Providers are navigating the uncertain waters of retail disruption's continuing growth in the healthcare space, forcing hospitals to compete or partner.
Editor's note: This article appears in the June 2023 edition of HealthLeaders magazine.
Years ago, if you had asked hospital or health system executives whether retail giants—Amazon, Walmart, CVS Health, Best Buy—would be the next step in the evolution of healthcare providers, they probably would have laughed in your face—but not anymore.
Retailers have been encroaching on the healthcare space, promising to lower costs and give patients a retail-like experience in a way that traditional providers have not. Indeed, the $260 billion primary care market, which is dominated by traditional providers, could see nontraditional organizations own 30% of the market by 2030, according to a Bain & Company analysis cited in the American Hospital Association's Health Care Disruption: 2023 Outlook report. The likelihood of retailers taking over a significant portion of the healthcare market is so great that NYU offers a course on the subject as part of its certificate in healthcare marketing and communications.
The current retail environment is highlighting the need for providers to adapt and evolve with the ever-changing wants and needs of the patient-consumers they serve. If retail giants like CVS and Amazon can provide care with more convenience, traditional providers will need to decide whether to partner with or increase their competitiveness with retailers.
"My immediate reaction [when retail enters healthcare] is that we're not doing a good enough job of meeting the needs of our patients," says Kris Kurtz, chief financial officer for the University of Michigan Health-West, a Wyoming, Michigan–based nonprofit health system with 208 total staffed beds and about $550 million in net patient revenue. "That tells me we have access problems. Patients are looking to get in quicker, and we need to do a better job in healthcare of meeting their needs."
Indeed, patients are no longer willing to wait days to see their doctor; they want quick access, to see their test results right away, and to get answers to their healthcare questions as fast as technologically possible.
A 2022 survey by the healthcare technology consulting and services company Tegria found that 69% of U.S. healthcare consumers would consider changing their provider if the new provider offered modern services. Factors that could drive a person to switch include the availability of same-day appointments for non-routine issues (35%), convenient locations (30%), and self-scheduling (29%). More than three-quarters (79%) want the ability to use technology when managing their healthcare experience.
Yet despite this overwhelming demand, the healthcare industry has been slow to adapt to its patients' technological wants and needs, giving retailers the chance to swoop in and offer healthcare options that include these technologically advanced services.
"Most of us in the healthcare industry are trying to work on access," Kurtz says. "We tend to be one of the last industries to innovate. [Retail's presence in healthcare] will certainly accelerate that and force us to innovate. I don't know why healthcare has always lagged behind when it comes to digital innovation. But I think these retailers will definitely speed up our transition."
If providers can adopt a retail-like approach to their services, they could keep patients from seeking care where they shop.
"If [retailers] offer a 'friendlier' consumer experience in terms of access and hours of operation, that could cause other providers to do this as well and encourage consumers to not miss routine checkups; that would be good for population health," says Stacey Malakoff, executive vice president and chief finance and administrative officer for the Hospital for Special Surgery in New York City, a 215-licensed-bed academic medical center specializing in orthopedic surgery with a $1.15 billion operating expense budget. "Additionally, I think traditional providers will continue to expand into retail spaces to be more accessible. On the other hand, there is reasonable concern that capitation may mean patients don't get necessary but higher-cost testing (e.g., advanced imaging or various blood tests or procedures)."
To survive in a healthcare market that is being swarmed by retail disruptors, providers must improve access to care and concentrate on building relationships—with patients, payers, and even the disruptors themselves.
"Healthcare, I believe, is still a relationship business and will be at least for a while longer. We have patient relationships today for the most part, so it's our business to loosen access, and the ease of use is probably the best strategy we can deploy," Kurtz says. "As an industry, we make it far too difficult for patients to enter and navigate the system. In some instances, we may need to partner with the disruptors rather than compete with them. [Likely it's] probably a combination of both."
Partner or compete?
For some providers, partnering with a large retailer may seem like an easy decision, especially for smaller rural providers who don't have the economic resources and reach of their larger counterparts. But while providers of all sizes are taking disruption more seriously, deciding which path to take—partnership or competition—isn't as clear cut.
To help providers consider whether to compete or partner with retailers, the AHA suggests providers ask themselves four key questions:
Do we have an omnichannel presence that provides the convenience, access, transparency, pricing, and other information and services that patients want?
