Amid a flurry of outsourcing activity, one rev cycle VP says RPA, AI, and other emergent tools are "making us all rethink" traditional cost-saving measures.
Whether outsourcing revenue cycle management to a new vendor or offshore team, cost is typically a driver, but "tech's making us all rethink that," says Michael Mercurio, vice president of revenue cycle operations at Mass General Brigham, a 12-hospital system headquartered in Boston.
Mercurio holds a distinctive vantage point: Aside from managing a team made up of on- and offshore FTEs, he helps other health systems automate their RCM processes as co-founder and executive vice president of strategic relationships at an AI-based medical coding company that launched in 2019 to commercialize the computer-assisted coding solution developed by Mass General Brigham's physician organization billing office.
The intersection of automated and outsourced solutions only stands to grow as nascent tech gains ground in healthcare. Whether it's robotic process automation (RPA), regular ol' automation, or the "complete revolution that's coming in the next three to five years based on AI," Mercurio says these tools are "going to really change, I think, a lot—if not most—of the way we do things, especially in the rev cycle."
Consider a hybrid approach
Just as Mercurio's role straddles vendor and provider, so too does his stance on outsourcing. Instead of contracting with a single entity for wholesale RCM support, he partners with "individual vendors that might do pieces and parts" based on Mass General Brigham's goals, as well as cultural, financial, and operational needs.
Today, roughly 40% of his team's FTEs are offshore, a proportion that he expects to increase in the coming years. "It's going to continue to be a big part of our footprint."
At the same time, though, tech stands to take over much of the RCM work handled today by humans, regardless of their organizational affiliation, says Mercurio, pointing to one of his team's RPA bots that, since its implementation a year ago, has assumed duties previously handled by 10 offshore folks.
Integration and automation are further streamlining performance in house, too. Mercurio just finished combining Mass General Brigham's hospital and professional billing teams. The two-year initiative involved integrating workflows and operations, creating a shared culture, and figuring out how to "act and function like a team," he says. "We're still in that process."
Additionally, the system's rev cycle team is automating more than 80% of their radiology-related coding activity. "The quality is excellent," says Mercurio. "We've seen a reduction in denials and therefore a reduction in cost on the back end, which we've been able to pass back to our practices or reinvest in ourselves by redeploying staff to areas [that] need it."
Beyond radiology, it’s tool now covers pathology, evaluation and management, endoscopy, and surgery, and Mass General Brigham is seeking to expand their use cases "so that we can get a bigger bang for the services that they're providing to us," Mercurio says.
It reflects a larger vision to maximize value from existing solutions, including those used to outsource operations. "Oftentimes, you buy one product, and you don't realize that there are other offerings that that company might have that would be really beneficial to implement," he explains. "So we want to really take a hard look at any of our existing partners if we're trying to do something new in a space or expand with a technology, because it's a lot easier to, you know, add a new statement of work than it is to bring someone new inhouse."
Hold your horses
All this merging and streamlining and automating and innovating means up to 30–40% of current revenue cycle roles might not exist in the next three to five years, Mercurio says.
He's struck in this moment by a quote from Henry Ford: "If I had asked people what they wanted, they would have said faster horses."
In other words, we humans are famously bad at envisioning the future.
"I don't think anybody had space shuttles or electric vehicles in mind in the early 1900s when cars started to become really popular," Mercurio says. "And so I don't think we can really appreciate what's coming next for AI that hasn't been thought of, it hasn't been developed, it hasn't been rolled out or no one's using it, but it's going to massively change the way we do a lot of things."
To stay competitive, he recommends that RCM professionals of all walks sharpen skills that are still distinctly human. "One thing that the AI doesn't demonstrate itself to be really good at yet is critical thinking and problem solving when it requires understanding workflows between physicians and insurance companies and the software used to communicate between the two," he explains. "The folks that can understand a problem … will be the ones that will have opportunities for advancement or staying in an organization because … those are the folks we want on our team anyway — even without AI — are critical thinkers and problem solvers."
Chief among the system's drivers of ROI is a coding automation platform grown close to home.
Let's face it: We're not getting any younger.
"Our population [is] getting older, more complex, more challenging, so there's always going to be more volume than we can keep up with," says Michael Mercurio, vice president of revenue cycle operations at Mass General Brigham, a 12-hospital system headquartered in Boston.
