, I can think to one CFO we spoke with and he said, "Listen, in response to One Big Beautiful Bill Act, it's not one thing I'm doing, it's 70 different things. It is 70 different initiatives that we have taken on and all of them are urgent and important now and none of them are new. They were all on my list in 2025, but I had to do them in 2026."

Rae Woods (10:12):
I had to do the hard work of cost-cutting. I had to do the hard work of looking at differentiated ways to growth. I had to do all of that hard work because $1 trillion of cuts are now on the line.

(10:23):
The looming Medicaid cuts though are just one piece of the puzzle. You all just named that policy shifts, change, chaos, it's clearly far from settled. Where are leaders still feeling policy uncertainty or where should they be?

Marisa Nives (10:40):
I'll go ahead and name the elephant in the room, 340B.

Rae Woods (10:43):
Yeah.

Marisa Nives (10:44):
Most leaders are planning for growth in pharmacy, particularly on the healthcare provider side.

Rae Woods (10:50):
Counting on growth in pharmacy maybe is another way to say it.

Marisa Nives (10:53):
I would agree. So much of the success in pharmacy strategies is dependent on 340B existing and existing in its current form. Leaders know that and they voice that concern. They have a little bit less of an idea of what to do if 340B changes in any way.

Morghen Philippi (11:13):
I want to reiterate what Marisa is saying here, Rae. And that's that when we look at One Big Beautiful Bill Act, it seems like the industry knows how they want to respond. When we look at pharmacy, again and again, we hear providers say, "340B is key to my survival. I do not know what I will do if 340B goes away," and that's it. We ask, "Is there a plan? What's the follow-up?" We're eying these potential changes in 340B and no one has a really good answer.

(11:49):
We heard from one chief strategy officer that as a response to the One Big Beautiful Bill Act, they need to find $100 million per year. And he said, "That doesn't actually scare me. I think we can do that. But if 340B or site neutral hit, I have no idea what we will do." That is a different story.

Rae Woods (12:11):
Ah, so there's a confidence in the face of the known changes and that confidence starts to deteriorate when you start talking about the unknown changes.

Marisa Nives (12:21):
Exactly. And some of the known changes can almost overshadow what you need to be doing for the unknowns. For example, Morghen brought up site neutral. I think most health system leaders know they need to be expanding into ambulatory. That is definitely on the priority list of most of the leaders I talk to. But at a time when capital is scarce and they're worried about future cash flows, the capital they currently have, that's going into aging inpatient facilities. So in a way, some of that certainty around knowing what's to come can also hinder our ability to be able to spread ourselves to both addressing the known challenges and the unknown challenges.

Rae Woods (13:02):
And this gets me back to what Morghen was saying when she said that every single leader is acting with urgency. It's like the pressure of the One Big Beautiful Bill Act forced a lot of change as a result of fighting against that policy, like I was talking about with Medicaid churn, but also enabling a more resilient organization period. What are the right cost control levers? What are the right growth levers?

(13:25):
I want to pause on growth for a moment. What are you hearing about the strategic push for more commercial volumes? This has been a big topic on Radio Advisory, so if folks want to go deeper on that, we're going to put a few links to that in the show notes, but what are you hearing directly from health leaders?

Marisa Nives (13:43):
Most healthcare leaders are telling me that they need to outgrow the pressures coming down the line.

Rae Woods (13:51):
And is that possible? Is that realistic?

Marisa Nives (13:55):
I think it's going to depend significantly on market, particularly when we're talking about commercial patients. When the bill first came out, commercial patients was the talk of the town. We have to keep our cross subsidy. And with Medicaid being cut, we have to pursue more commercial patients to keep our subsidy stable.

(14:15):
Some of that conversation is changing. Payers are starting to recognize that there really is only so many commercial patients to go around, unless you're blessed to be in a market where there is a lot of commercial patient growth, which is not that many markets. So leaders are figuring out that they have to do both the commercial patient growth but also manage the churn in Medicaid, the cost of treating Medicare patients alongside of that commercial patient growth.

Morghen Philippi (14:45):
Yeah. I think it is all a balance, as you're saying, Marisa, and I think different types of organizations are finding different balances. So I would bucket into three different types of provider orgs that we've been talking to.