Are there partnership opportunities with any
of the Big 5 companies transforming primary care?
How can we leverage our strength in establishing trust and rapport with existing patients to use our outpatient, clinic, and virtual services for routine and nonemergent care?
How can we partner with big tech firms around research, data sharing, etc., to improve care?
Another consideration is that retailers and providers have several differences when it comes to how they do business. One of the most critical differences is that retailers can make decisions that are best for their bottom lines and only view things from a lens of profitability. Providers, on the other hand, have to not only think about profits but also consider the lives of the people using their services.
Care quality must be a provider's primary focus, and that is where adopting a retail approach to healthcare can be tricky.
"The cultures of retail and healthcare are not necessarily compatible," Malakoff says. "Are the retailers in this for the short haul or the long haul? If they're in it for a shorter while, then they're in for the quick dollar and how much they can make. But [the impact] for hospitals and health systems will depend on whether or not retailers are cherry-picking patients and taking the patients that are easier to treat."
If retailers take a "cherry-picking" approach to the way they offer healthcare, there could be a significant impact on the financial viability of healthcare providers.
"Hospitals are operating at razor-thin margins and expenses are outgrowing revenues. If the sicker, less affluent patients are [flooding] health systems, financial viability will become an issue," Malakoff says.
The pros and cons of retail partnerships and competition
One healthcare system's strategy to deal with the issue of retail disruption was to partner, and it is confident that bringing together the expertise of its hospital care with the best retail tech expertise will create success.
Advocate Health, a large nonprofit system headquartered in Charlotte, North Carolina, serves six states with an additional presence in Chicago and Milwaukee, and was recently formed by a merger between Advocate Aurora Health and Atrium Health in December 2022, making Advocate Health's net operating revenue $27 billion. Atrium Health, now part of the Advocate Health family, operates a hospital-at-home unit, which recently partnered with electronics retail giant Best Buy to expand its telehealth segment.
"We've seen the need for us to bring a very strong technology partner that has a strong network," Dr. Rasu Shrestha, executive vice president and chief innovation and commercialization officer for Advocate Health, said in a release when the partnership was announced. "Best Buy Health has a national network that's able to bring in complementary capabilities—really enhance the clinical services delivered by Atrium Health, as well as the offerings that we're going to be creating together."
Atrium now has access to Best Buy's Geek Squad agents—technology setup and service providers—who will equip Atrium patients with wearable tech that will allow the provider's care teams to remotely monitor vital signs on a 24/7 basis. Best Buy isn't getting into the healthcare treatment business, but it has figured out a way to enter the industry and make itself a valuable part of how providers offer care.
"They won't be necessarily the same team that's doing your home theater," Deborah Di Sanzo, president of Best Buy Health, said in the announcement. "They will be Geek Squad agents specially trained in health to deliver specific services in the home. When we talk about helping people with technology in their homes, that's what Best Buy has done for years. We're never going to provide healthcare but, with Atrium Health, we want to help enable healthcare at home for everyone. It's getting the devices to the home when Atrium Health and the patient need them."
Because this provider-retailer partnership just started in February, it's too early to report on outcomes. But one thing is for certain: Some providers are finding creative and synergetic ways to exist among retail disruption in healthcare instead of fighting it.
On the other side, it seems that retailers will also best succeed in the healthcare industry when partnering with healthcare providers, especially considering that even some of the biggest retail players have failed when attempting to shake up the healthcare space on their own.
In 2021, just three short years after Amazon, Berkshire Hathaway, and JPMorgan Chase teamed up to create Haven—a venture that aimed to tackle the persistent problem of rising costs for employee healthcare—the group announced they would be shuttering the company. At the time, the news shocked Wall Street, sending healthcare stocks plummeting after the announcement over renewed fears regarding healthcare costs, according to a CNBC.com report.
Questions abounded over how a company led by some of the biggest names in retail, finance, and tech could fail in such a way. The answer, according to an analysis in the January 6, 2021, Harvard Business Review, was "insufficient market power." The three companies didn't have enough power in the market to wring lower prices from providers, with the consolidation of health systems over the last 10–15 years being the main reason, according to the analysis.
"Unless an employer group has a big chunk of the local market (more than 50% of eligible employees), providers don't budge on their prices," Harvard Business Review wrote. "Since the employees of the three companies in Haven were scattered all over the country, they couldn't dominate even one market."