For revenue cycle teams, it means the pressure is on "to not only perform well and bring in as much cash as we can as effectively, compliantly, and quickly as we can, but [to] do it at a cost that isn't burdensome to the organization," he explains. "Because every dollar that they spend on me is one dollar [that] they don't spend on a clinician or on research or on community assistance or on direct patient care."
To help those dollars more readily reach their intended targets, Mercurio has half a dozen "bot builders" implementing robotic process automation (RPA). "We're looking to continue to expand that as quickly as we can," he explains.
Ahead, more ways Mercurio taps tech to keep pace with RCM's ever-upping ante.
Cracking the CAC code
Today, Mass General Brigham's rev cycle team is automating more than 80% of their radiology-related coding activity with CodaMetrix's platform, which Mercurio helped launch in 2019 to commercialize the computer-assisted coding (CAC) solution developed by the system's physician organization billing office.
This focus has paid off big, Mercurio says. "The quality is excellent, and we've seen a reduction in denials and therefore a reduction in cost on the backend, which we've been able to pass on to our practices or reinvest in ourselves by redeploying staff to areas [that] need it as opposed to working things that would have been denied."
When considering automation, Mercurio recommends starting with higher-volume service lines where notes typically follow a standard template or format, such as radiology or pathology. "There's significant volumes of those, so the machines can learn very well on past history and do a really good job predicting the future," he explains.
Making humans happier
Apart from creating economies of scale in house through CAC and RPA, Mercurio sees an opportunity for tech advances to make work more joyful for the humans in the loop.
"Our providers are severely overburdened and that's causing a lot of challenges clinically from an access perspective and doctors losing the joy of medicine. So AI is going to help there," Mercurio says. "From our [RCM] perspective, it's really making us think, ‘do we really want to do X if technology is going to maybe potentially give us a boost or a lift or resolve this problem for us?'"
He points to new AI tools on the horizon, along with companies offering tech that tees up appeals to denials likeliest to get overturned based on a payer's policies and historical activity.
Laying the groundwork
Though such possibilities are ripe for ROI, they risk being waylaid by waning budgets and bandwidths. "There are so many companies and technologies and opportunities out there," Mercurio says. Though there's no silver bullet for these "killer bees," the following strategies are some worthy repellants.
Talk shop
"I rely heavily on my network," Mercurio says. "If someone's already using a vendor or a process, that's a good head start to narrow it down." He recommends asking peers which partners and solutions they've chosen and/or shortlisted, and based on what criteria, "so we don't have to do that market scan ourselves."
Avoid vaporware
Tapping your network also means you can learn from their mistakes. Mercurio recalls a peer who ran into early misunderstandings about an AI product they were purchasing that, one full year after implementation, left them where they thought they'd be on day one.
"It's so new, and there's a lot of hype, and people are quick to jump on to that," Mercurio explains. "If you're not asking the right questions or doing the right reference checks, and really digging in to understand the full breadth and depth and scope of your potential partner—which you should do for anything, not just AI—then you could end up getting bitten."
To sniff out potential snake oil, he recommends connecting with a peer organization already using a prospective solution to discuss how implementation went. "There's a very big difference between selling and installing," he notes.
Empower teams
System leadership is generally supportive of tech-enabled experimentation to "drive more value at a lower cost and a higher quality," Mercurio says.
As for staff whose roles might be directly impacted, such as coders, buy-in "comes down to the communication and the trust that your team has in you as a leader and your leadership team," he explains. The objective, he tells his staff, is to elevate team performance so members can build capabilities and take on more valuable work—not lose their jobs.
"We're not looking to eliminate any of the coders on our teams because of technology. We have more volume than we can keep up with," he says. "We want to make sure that we have the right coders who are trained in various subspecialties and are experts in their field and can really provide the value to our overall organization."
Put value over cost
Though price is "obviously important," Mercurio is "more interested in the quality of the outcome of the service we're buying, the relationship that we're going to have with that vendor," he explains. "We want them to be sticky. It's not a great idea to save 60% and then have seven times as many problems and constant turnover with account managers or teams where you're then managing more than you were to begin with and you're spending more than you were to begin with."
See the vision
"I like to try to find the companies that are really trying to do something different and special," Mercurio says. "That's who we would want to partner with to see if we can elevate our game and provide more value to our patients and our providers and our practices."