(14:58):
We have some provider orgs who are saying, "Yeah, that would be lovely to grow our commercial patient volumes, but that's not realistic for us," perhaps because of their market, perhaps because they think that's not a winning strategy for them. We spoke with one chief pharmacy officer at a health system in the West and they are actually making plans to grow their volume of Medicaid patients, which seems counterintuitive when we're talking about commercial patients, right? But this gets back to that 340B conversation. They are worried about losing DSH status, which makes sure that they can have access to 340B savings. And the way they can try to maintain that DSH status is by growing their Medicaid patients. So that is included in this bucket of folks who are saying, "Maybe chasing commercial patients is not the winning strategy for me or heavily investing in chasing commercial patients is not the winning strategy for me."

Rae Woods (15:52):
This gets me back to ripple effects because this organization knows that if they focus too much on winning commercial volumes at the expense of losing Medicaid volumes on top of the Medicaid cuts that we already know are coming, they're concerned that if their Medicaid volumes drop too low, they can lose their DSH status, which means they lose their 340B status, which means they're losing a profit pipeline from pharmacy. They cannot afford to do that, so they need to make sure they're keeping their Medicaid patients.

Morghen Philippi (16:21):
You've got it, Rae. And like I said, that is one bucket of maybe we are not prioritizing commercial patients as much.

(16:30):
In the middle bucket, I'd put folks who are kind of in this middle balance between commercial patients and other lines of business, in which their strategies when they talk about "growing" commercial volumes are actually strategies that are general access strategies. They're really just growing access for everyone and kind of hoping that commercial patients come in their door. Examples here, digital front door strategies, huge. Those get listed all of the time. Are they hoping that digital front door appeals most to commercial patients? Yes, but that can welcome anyone into their doors.

(17:08):
Then in this third bucket, you have folks who are explicitly chasing commercial patients. Strategy listed here that we've heard, opening an ASC that will only accept commercial patients. You have this wide array of providers where on one end you have folks saying, "Listen, we really can't chase commercial patients too hard," to this middle bucket of, "It's all a balance. We'll se what we can grow," and this third bucket of, "We are chasing commercial patients very, very hard."

Rae Woods (17:36):
And as we've said many, many times, and I'm going to continue to say until I'm blue in the face, every single one of these decisions has ripple effects, not just for one organization or for one sector, but to the entire ecosystem of healthcare. So are the health leaders that you're speaking to naming the downstream effects of, let's say one system successfully captures a lot more commercial volume, what does that mean for everyone else?

Marisa Nives (18:02):
Yeah, we are definitely seeing this happen even before some of the changes to Medicaid go live. Talked to a safety net provider in the Midwest who told us that their share of uninsured patients is growing.

Rae Woods (18:18):
Already.

Marisa Nives (18:18):
Already. They attribute this to transfers from other health systems and even other safety nets, like federally qualified health centers that are worried about their survival and are actively pursuing commercial patients. I want to emphasize that pursuing commercial patients is a choice and does have ripple effects on what you prioritize as a system. At the end of the day, one patient getting access to a physician is another patient not getting access to a physician.

Rae Woods (18:50):
There's also a difference between deciding that you want to shift your strategy and actually being successful with it. And I feel like that conversation comes up a lot for me when it comes to growing into the ambulatory space. How are leaders talking about their ambulatory strategy in this moment?

Marisa Nives (19:08):
Yeah. You hit the nail right on the head there, Rae. Ambulatory growth is one of those items in the growth playbook that is not new.

Rae Woods (19:15):
No.

Marisa Nives (19:16):
Not a new concept to leaders. We've talked about it on this podcast as well. Most leaders do share the goal of growing ambulatory access, but there is significant variation in how leaders are prioritizing dollars to achieve that goal. We're in this moment where capacity constraints and aging facilities are a huge challenge for health systems. And like I said earlier, capital is not free flowing, and cash flow is not going to get better as some of these policy changes come down the pike.

(19:44):
So some leaders are really taking this moment to prioritize dollars in the inpatient. They still want to grow in the outpatient, but the time horizon is not now. There are others who are really actively pursuing ambulatory, particularly to try to outgrow some of the changes coming down the pike.