Yet retailers seem to have a better understanding of how to meet individual consumer needs and preferences than providers and can capitalize on that in their healthcare offerings. For providers, realizing that different segments of the patient population have vast and unique needs is going to be a major contributing factor in how they deal with retail disruption.
"People who work during the day feel that the hours of current primary care practices are incredibly inconvenient, so alternative providers that offer evening hours, weekend hours, etc. (whether that is an urgent care clinic, a telehealth company, or a retail store) will be more attractive," says Harold Miller, president and CEO of the Center for Healthcare Quality and Payment Reform. "Most primary care practices couldn't possibly compete with a retail store in terms of the kinds of hours that could be offered, because the retail store is already paying for the utilities, security, etc., to be open all of those hours. There are primary care practices that have entered into partnerships with urgent care clinics as a way of addressing the need for expanded hours."
Miller agrees that access is another critical issue that can help providers navigate retail disruptors, which they'll have to do more of in areas with large populations.
"Regardless of the hours of operation, if someone has to wait for an appointment or has to wait to be seen, they will find that provider less convenient and less attractive," Miller says. "Wait times are a function of how many physicians or other healthcare providers there are relative to the number of patients who potentially want to see them. Having providers sit around waiting for patients is expensive because they only get paid when they actually see someone. The retail firms are going to face the same challenge a traditional provider faces—the greater the convenience and access they offer, the less profitable the service will be because they will have to have more slack built into the system. It is likely that retailers will focus on large urban areas simply because there are more patients."
Providers looking to reduce costs and remain competitive can take a page from the playbook retailers seem to be working from, Miller says, and hire nurse practitioners and physician assistants who can offer specialized care, rather than more expensive MDs.
"This strategy means that retailers will be unable to compete head-to-head with traditional primary care practices since they won't be able to treat or manage patients with more complex conditions who need care from a physician," Miller says. "So rather than just 'competition' per se, the result of all this could also be a more explicit segmentation of the population. The retailers 'win' in attracting the patients for whom non-standard hours are paramount and patients who are basically healthy and just need the basics. The traditional providers 'win' in attracting patients who need care from a physician and who want a physician they can have an ongoing relationship with."
Where providers can fall short is on the technological side of things, lacking the speed to provide services as fast as retailers.
Karen Hanlon, executive vice president and chief operating officer at Highmark Health, spoke on a panel at ViVE 2023, saying that health systems need to make significant technological improvements if they want to keep up with the competition. She also noted, according to reporting by HealthLeaders innovation and technology editor Eric Wicklund, that providers should highlight the fact that they know how to do healthcare, whereas retailers are in it for the money.
Hospitals and health systems can capitalize on this consumer demand for quick digital service by partnering with vendors,or even the retailers themselves, and offer apps and digital services that meet the needs of their patient base.
Malakoff says that partnering with a retailer can offer providers cost-cutting measures that won't impact patient care quality.
"Retailers can partner with health systems and just be an easier way to care for the patient, due to the easy access they have and doing the basic tests and then farm them out quickly to the specialist," she says. "It could cut emergency room costs—hospitals lose money in emergency rooms—but they have to be able to take all comers, including the uninsured. They must be able to do what hospitals do in providing sometimes free care to the uninsured and underprivileged. And so, if they run under the same methodologies of an ER, it could really cut the cost as well."
A provider advantage
Providers have another ace up their sleeve when it comes to offering high-quality, in-demand services—the value-based care model. Utilizing a value-based care model would give providers a competitive advantage over retailers because it rewards providers for saving without scrimping on care quality.
"The value-based care model turns that upside down. It rewards providers for savings," Kevin Murphy, chief financial officer for Vytalize Health, told HealthLeaders. "Being at risk for the care of those patients makes you consider their care very differently and much more proactively and have ongoing involvement. The notion of giving anyone less care doesn't work because they'll get sicker and go to the hospital. So, if you look at the economics, the drivers are crystal clear.
"There is an increasing push from CMS for the adoption of value-based care, and the incentives are quite clear and cannot be separated from the economic side of the equation. Care quality always comes first—ask any doctor why they chose their profession, and they'll say that providing the best care is why they became doctors. Through value-based care, we can increase doctors' income by 10%, 20%, and in many cases north of 30%. So, it is a meaningful shift in their practices' profitability and their personal income to participate in value-based care."