RCM leaders turn to strategic infrastructure, tech to stem the tide.
HealthLeaders christened 2023 the year of managing denials, but a spate of recent reports suggests revenue cycle leaders could be in for more of an era.
Payer denial activity was chief among the contributors to Community Health System's (CHS) net loss of $391 million in the third quarter, according to the Franklin, Tennessee–headquartered organization's report for the fiscal period ending September 30.
"We are seeing some payers aggressively deny payment for medically necessary services that have been provided for our patients," Tim Hingtgen, CEO of the 69-hospital system, told investors and analysts on a call. Medicare Advantage plans are driving more than half of denials and downgrades, CFO Kevin Hammons added.
Denials are a common denominator
CHS is hardly alone here. In a September report from the Healthcare Financial Management Association (HFMA) and consulting firm Guidehouse, roughly 40% of health system executives surveyed reported higher fatal denial rates and more than half saw upticks in MA denials.
"Many payers have increased requirements for prior authorizations, leading to more denials and increased cost to collect due to appeal activities," Timothy Kinney, Guidehouse partner and finance and revenue cycle advisory leader, said in a press release.
Denials, it seems, can be big business.
A ProPublica and Capitol Forum investigation published in October found that medical benefits management firm EviCore by Evernorth uses an AI-backed algorithm that can be adjusted to lead to higher denials. The Cigna-owned company, which contracts with major insurers on medical reviews and covers some 100 million consumers, "makes more money the more it cuts health spending" under some arrangements, investigators said.
"An analysis of the company's data shows that, since 2021, EviCore turned down prior authorization requests, in full or in part, almost 20% of the time in Arkansas, which requires the publication of denial rates," reporters explained. The equivalent figure for MA plans was about 7% in 2022.
Solutions require multiple streams
When it comes to stemming denial tides, the most successful RCM leaders will take a well-rounded approach to solutioning, according to McKinsey & Company. In a recent article, the firm's healthcare practice leaders pointed to a few best practices:
Brush up on fundamentals like continuous quality improvement
Seek out smart partnerships with peers and vendors
Clear internal pathways for better cross-functional collaboration
Strengthen data-driven decision making
Strong infrastructure is also essential.
CHS leaders are investing in their centralized patient financial and physician adviser services, which include enhanced utilization review, to keep championing appropriate care classification and payment, Hingtgen said in the system's Q3 earnings call. Their physician adviser program has secured a high rate of reversal on initial denials, he noted.
Aside from shoring up support structures, "industry leaders are turning to digital solutions and supplemental staffing to better navigate payer processes, maximize reimbursement and boost returns," Kinney said of the HFMA-Guidehouse report findings.
Such efforts should start with increasing the value of tech that's likely already in play in a system's RCM space, such as automation, machine learning, and advanced EHR functionality, according to McKinsey. "These tools remain underused in high-value areas such as enabling timely requests for prior authorizations, checking on the status of submitted claims, and managing denials of claims by payers," the firm said.
When it comes to investing strategically in new RCM tech, "gen AI shows immense potential to complement human efforts," McKinsey noted, so long as risks to privacy, compliance, patient safety, and change management are mitigated.
Beyond growing applications in coding and denial management, gen AI could help system RCM leaders learn why payers deny claims, proactively address causes, and tackle the complexities of prior authorization to reduce friction, executives in HealthLeaders' Mastermind program on AI previously shared.
The tech could also become a powerful tool for education and financial counseling, helping patients to understand their financial responsibilities and payment options, said mastermind member Shannan Bolton, Stanford Health Care's vice president of optimization and performance improvement. "That's where we fall short with patients."
Sweeping across 250,000 square miles, Sanford Health has a big footprint, and CFO Nick Olson has even bigger insights to share on how systems of all stripes can achieve financial success without sacrificing quality.
For all the ground they cover, rural health providers sometimes get short shrift when it comes to coverage of healthcare innovation.
"We have over 250,000 square miles of geography that our footprint covers," says Nick Olson, executive vice president and chief financial officer at Sanford Health, a nonprofit organization based in Sioux Falls, South Dakota.
Sanford is the largest rural health system in the U.S., with 48 medical centers across South Dakota, North Dakota, and Minnesota, and hundreds of additional care locations throughout the country.