Rae Woods (20:02):
But Marisa, you named yourself that the idea of moving into the ambulatory space is not new. It's certainly more than a decade old. And I have to believe that there are many organizations that you've spoken to who are already pretty far down this path of investing in ambulatory capabilities. What's the shift in their posture?

Marisa Nives (20:20):
Yeah, that's such a great point, Rae. And especially in a moment of capital constraint, leaders are really looking at how they can optimize what they already had, especially when the approach to ambulatory in the past might have been one of growth at all costs. Now those leaders are looking at what they've got and saying, "How can we make this more connected? How can we make this easier for patients to navigate and clinicians to navigate? How can we better match services to square footage?"

Rae Woods (20:51):
Yeah. I would argue that in the past, inventory was much more focused on point solutions than that connectivity that you're talking about.

Marisa Nives (20:57):
Exactly.

Morghen Philippi (20:59):
I think that this gets to a really interesting outcome, Rae, because we have talked to folks who are saying, "Yep, growth in ambulatory and we're losing money on it." And we have talked to folks who say, "Ambulatory is a great strategy for us. We are making money here." And I don't want to overgeneralize, but I think that that connection that we are talking about, that connectivity is a key differentiator between the folks who are losing money in ambulatory and the folks who are able to make it work.

Rae Woods (21:31):
So far in this conversation, we've been focusing a lot on the market forces that are playing out at the national level. What about at the market level?

Marisa Nives (21:38):
Yeah. I think the big thing here is that your market and your domain is no longer only yours. As people look to protect themselves, they are starting to enter into areas that they might not have entered into in the past. An example of this is a community health system whose primary service area was their domain. They were the community health system in town. Now they're already starting to see movement from providers two, three hours away creeping into their market as those providers look to diversify their options. The bottom line is this, nobody is really feeling safe that what was theirs will continue to be theirs.

Rae Woods (23:18):
I want to pivot us. There's something that comes up in virtually every single conversation with anyone in healthcare, maybe anyone in business, maybe anyone period, and that is the role of technology. I am 100% confident that artificial intelligence has come up in 100% of your conversations with executives. However, I'm remembering an episode that we did earlier this year about AI and rev cycle and we learned that the hype didn't really match the reality of the maturity and the scale of AI in rev cycle. What are you hearing beyond revenue cycle?

Morghen Philippi (23:54):
Yeah, Rae, first of all, I want to tell you, you are 100% right. We are hearing about AI in every single conversation.

Rae Woods (24:00):
It was a pretty safe bet, let's be clear.

Morghen Philippi (24:01):
It was a pretty safe bet for you, Rae. Though one of our interviewees did joke, we got to 17 minutes in our interview the other day and they said, "Wow, it took us 17 minutes to get to AI. That must be a record." And that is how it feels these days.

Rae Woods (24:14):
Yes, it does.

Morghen Philippi (24:15):
It really is in every conversation. To your hype piece, Rae, there is so much hype around AI and there is so much misunderstanding, I would say, about where we currently are in the market. So at this point, Rae, Ambient is table stakes. It is everywhere. It is not new. It is nothing fancy. What is going to set stakeholders apart is what they build on top of Ambient, how they use all of the information they are gathering from Ambient to improve patient care, to improve their margin, to improve their rev cycle management functions.

Rae Woods (24:51):
If I'm honest, so far we've talked about all the things that I would've expected to hear from research interviews with health leaders, policy impact, sustainable growth, ambulatory, looking for success stories with generative AI. What's missing from these conversations? What didn't you hear or what are leaders less focused on that maybe surprised you?

Marisa Nives (25:10):
One thing that we didn't hear when we're talking about AI is layoffs. Now, I don't want to overgeneralize. I'm sure there are some folks who are really looking at AI to at least slow the growth of their workforce. That doesn't really seem to be the case for the clinical workforce.

Rae Woods (25:29):
Meaning we're not seeing anyone say, "Because of such dramatic ROI that we've gotten with our Ambient, we are able to hire fewer clinicians."