Other providers that have embraced the value-based care model agree that this is the direction healthcare needs to go.
"Finding ways to reduce costs while increasing quality and outcomes for the patient is a passion of ours. And along with that, recognizing that fee-for-service is not the future and honestly, cost-based reimbursement is not the future," says Matt Minor, chief financial officer for Columbia County Health System, a 25-bed rural hospital in Dayton, Washington. "[Those things are] here now and it helps for now, but value-based care is the future and disparate revenue streams are the future. So, looking to where we can find revenue streams to match specific community needs is important."
As long as retailers believe there is money to be made and they can offer convenience and access, they'll keep encroaching on the healthcare space, forcing providers to find ways to adapt to survive in this type of environment. It's up to providers to decide how to handle this disruption. Whether partnering or competing, providers must become innovative disruptors to improve healthcare and lower costs for patients.
Doctors Hospital of Manteca, a Manteca, California-based healthcare provider with over $1 billion in revenue, 500 employees, and a medical staff of more than 150 physicians, has appointed a new chief financial officer.
Rob Giorgiani stepped into the CFO role on May 15, 2023. He will also serve as CFO over Emanuel Medical Center, Doctors Hospital of Manteca’s sister hospital in Turlock, California. Giorgiani has been living in Richmond, Virginia where he has been serving as CFO of St. Mary’s Hospital and Richmond Community Hospital since December 2021.
Other recent CFO appointment news includes Ashtabula County Medical Center Healthcare System, an Ohio-based healthcare provider affiliated with Cleveland Clinic, which has announced that Alanna Dames has been named the organization’s new CFO. Additionally, University Hospitals has announced that long-time CFO Michael Szubski will retire next year. The search is on for Szubski’s replacement. Jeff Morgan has been serving as interim CFO for Bassett Healthcare Network since March, and will now step into the role permanently. Sutter Health, a not-for-profit integrated health delivery system headquartered in Sacramento, California, with 24 acute care hospitals and over $14 billion in total revenue, has appointed Dominic Nakis as senior vice president and chief financial officer. Finally, UNC Health, a Chapel Hill, North Carolina-based healthcare system, has appointed William Bryant as its new chief financial officer—effective May 1, 2023. Bryant has previously held a variety of financial leadership positions with UNC Health.
Corporate giants like CVS and Amazon are getting into healthcare, what does this mean for traditional providers?
Retailers like CVS, Amazon, Walmart, and others have been creeping into the healthcare space, claiming to offer patients more convenient and affordable access to healthcare. Traditional providers have been monitoring the situation, assessing how to handle this retail disruption, and considering if they should treat these corporate giants as partners or competitors.
Stacey Malakoff, the CFO of the Hospital for Special Surgery in New York City, recently appeared as a guest on the HealthLeaders podcast, where she discussed this influx of retail giants into the provider space and what it means for hospitals and health systems financially.
HealthLeaders: What is your first thought when you hear about a retailer getting into the healthcare space and/or acquiring a provider?
Stacey Malakoff: Healthcare is in a moment of transition. It's a messy time with lots of people trying to enter the market via technology or altering the way healthcare has been provided in the past. The transformation of delivery and financing of healthcare is going to change in the future. With the big box stores coming in and providing healthcare, my first thoughts are will [they] provide quality healthcare?
It will provide accessibility to people everywhere. Big Box stores are all over even in rural areas, so it will provide easier and quicker access for more people, especially in underserved rural areas. I think having the big box stores promote healthcare around the stores will provide people with more knowledge on maintaining their wellness, which will help them catch problems earlier, and if you catch problems earlier it will lower the cost of healthcare down the road.
HL: That’s a plus from the patient’s perspective, but what does a greater retail presence in healthcare mean for providers?
Malakoff: The cultures of retail and healthcare are not necessarily compatible, so it will depend on the way in which the retailer enters the market and what market they are in. Are the retailers in this for the short haul or the long haul? I think that for hospitals and healthcare systems, it will depend on if [retailers] are cherry-picking patients and taking the lower acuity, easier patient to treat and it will also depend on how quickly they can diagnose the situation and get them to a specialist. It will depend on the quality of care that they provide.
HL: What might this disruption mean for providers from a financial wellness perspective?