All that reach comes with its own set of challenges—and opportunities for expansive thinking that can benefit healthcare leadership writ large.
"We are really intentional about becoming the premier rural health system, so how do we do that?" Olson asks. "It's about always putting the patient at the center of every decision. And that's both an easy thing to say and do, and also a very complicated thing to say and do."
Ahead, Olson, who stepped into his CFO role in April after five years serving the system in financial VP roles, shares his strategies for balancing a big footprint with even bigger ambitions. Hint: Aside from financial acumen, it takes a heart—and smarts—for people.
Get your priorities straight
Sanford is facing a host of familiar headwinds, from high interest rates and capital cost to looming workforce shortages.
To quell them, Olson says it's all about building a culture where quality, patient experience, and employee experience are valued as much as financial performance.
"These things don't have to be mutually exclusive," Olson explains. "When there's a constant drum beat of each of those four areas being important … that's when we start to see real traction in all areas."
Straddle a 'three-legged stool'
On the financial front, Olson is prioritizing strategic investments and growth.
"The more integrated we are, the more durable we, as an organization, can be to combat things like the pandemic that was in 2020, and the economic crisis that was in 2022, and there will be something else in the future," he says. "This means we have to look proactively at the right opportunities that could strategically advance this organization."
It's a well-timed focus. The opportunity to join forces is the ripest it's been in years for nonprofit healthcare providers on both sides of a transaction, says Rex Burgdorfer, a Chicago-based partner at Juniper Advisory, which counsels not-for-profit healthcare providers pursuing mergers, acquisitions, and other partnership plays.
As we emerge from the pandemic's peak, "our clients now are much larger, much stronger, and more forward-thinking in terms of why they're joining a system, and it's caused the average size of transactions to go up significantly," Burgdorfer explains. "There's more creativity in the ways in which they're combining structurally because they're more financially sound."
When it comes to strategic investments, Olson uses a "three-legged stool" to guide prioritization and decision making:
Care delivery and financing is "first and foremost" to ensure Sanford's clinicians can see patients each and every day and that its health plan can provide insurance to its nearly 200,000 members.
Philanthropy, from both Sanford's namesake benefactor and the broader community, is another crucial piece of the puzzle. "This is really an important tool for us to continue to invest in critical technology, critical services," Olson says. "It's really been a great community engagement tool for us, as well."
Investment return on reserves is also among Olson's priorities in his early days as CFO. He sees this focus as critical "to help ensure long-term financial sustainability for Sanford and for others as well, and really provide a means for us to deliver on our promise to provide access to high-quality care no matter a patient's zip code."
It's about keeping the endgame in mind.
"Operational and financial discipline is in our DNA," Olson says. "We set targets, we hold each other accountable, we execute against our plans, and when our plans are successful, we hit those targets. It allows us to expand access for patients and allows us to invest into new services, and those are things that everybody can rally behind."
"I believe that will fundamentally transform how we deliver care in our communities," Olson says. "[It] allows patients to be seen without having to travel to a medical center that might be 100 or 200 miles away."
"It's a real challenge when a hospital in a rural setting wants to recruit a provider, to lure that provider away from the big city system," Burgdorfer says. "So competing for recruiting talent is a major trend."
It's a big part of why telehealth is so central to Sanford's strategy.
"Having a virtual care center is going to combat those economics and those stats by allowing us … to recruit physicians to a more urban area," Olson explains. "So you'll still be able to provide the same type of quality care across the rural footprint that we have."
It's another timely play, as industry groups petition lawmakers to extend and expand key telehealth regulations that gained popularity during the height of the pandemic and stand to shape virtual care for the foreseeable future.
Although Sanford is squaring up against some formidable workforce challenges, Olson doesn't anticipate that the Federal Trade Commission's buzzy non-compete ban will be chief among them.
"We're certainly continuing to monitor those facts and those rulings, but at this point, we still feel really confident with the virtual care strategy well into the future," he explains.
Nonprofits like Sanford, which make up more than three-quarters of the nation's healthcare systems, are exempt from the non-compete ban, though things may get dicier for organizations that generate revenue for for-profit institutions.
Act as 'a true operating system'
Sanford's vast expanse means it's essential to have both a unified vision and a flexible approach to execution so every region is empowered to act.
