Abby Burns (00:17): From Advisory Board, we are bringing you A Radio Advisory, your weekly download on how to untangle health care's most pressing challenges. I'm Abby Burns. For four years, we've heard health systems express deep existential concerns about whether patient volumes would ever return to pre-pandemic levels and what the answer to that question would mean for their enterprise strategies. And we can come to you today with what seems like good news on that front. On the whole volumes appear to be back on track, but I don't think it'll surprise you to hear that the story is more complex than it may seem on the surface. (00:52): Today I've invited Advisory board experts, Sebastian Beckmann and Elizabeth Orr to help us understand what's really happening with health system volumes and to explore why a return to normal volumes isn't translating to healthy margins. Later on in our conversation, we'll bring in Optum advisory expert, Alex Kist to share what it looks like to help a health system put data into action to pursue differentiated growth. I'll start with Sebastian and Elizabeth. Hi Sebastian. Hi Elizabeth. Elizabeth Orr (01:23): Hi, Abby. Sebastian Beckmann (01:24): Hey. Abby Burns (01:29): All right. We are here to have a conversation about what would you learn from hospital volume forecasts. So I want to dive right in and I'm going to start with a nice easy layup question. What does the future look like for health systems? Sebastian Beckmann (01:46): Oh, I like your definition of a layup. It's like from the halfway line or something. So I think of three things broadly that we'll probably need to dig into, but the first is that volumes are actually stabilizing already. And for the first time in several years where we've been doing this forecast, we're forecasting positive growth even on the inpatient side. So it's always been positive outpatient, extremely positive outpatient. It continues to be. Now it's also positive inpatient. Abby Burns (02:15): Okay. That feels like a big deal, right off the bat. Sebastian Beckmann (02:18): Yeah, no, it's a big deal and it feels really positive, 'cause it's like the volumes are back, hospital volumes are growing, and we'll get into why you should not feel good about it. Abby Burns (02:27): Okay, so that's one. What's the second thing? Sebastian Beckmann (02:31): And this is where we'll get into it a little bit. So the second is that hospital volumes are going to be more expensive to deliver, so it's positive growth, but it's not necessarily the kind of growth that you want as a health system with if that's looking to bolster its margin. Abby Burns (02:45): Okay. What about number three? Sebastian Beckmann (02:47): The third is that we think there's going to be a lot of variation who benefits, and the reason for that is the kind of services that are growing on the inpatient side are not necessarily the services that all hospitals able to deliver. Abby Burns (03:01): Okay. I want to dig into each one of these in turn. First, Sebastian, how do we actually know that volumes are back? Sebastian Beckmann (03:10): Every year we forecast inpatient and outpatient volumes for five and 10 years, and then we actually put that in a tool called the Market Scenario Planner, where you can see those volumes forecasts for your own market. It's based on all-payer claims and future demographics as well as changes to healthcare delivery. We could use those to get that national picture, which is where we're driving some of these insights. Abby Burns (03:33): Okay. So we're able to look at pretty robust data and say with confidence that these volumes are coming back. Again, that feels like a really big deal because since the pandemic hit, one of the biggest things we've been waiting for, one of the biggest questions that health system planners have been asking is are hospital volumes going to bounce back? And if so, when? So now you're saying, "Okay, they're largely back, they're growing, it's trending positive, but hold on hospitals, don't celebrate quite yet because for one thing, this growth is more expensive than you might be thinking." Why is the growth more expensive? Sebastian Beckmann (04:17): Yeah. So there's two big changes. The first is that the patients that you're serving are older, and that's just a demographic shift. It's population aging. Older patients are more likely to need hospital care, and so you get this disproportionate impact on inpatient volumes. Abby Burns (04:34): Which has been an ongoing trend. Sebastian Beckmann (04:36): Yes, right. It's not new, but it's really starting to hit when we look at that five-year period with the boomer population aging into that 65 plus and older and even older age bands, which really drive hospital utilization. So they're older generally means more expensive, and they're also often sicker. So the kind of care that's being delivered in the inpatient setting is going to be older, sicker patients with more complicated healthcare needs. So more people with chronic conditions, more people with advanced diseases. A lot of the easier stuff is going to happen in the outpatient setting. So it's really services that hurt your margin, especially on the medical side. Elizabeth Orr (05:16): Yeah. Sebastian, this is really interesting to hear coming off a year of interviewing health systems on the ground. So I would say first the systems we talked to, I did not get the sense that they were celebrating. There was one system in an emerging growth market who said, "Yeah, we are seeing growth, but close to 60% of that is in this older population. So we're still having to rethink our portfolio. We're still having to rethink our financial sustainability. What we're built to do is not what we think we're going to be doing in the future, even in a place with growth." I think hospitals know that there is a sicker, older patient in the future. I think what's different is the level of preparation we're seeing across the span of the health systems we're talking to. Abby Burns (06:02): Yep. That makes