Malakoff: It will totally depend on the retailer’s strategy. If their strategy is cherry-picking higher paying and less complicated patients that could undermine the financial viability of the health care providers. Hospitals are operating at razor-thin margins and expenses are outgrowing revenues. If the sticker, less affluent patients are left in the health systems, financial viability will become an issue.
But the positive can be if the retailer decides to partner with health systems and just be an easier way to care for the patient, due to the easy access they provide. [Retailers can do] the basic tests and then farm them out quickly to the specialist. It could cut emergency room costs because hospitals lose money in emergency rooms. But retailers have to be able to take all comers, including those uninsured, and be able to do what hospitals do in providing sometimes free care to the uninsured and underprivileged. And so, if they run under the same methodologies of an E.R. it could really cut the cost as well.
HL: Should healthcare providers view retailers as potential partners or competition?
Malakoff: Both. There will definitely be competition, retailers are definitely going to provide primary care services. But it'll be no different from the urgi-centers that we see today. I think the urgi-centers that have popped up at least in the New York market, every few blocks in the city, I think they should be worried because those things will be moving inside the retailers.
I think the hospitals and health systems will have competition. Again, definitely in primary care but again, it'll depend on what the retailer does, and how they really build this. Are they going to go ahead and buy practices and just open separate practices attached to the retailer? Are they going to go to malls? Are they going to provide walk-in services even for specialties? So, I think it's going to be competition, but there are ways to partner with them.
I could see HSS partnering with them to take on the more severe cases that they don't want to take on. Musculoskeletal is highly costly and the waste in spend is really on physician variations if retailers partner with high-value efficient musculoskeletal care, you can minimize the waste and maximize long-term muscular skeletal wellness and productivity.
If you catch people before it gets severe, if you catch people early on, and I think that's where the retailer could come in and get them out to the specialist there could be savings in the entire musculoskeletal spend. Musculoskeletal diseases are the second leading contributor to global disabilities. If we could stop those disabilities earlier, and people become aware of their health through the retailers, it could be a good thing.
I do think there'll be competition and positives that will come of it just as healthcare is being disrupted constantly.
Growth in labor costs slowed for the first time during the beginning of 2023.
Through the first quarter of the year, hospitals and health systems have continued to face a barrage of financial challenges, with rising expenses coming in as one of the most significant obstacles to these organizations’ economic well-being.
Indeed, a new report from Syntellis, which pulled information and data from over 1,300 hospitals and 135,000 physicians, found that hospitals continue to face rising expenses, with March marking the eleventh consecutive month of year-over-year increases for total expenses and total non-labor expenses.
Total hospital expenses rose by 4.7% year-over-year, according to the Syntellis data, and total non-labor expenses grew by 5.5% year-over-year. The rise was the result of higher drug costs, rising supply costs, and an increase in costs for purchased services. Although the data found that labor costs are still high, the growth in these expenses slowed for the first three months of the year.
While costs in general are still rising, the research found that providers are not letting that stop them from providing patients with the high-quality care they need.
"Hospitals continue to endure intense financial and operational pressures, yet a deep dive into clinical data from hospitals nationwide suggests they remain unwavering in their commitment to providing consistent levels of patient care," Steve Wasson, executive vice president and general manager for data and intelligence solutions at Syntellis, said in the report. "Despite shrinking reimbursements and relentless expense increases, healthcare organizations are finding ways to grow in-demand services and better manage high costs to ensure they do not compromise vital care for the communities they serve."
Dames took on additional responsibilities as CFO when the former CFO retired last year.
Ashtabula County Medical Center Healthcare System, an Ohio-based healthcare provider affiliated with Cleveland Clinic, has announced that Alanna Dames has been named the organization’s new CFO.
Dames, a 26-year veteran of the accounting industry—with 19 years spent in healthcare—assumed the role of CFO on May 15, 2023. Dames joined the ACMC Healthcare System in 2009 as the Controller, where she was responsible for general accounting, payroll, and accounts payable; cash management; filing required documents with the state and federal governments; creation of the annual operating and FTE budgets; and submission of bond financing documentation.
"Alanna has been a crucial member of our leadership team," Leonard Stepp, Jr. president and CEO of the ACMC Healthcare System, said in a release announcing her appointment. "Her knowledge and experience have guided us well in the past and will be tremendous assets going forward."