Marisa Nives (25:37):
Exactly. At the end of the day, it comes down to the fact that healthcare is human. Healthcare is about a caring provider laying hands on a patient. AI is going to help providers get rid of some of the stuff that they don't need to be doing, they don't need to be laying hands on, but the clinical workforce is as important a priority as ever before.

Morghen Philippi (26:00):
This gets to what we heard from one chief tech officer, Rae, and that's that she has CFOs trying to have her define the ROI of AI in terms of the number of FTEs this AI is replacing. And she said, "Listen, we have so much demand that we cannot currently meet. If AI makes us more efficient from the clinical side, all that is helping us do is fill the gaps that exist. We are not at a place where AI is getting rid of clinical staff. If anything, we are maybe at a place where AI is helping us get care to the patients who need it."

Rae Woods (26:38):
What else didn't come up in your conversations that surprised you?

Morghen Philippi (26:41):
I come from a plan world, from a payer perspective. That was my previous research. And I think about employer-sponsored insurance, of what employers are doing, what's happening in payer world all the time. We hear that employers are feeling the crunch of affordability all the time, and I'm constantly looking to see if employers are doing anything drastic. We thought this might be the year, Rae, it is not.

Rae Woods (27:08):
Despite 10% cost growth.

Morghen Philippi (27:10):
Despite 10% cost growth, employers are still not doing anything dramatic. It is all incremental. We hear about ICHRAs all the time. A very, very small portion of employers are looking at ICHRAs. We hear about direct-to-employer contracting. A very small proportion of employers are looking at direct contracting. We hear about transparent PBMs. We find that transparent PBMs are maybe not as radical as they seem on paper. Just all of these potential different avenues that employers could take that would be big moves in the industry, it's kind of a nothing burger.

Rae Woods (27:47):
It feels to me that the kindling is there for big potential change in the employer market. There might even be a couple of sparks, but we're not actually seeing anything catch fire, at least not across the board.

Marisa Nives (28:00):
And I would add, providers would love to get into more direct contracting. That is definitely a strategy that comes up on the provider side when they think about how they're going to get more commercial patients. Providers are certainly interested in engaging employers more, but similar to what Morghen said, there isn't anything radically different now about what they are trying compared to the past.

Rae Woods (28:22):
We spent this conversation peeling back the curtain on the conversations that you're having with health leaders so that peers, partners, competitors can understand the moves that others are making. But behind that, I have to imagine there's a shift in how the people are approaching these changes. Are you seeing any shift in what it means to be a health leader in this environment?

Marisa Nives (28:46):
Absolutely, Rae. And it goes back to that quote I had earlier, healthcare leaders who have seen more change in the last five years than they have in their entire career. Leaders grew more adaptable during COVID. They're only going to have to become more resilient and more informed than ever before.

(29:05):
Some of that is also around technical skills. We hear leaders who say, "I didn't know anything about technology or AI, but it's going to become a huge part of how I make strategy. I've got to become more technically proficient about AI." That's also true about pharmacy. So it's both that sort of squishy but very important skill of resiliency and it's also more technical knowledge that is on their plate than ever before.

Morghen Philippi (29:31):
And the stakeholders we speak with, Rae, in these interviews recognize that they're going to have to bring their people along for this, right?

Rae Woods (29:38):
Yes.

Morghen Philippi (29:39):
We're talking about all of this change. They recognize that they have an entire organization they need to lead through this change. It is a conversation on change management. It is how do I bring my people along in a way that gets us all where we need to go?

Rae Woods (29:55):
Well, Morghen, Marisa, thanks so much for coming back on Radio Advisory.

Marisa Nives (30:00):
Thanks for having us, Rae.

Morghen Philippi (30:01):
That was fun, Rae.

Rae Woods (30:06):
I actually want to take us back to the very beginning of our conversation and that's the tone of the industry. Overwhelmingly, we keep hearing that you feel confident, you know what you need to do, you know that resiliency is the only option. It's how you protect your business and it's how you protect your patients. And you don't have to strive for that alone. Remember, as always, we're here to help.

(30:34):
If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts, and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Rae Woods, as well as Abby Burns, Chloe Bakst, and Atticus Raasch. The episode was edited by Katy Anderson, with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Leanne Elston and Erin Collins. Thanks to Mason Maynard, who contributed to this research.