sense. Elizabeth Orr (06:04): I think part of it, the reason we're seeing this different level of preparation is because the current hospital health system model is really built on these profitable inpatient surgeries subsidizing the rest of the care they're offering. So I mean, that's a big shift to move away from that being a financial reality. Abby Burns (06:28): It feels like part of the conventional wisdom of how the hospital businesses run is maybe no longer holding true. Elizabeth Orr (06:36): Yes. And I think hospitals are already getting a taste of these patients right now. I know at our summit we just had a big conversation about length of stay, so I think hospitals are seeing it, but we had one system say, "Yeah, we're just hedging our bets, waiting until this is over so that we can really get into the future of care." And it's like, "Nope. These sicker medical patients, they are the future of care." Abby Burns (07:02): Yeah. It's not a blip on the radar. This is actually the direction that volumes are heading. And Elizabeth, when you were on the podcast a few weeks ago, you and our colleague Marissa Nides made a couple of really important points, one of which was you told us that health systems have really changed their mindset around how they're thinking about growth. They've gone from a mindset of grow at all costs, volumes hide a multitude of sins, two being focused on achieving sustainability. This feels directly relevant here because what you're saying is that a lot of growth hospitals are going to see moving forward, to Sebastian's point, when we look at the five year, the 10-year projections is unlikely to be particularly profitable, right? Elizabeth Orr (07:48): Yeah. So I mean, I think we need to consider that not only are volumes going to be less profitable, but the cost of care is more expensive regardless of who you're serving. There was a 19% increase in total expenses for hospitals from 2021 to 2024. So you're getting less money from the patients you're bringing in, and it's more expensive to care for them. So really what we're seeing is that volumes and margins are decoupling. We're seeing this in the data from surveys of health systems. We're hearing it at our conversations. And so a few minutes ago I was saying big shift in logic. I mean, this is a huge transition in thinking to say you can bring more people in and that won't translate to a sustainable margin for some health systems. And that's a huge shift. Abby Burns (08:41): Yeah. I want to let that sink in for a second. What you said is volumes are decoupling from margins. I have to say this sounds actually pretty scary for hospitals. I also have to wonder, is this happening everywhere? In other words, is volume decoupling from margin in all cases? Sebastian Beckmann (09:04): Yes. So there's two kinds of growth that we see when we dig into the procedures driving inpatient growth. Most of it is coming from medical claims, so medical MSDRGs with complications and comorbidities. So it's those complicated medical patients. They don't bring a lot of revenue. They're super costly. Everyone's going to get that. Nobody really wants that volume because it hurts your bottom line. And then it crowds the hospital. Abby Burns (09:30): And Elizabeth just mentioned the stay a minute ago. I would imagine that a lot of the complex medical volumes drive a higher length of stay, which makes it harder to bring in new volumes, generate growth, et cetera. Sebastian Beckmann (09:42): Yes. And the kind of procedures where we do forecast growth tend to be really specific niche services that not everyone offers. So for example, neurosurgery growth, we forecast at 13% over five years on the inpatient side. So that's huge growth. Abby Burns (09:59): I was going to say that seems pretty high. Sebastian Beckmann (10:01): Does your hospital offer neurosurgery? Most hospitals don't, so. And you see that across the board, things like cardiac valve replacement, transcatheter to cardiac valve replacement, those are things that are expected to grow quite a bit over the next five years and 10 years. They're also the kinds of things that still have a margin. It's a niche, expensive procedures. They work really well in fee for service because you can do the care, get the patient out of there. It's expensive to deliver, but it's also really high revenue. Abby Burns (10:29): And it sounds, like you said, I think niche is a good word because the examples that you just gave don't feel like they're going to be found at every single hospital. Sebastian Beckmann (10:38): Right. And it's not achievable for most hospitals. So what you see in this forecast isn't just inpatient care is harder to deliver for everyone because it's more expensive. It's also that some hospitals are going to benefit disproportionately from high value growth, I'll call it in this case, whereas others are just going to see that growth in those medical costly cases. Abby Burns (11:03): Elizabeth, I'm wondering what the implications are here for how health systems are thinking about their growth strategies. Elizabeth Orr (11:11): Yeah. Not to plug myself, but I hope everyone will go back and listen to that podcast from a few weeks ago just because we talk about the importance of health systems finding differentiated growth, really picking a lane based on yes, they are market, yes, they are context, but also their internal strengths and capabilities. And what I hear Sebastian saying is you can look at your market, you can look at the data and it might tell you where growth is, but that doesn't mean you're actually well suited to tackle that growth. And so where you're spinning your resources and how you're finding that differentiated niche is really about your internal capacity as well as that external data. Sebastian Beckmann (11:53): Yeah, I just want to underscore that. When you get down to that local level, you need to look at a variety of different data points, including future growth in order to make the right decision for what services are going to make sense