Dames took on additional responsibilities as CFO when the former CFO retired last year.
"I am excited for the opportunity to serve the organization as Chief Financial Officer," Dames said in the release. "It has been an honor to work alongside a great group of caregivers for the last 14 years and I look forward to continuing that in my new role."
Racial and ethnic health disparities cost the U.S. economy $451 billion in 2018.
The toll of health disparities in the United States limits access to care for certain groups and has a significant financial impact at the state and national levels.
Research from the National Institute on Minority Health and Health Disparities, which is part of the National Institutes of Health, found that this economic burden remains "unacceptably high." The study found that in 2018, racial and ethnic health disparities cost the U.S. economy $451 billion, a 41% increase from the previous estimate of $320 billion in 2014. The NIMHD research also noted that the burden of education-related health disparities for people without a college degree in 2018 hit $978 billion, which is nearly two times greater than the annual growth rate of the economy that same year.
"The exorbitant cost of health disparities is diminishing U.S. economic potential," NIMHD Director Eliseo Pérez-Stable said in the report. "We have a clear call to action to address social and structural factors that negatively impact not only population health but also economic growth."
The research found that 69% of the burden of racial and ethnic disparities was shouldered by the Black and African American community because of the high level of premature mortality. The study also found Native Hawaiians, Pacific Islanders, American Indians, and Alaska Natives populations had the highest economic burden per person.
The NIMHD study showed that Five states with the highest burden of racial and ethnic health inequities were among the most populous and diverse states: Texas ($41 billion), California ($40 billion), Illinois ($29 billion), Florida ($27 billion), and Georgia ($21 billion).
From an education point of view, the study highlighted that adults with a high school diploma had the highest burden per person. The majority of this burden was felt by adults with a high school diploma or GED.
The researchers recognized the significant economic impact of racial, ethnic, and education-related health disparities on patients, but noted that there are steps that can be taken to eliminate this burden through investments in initiatives that tackle barriers to healthcare including racism and socioeconomic inequalities. The researchers are also calling on policymakers on the state and federal levels to use their data to make changes in areas where health inequities are highest.
"The results of this study demonstrate that health inequity represents not just unfair and unequal health outcomes, but it also has a significant financial cost," lead author Thomas LaVeist, Ph.D., dean of Tulane University School of Public Health and Tropical Medicine, said in the report. "While it surely will cost to address health inequities, there are also substantial costs associated with not addressing them. Health inequities is a social justice issue, but it is also an economic issue."
Szubski has been with University Hospitals, an integrated network of 21 hospitals (including five joint ventures), more than 50 health centers and outpatient facilities, and over 200 physician offices in 16 counties throughout northern Ohio, for almost 20 years, but his career in finance spans more than four decades.
Szubski has helped University Hospitals grow revenues from $1 billion to $5.4 billion during his tenure. He also led several of the organization’s key acquisitions, including UH Elyria, UH Parma, UH Portage, UH Samaritan, and UH St. John medical centers. Szubski recently completed the integration of Lake Health; negotiating a deal with Medical Mutual of Ohio to add UH Cleveland Medical Center to its coverage plan, expanding care to tens of thousands of people. He has been spearheading the transition to the Epic electronic health record, including project assessment, benefits analysis, and final approval by the organization’s board.
"Mike has been an extraordinary CFO for UH for the past 15 years who has helped the system grow into one of the largest in the U.S," University Hospitals CEO Cliff Megerian said in a release announcing Szubski’s retirement. "We thank him for his service and wish him the best as he enters a new chapter in his life."
Megerian plans to nominate Bradley Bond, vice president of treasury for Community Medical Centers, UHMP and Ventures Finance, for the role of CFO when Szubski retires in January 2024. Bond manages the system’s investments, debt and swap transactions, cash management, leasing contracts, pension, and risk management, and tax compliance and research. He is also the finance lead for operations involving UH’s regional community medical centers, community physician groups, and UH Ventures.
The organization says it is prioritizing reducing expenses and volume growth.
CommonSpirit Health, a Chicago-based nonprofit provider with 143 hospitals and approximately 2,300 care sites across 22 states, reported its 2023 third-quarter earnings results, which highlighted how rising expenses and a decline in revenue continue to plague the system.