for you to prioritize in order to drive growth. Abby Burns (12:08): I think this absolutely makes sense, and I appreciate that the way you were both talking about it, you were talking about you really need the data at a local level in order to inform where you are positioned or where your organization is positioned to grow. (14:01): Sebastian, I'm wondering if you can share any stories that can help tangibly show what it's looked like to successfully take advantage of the data that we've been talking about, translate it into a market informed, organization specific, differentiated growth strategy. Not to put you on the spot. Sebastian Beckmann (14:23): I love that question. I actually want to bring in Alex from the Optum Advisory side, who spends a lot of time working with hospitals on exactly that question. So I asked her if she'd be willing to share some of the growth planning work that she's been doing specifically with Boulder Community Health, which is a health system in Boulder, Colorado. Alex Kist (14:46): Hey, this is Alex. Abby Burns (14:48): Alex, it's Abby Burns calling from Radio Advisory. I understand you might be expecting my call. Alex Kist (14:54): Yeah. Hey, Abby, it's great to hear from you. Abby Burns (14:57): Thank you so much for making time for us. Alex, can you introduce yourself to our listeners? Alex Kist (15:03): Yes. My name's Alex Kist. I'm a director of advisory services for Optum. And basically what that means is I partner with health systems and medical groups to help them solve their strategic financial and operational challenges. So I start partnering with organizations from strategic planning to performance improvement and hopefully never leave. Abby Burns (15:23): And Alex, am I right that you're actually on site with one of those organizations with Boulder Community Health right now? Alex Kist (15:30): Yes, I am currently at Boulder, Colorado right now and just got out of some provider and care team meetings this morning. Abby Burns (15:37): Amazing. Well, again, thank you for making the time and squeezing us in. This is actually the organization that we want to talk to you about. And for some quick context, Alex, we've been talking about how, given the fact that volume growth, which we actually are seeing return to pre-pandemic levels, but given it's not translating to margin growth in the way it has in the past and it isn't uniform across markets, service lines, sites of care, et cetera, it's really important that health systems are able to use their local data to craft a differentiated growth strategy, which I think is where you come in with your work with Boulder. Can you tell us a little bit about Boulder and the backdrop of how you're working with them? Alex Kist (16:22): Yeah, absolutely. So let me just start by giving a little bit of the lay of the land here. So Boulder is a single hospital health system in Colorado with about a hundred and change employee providers. And their mission is really to create the healthiest community across the country. And while Boulder's population is healthy relative to the nation, they're still struggling with all of the similar issues like margin pressures, regulatory and payer shifts and consolidating market. And so they really came to us to say, "Hey, we need some help with our strategic growth plan and you need to help us maintain our independence." And so a lot of our work that we do, we try to anchor in some of these meetings that our work is really here to help keep Boulder Community Health on the badges of the employees. Abby Burns (17:09): I'm so glad we're talking about this example, because if Boulder is struggling, given the fact that they are treating potentially a healthier population than the average system, it goes to show how this is relevant for all health systems. So walk me through this. How do you actually go about helping Boulder find a viable competitive growth strategy? Alex Kist (17:30): Yeah, Abby. So it all starts with the data and we leverage a variety of different tools to really get a sense of market share trends in strategic positioning. So for example, we leverage Advisory Board's Market Scenario Planner, which I know we've been talking to Sebastian about earlier today. And that's a fantastic tool that really helps us to dig into market share projections, utilization trends, physician supply, to really get a sense of where Boulder can compete and win in the market, across service lines, across sub-specialties. And then we couple some of that market share data with really unpacking claims data to really understand what is the consumer behavior and preference, where may there be outmigration, where may we be leaking some of those volumes from our network? And so by really getting a sense of where the market is going, then we start to unpack where is some targeted differentiated opportunities for Boulder to grow. Elizabeth Orr (18:26): Abby, can I jump in? I've been listening quietly here and I have a question for Alex. Abby Burns (18:33): Yeah, please. Elizabeth Orr (18:34): So the growth research we just finished, one of the things we found is that most organizations are chasing the same few services for their core growth strategy. And one of the points we've been making to health systems is most markets can't support five health systems all doing the same thing. So Alex, in your work for Boulder, I'd love to hear how did you make sure that Boulder wasn't running at the same thing as everyone else? Really what I'm asking is how did you make sure that Boulder was competing for volumes that they were positioned to win? Abby Burns (19:10): Great question. Alex Kist (19:12): Yeah, that's a great point, Elizabeth, and what we talk about all the time with organizations, especially Boulder, is that you don't have to be everything to everyone in your market. And we really work with organizations to target and achieve what we call smart growth. Abby Burns (19:29): Alex, the consultants on the line are probably all nodding their heads and understanding what you mean. What