CommonSpirit reported operating revenues of $8.57 billion and operating expenses of $9.08 billion for the quarter, compared to $8.52 billion of revenues and $8.98 billion of expenses for the same quarter in 2022. The provider posted a normalized operating loss of $508 million and EBITDA of -$38 million, a -5.9% and -0.5% margin, respectively. CommonSpirit says it continues to see strong volume growth, with adjusted admissions on a same-store basis rising 9% compared to the prior year’s quarter. Same-store outpatient visits increased 4.7% and ED visits rose 5.1%.
CommonSpirit says a decline in patient acuity and reimbursement that has not kept up with inflation impacted its financial results for the 2023 third quarter. Rising expenses, labor shortages, and the impact of a cyber security issue from late 2022 also played a role in the organization's latest financial results.
"CommonSpirit is delivering high-quality services all along the care continuum to communities across the country. These results show that patients and consumers are continuing to seek care through a broad range of access points," CommonSpirit CFO Dan Morissette, said in the earnings release. "Now we’re taking decisive steps to boost revenue and address our costs to ensure we’re operating in a sustainable way for years to come."
"We're re-engineering the process to ensure every purchase is made better," Noll says.
CFOs, CAOs, CEOs, and everyone else in the C-suite leading the financial efforts for hospitals and health systems continually struggle to reduce costs without impacting patient care. Unlike other businesses, healthcare providers cannot simply increase the prices of their goods and services when profit and revenue aren’t where the company wants them to be.
Keith Noll, chief administrative officer for WellSpan Health, an eight-hospital system in central Pennsylvania, recently connected with HealthLeaders to explain how the organization is innovating non-clinical purchasing to save money, protect margins, and make care more affordable.
HealthLeaders: Tell me about WellSpan Health, its mission, and your role with the organization.
Keith Knoll: WellSpan Health is an integrated health system that serves the communities of central Pennsylvania and northern Maryland. WellSpan is a charitable, mission-driven organization with approximately 20,000 employees and more than 220 patient care locations including eight hospitals. WellSpan is the region's only accredited Level One Regional Resource Trauma Center and Comprehensive Stroke Center with an endovascular neurosurgery program. Collaborating with respected organizations, including Johns Hopkins Medicine, WellSpan is a valuable community resource that provides more than $312 million in combined charitable, uncompensated care (2022) for its $3 billion healthcare delivery system.
I oversee all administrative support functions across WellSpan. Prior to serving as WellSpan’s senior vice president and chief administrative officer, I was the president of WellSpan York Hospital for 10 years.
HL: How is WellSpan re-engineering indirect (non-clinical) spending as the final frontier for healthcare savings? Purchased services spending?
Noll: At WellSpan, 50% of the products and services we buy are clinically oriented to care for our patients. However, the other 50% is on non-clinical purchasing, including IT systems, waste management, transportation couriers, furniture, fixtures, equipment, marketing expenses, legal services, equipment servicing, environmental services, food, and nutrition, and more. These items aren’t generally included in our GPO agreements.
To assess our true supply-chain spend, WellSpan performed an internal analysis in 2021. We ran our entire spending history through a national database to compare our costs versus other health systems and we found some opportunities for savings.
HL: What did the audit reveal?
Noll: That much of WellSpan’s non-clinical procurement (purchased services) wasn’t being managed through the supply chain department. Independent departments would negotiate and contract their own agreements. This isn’t unusual in healthcare, and it makes non-clinical spending very hard to track and manage.
Since ancillary departments aren’t experienced in all aspects of purchasing, they may lack proficiency with contract negotiations, financial terms and conditions, and service-level agreements. Discount dollars aren’t always maximized. Non-clinical contract terms aren’t negotiated to receive optimal benefits.
We will always be looking for ways to drive better value in the supply chain. But before you can shave dollars you need to recognize that even the supply chain in healthcare organizations has opportunities to improve in certain product and service areas.
Many organizations don’t consider non-clinical spending a significant enough area to dedicate time or resources to improve the process. But these dollars represent upwards of 20% of a health system’s annual revenue. They add up.
HealthLeaders: So, what is WellSpan doing with this information?
Noll: We’re re-engineering the process to ensure every purchase is made better. Part of our Vision Statement at WellSpan is to ‘reimagine healthcare’ and that is what we were trying to do in the indirect spend categories of our supply chain. Our thought was if this is not an area in healthcare that has a great deal of experience, why not work with a non-healthcare supply chain company that does it all the time?