does smart growth actually mean? Alex Kist (19:38): Yeah, smart growth really boils down to focusing on quality rather than quantity as you grow. And so it's really helping organizations to figure out what areas across which service lines, which specialties, where they can differentiate themselves among their competitors and compete and win. Abby Burns (19:56): Yeah. So rather than running at everything, choose the lanes where you're positioned to win. Alex Kist (20:02): Absolutely. And from Boulder's perspective, the market data was showing us that there was a lot of latent demand sitting there, a lot of limited physician supply for cardiovascular services as an example. And then from an internal capability perspective, Boulder has the resources, the technology, and the people to be able to capture that demand and fill the open capacity. So the no-brainer best way to start for Boulder was focusing on access to care and CV. Elizabeth Orr (20:30): I love this. We've been telling systems that they need to pursue growth that isn't just about revenue, but is about their organizational identity and their vision. I know earlier you said Boulder's about making communities healthier, and I think finding access is the solution really aligns with that vision. So it's exciting to hear. Abby Burns (20:52): I also like actually, Alex, that you brought us to cardiovascular because to Elizabeth's point, the growth research found that health systems tend to run at the same few service lines. CV is actually one of those, it's probably top of the list, but what you're saying is they found the way to invest in CV that was going to position them based on the specific types of services that they were positioned to deliver, or the way or the sites of care that they were best positioned to deliver them in. It is also not every day that we get to have someone here with us to gut check our research in real time. So we've said that systems need to pursue differentiated sustainable growth. Did this work for Boulder? Alex Kist (21:37): Yeah, Abby, it worked, and I have some exciting results to share. And I'll start by saying that where the rubber meets the road for organizations is operations. And so a lot of the work that we did to really capitalize on some of these growth opportunities we were seeing in CV is really right size and create a sound infrastructure for decisions to happen quickly and efficiently to bring physician leadership to the table to really galvanize and support this change. And we were able to actually see about a 90% increase in new patient visits, year-over-year increase, just by getting providers on board, redesigning some of the provider templates, optimizing care team staffing, so that we were ensuring we were getting the right patient to the right provider at the right site of care, which again, really ties to the mission and vision at Boulder. And because we created such a sustainable process for cardiology, I'm actually back on site this week as I mentioned earlier, helping to deploy this similar methodology for their primary care service line. Abby Burns (22:35): Amazing. And Alex, when you said operational efficiency, operational excellence, Elizabeth was vigorously nodding her head yes, because I think that's what we found in our research too, has to come really first. It is part and parcel of a sound growth strategy. As we wind down our conversation, I want to come back to all three of you. This conversation is about forecasting the future. Bearing in mind all of the findings and the lessons that we talked about today, what do each of you want our listeners to do to make sure that their organization succeed going into the future? Sebastian Beckmann (23:12): The first thing that comes to mind for me is I want everyone to use just a wide variety of market metrics to figure out what is your comparative advantage and how are you going to achieve differentiated growth. More specifically, what I want everyone to do after this podcast is log onto the Advisory Board website and go to the Market Scenario Planner. If you have a membership, it's included. If you don't have a membership, you can actually preview the data. It's fake data, so please don't use it if you're not an Advisory Board member, but you can see how the tool works and how it could support you. Abby Burns (23:49): We'll put a link to that in the show notes. Elizabeth Orr (23:53): Yeah, I would just say that the volumes of the future aren't the volumes of today, and that means that the margins or your ability to have the margin you want in the future is threatened. So there needs to be a shift from our health system listeners. Alex Kist (24:10): And finally, once you set that strategy and you know where you're going to compete and win in your market, you may need an extra set of hands to help you execute. And if so, we're here to help. Abby Burns (24:19): Give Alex a call. We'll also put a link to how listeners can reach to you in the show notes as well. Sebastian, Elizabeth, Alex, thank you for coming on. Radio Advisory. Elizabeth Orr (24:30): Thanks Abby. Sebastian Beckmann (24:31): Thanks for having us. Elizabeth Orr (24:32): This was so fun. Abby Burns (24:41): Honestly, I've been getting questions about when volumes are going to bounce back for years. To understand when it's happening and what it's going to look like in your market and to navigate that successfully, you need the right data, the right focus, and the right execution. And remember, as always, we're here to help. And if you're looking for hands-on support, email us at podcasts@advisory.com or go to the link in the show notes. (25:38): If you like Radio Advisory, please share it with your networks. Subscribe wherever you get your podcasts and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Abby Burns, as well as Rae Woods, Chloe Bakst and Atticus Raasch. The episode was edited by Katy Anderson with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Leanne Elston and Erin Collins. Special thanks to Sasha Preble. We'll see you next week.