After our internal evaluation, we started by assessing every category of non-clinical purchasing, who was making the decisions, and how they were purchasing these goods and services. Our partner, LogicSource, helped with this analysis and compiled the data by department as part of an exhaustive deep dive into our procurement capabilities via their mutual value assessment.
Through education, each department began informing the supply chain team of upcoming evaluation and acquisition initiatives. LogicSource also hired dedicated team members in more technically oriented specialties like IT and construction services who wear WellSpan badges and are embedded in those areas within our health system. This level of expertise helps build confidence amongst our internal customers in the competency of the services we are now providing.
HealthLeaders: What benefits were there to getting involved with the department’s contractual negotiations?
Noll: We made it easier for each department to maintain a positive relationship with their vendor partners during contract negotiations. We did this by having LogicSource experts working together with our supply chain team to negotiate all the financial terms of the relationship. We were the ones that pushed for greater discounts and more favorable contract terms.
We were able to provide departments with benchmarking data from other industries and LogicSource customers to drive faster decisions and a quicker return on investment for each purchase where we get involved. Traditionally, healthcare has only looked at and compared pricing and rates from others within healthcare. We knew we could do better. LogicSource validated that assumption for us, and provided the requisite insights, benchmarks, and best practices from retail and consumer goods industries. Applying best buying practices from other industries has resulted in significant efficiencies for WellSpan from a pricing and process perspective.
HealthLeaders: Where are you freeing up dollars to fund high-revenue clinical projects?
Noll: Every non-clinical procurement initiative that reduces expense leads to more money to protect the organization’s margin, reinvest in care, or make care more affordable for our community.
In 2022, our first year working with LogicSource and re-engineering how we purchase non-clinical indirect goods and services, we saved $6 million. That money is being put back into the organization. We expect to save roughly $20 million over the life of our current contract, and we are already well on the way to achieving this goal.
HealthLeaders: What tips and tricks have you learned about how to better contract and buy non-clinical goods and services?
Noll: You must acknowledge that there is a gap in non-clinical spending (purchased services). Nearly all healthcare organizations don’t invest the same number of resources in this spend category even though it is of equal size to their clinical/med-surg spend. It is a great area for potential cost savings and purchasing process improvements.
Consider consolidating or centralizing your non-clinical spending by educating ancillary departments on the benefits they can achieve through access to purchasing experts: cost savings, time savings, and the opportunity to remain the ‘good guy’ with your vendors—they shouldn’t go at it alone.
Tap into data to drive your decisions. Other industries also purchase items like enterprise resource planning systems, trash removal, employee benefits, etc. Use that intelligence to your benefit to achieve more favorable contract pricing and terms.
You’ll learn new best practices with each purchase, so incorporate these best practices into your own organization’s supply chain playbook.
Jeff Morgan has been serving as interim CFO since March, and will now step into the role permanently.
Bassett Healthcare Network, a Cooperstown, New York-based healthcare provider with five corporately affiliated hospitals and over two dozen community-based health centers, appointed a new CFO on May 8, 2023.
Jeff Morgan has been serving as interim CFO of the organization since March of this year. Prior to joining Basset Healthcare Network Morgan served as interim regional CFO for PeaceHealth in Vancouver, Washington. Morgan is a 30-year industry veteran and has held other executive-level roles, including treasurer and CFO at Finger Lakes Regional Health System in Geneva, New York, and vice president of finance and CFO at Brooks-TLC Hospital System in Dunkirk, New York.
Additionally, on May 22, 2023, Bassett Healthcare Network will welcome Staci Thompson, an industry veteran with over two decades of leadership experience in the healthcare space. She joins the organization from The Guthrie Clinic in Sayre, Pennsylvania, where she has spent the bulk of her career—most recently serving as executive vice president and chief operating officer for Guthrie Medical Group.
"Staci and Jeff will be remarkable additions to Bassett, Dr. Tommy Ibrahim, President and CEO of Bassett Healthcare Network said in the release announcing their appointments. "They are both highly accomplished leaders in healthcare administration, each bringing critical areas of expertise to our health system. As Bassett continues its journey as a national leader in rural health, Staci and Jeff’s knowledge, energy, and collective visions will help propel our organization forward at a time when innovation, creativity, and commitment to serving rural communities is pivotal."