"We'd like to give … the right level of local autonomy for the leadership in each of those communities because those are the ones that know certainly the patients, but the communities and the stakeholders in those communities," Olson explains. "They need to be able to have that autonomy to make decisions at a local level."
That way, enterprise leadership can help radiate locally grown insights across the organization. "If there's a good idea in Bemidji, Minnesota, we can implement that over in Bismarck, North Dakota, as well," Olson explains.
On the purpose front, CEO Bill Gassen and his administrative team make frequent trips to individual sites and convene the enterprise in regular virtual conversations to ensure a shared message sticks.
That message, Olson says, is simple but powerful: "We're in the business of providing world-class healthcare. Why we exist will never change. But how we deliver care needs to continue to evolve. So that we can not only provide the highest quality care but continue to be sustainable and viable for the next generations that come after us."
Medicare Advantage rate cuts are coming next year, but prior-auth provisions slated for 2026 could tide palmier payer partnerships.
CMS released finalized 2025 payment updates for the Medicare Advantage (MA) program on April 1, and the aftershocks were no joke: Confirmed cuts to base pay sent insurer share values plummeting 6–12% the next day.
The announcement comes on the heels of a January 17 final rule requiring MA plans and their federally facilitated insurance counterparts to streamline prior authorization processes beginning in 2026.
Despite widespread trepidation over what pay cuts could mean for already-tight margins, the recent MA moves, taken together, are cause for cautious optimism, says Denise Scoffic, chief financial officer, east region, at Mercy, a St. Louis, Missouri–headquartered health system with more than 50 hospitals and 50,000 team members across four states.
"We are encouraged," says Scoffic. "The key […] will be the accountability and enforcement."
Many feel slighted by 'slight' cut
CMS locked in a 2025 benchmark increase of 2.33% for MA plans, down from 2.44% in the January advance notice. The dip comes in part from adding Medicare fee-for-service spending data from the final fiscal quarter of 2023 to the equation. Next year also marks the second of a three-year phase-in of changes to the MA risk adjustment model.
All told, the decisions are a departure from CMS' typical practice of raising the final reimbursement from the proposed version, Reuters reports. They could also be a signal of waning support for the costly and denial-rife plans, albeit a tepid one in this presidential election year: Despite the immediate Wall Street backlash, the cuts are ultimately "slight," and federal payouts for MA plans are expected to increase by an average of 3.7%, or $16B, next year (also consistent with January's proposal).
AHIP wrote in its advance-notice comments that the growth rate likely "will lead to benchmark changes that are insufficient to cover the cost of caring for 33 million MA beneficiaries in 2025," sentiments the insurer trade group reinforced in a press release once the rates were finalized.
For their part, providers "will have to absorb yet another round of payment reductions," said Jerry Penso, MD, MBA, president and CEO of the American Medical Group Association, in an April 3 statement. "I'm concerned plans will reduce their benefit packages to account for this cut, which will be detrimental to patients and providers."
Dismissing fears of steeper costs and diminished benefits, CMS says the rate policies "will provide continued stability to the MA market and MA beneficiaries." As proof, the agency points out that plan availability, enrollment, and benefit offerings have remained stable or grown in 2024, even with the 3.32% net impact this year representing a big drop from the 8.50% increase in 2023.
The picture of premium and benefit impacts could start to crystallize next month, when plans submit their bids for 2025 MA coverage, the Healthcare Financial Management Association reports.
The makings of a 'mutual growth' agenda?
The new MA rules could be a flashpoint in long-inflamed payer-provider relations.
As a result, many health systems have been retooling or terminating their MA partnerships, stoking "flames of conflict" that shifting regulatory winds are further fanning, says Richard F. Bajner, partner and payer and provider leader at Guidehouse.
But amid all the heartburn is hope for a new negotiating table—one with "mutual growth" on the menu—as early as next year.
"It's forcing the dialogue between payers and providers to shift," says Brian Fisher, Guidehouse's director of healthcare strategy, provider and payer. "It's becoming less transactional and more focused on, 'What are our demands and pain points that, on each side of the table, we need to solve for?'"
'26 prior-auth policies could pave a new path
New, good-sense prior authorization requirements could lay the groundwork for palmier provider-payer partnerships. "It will be a win-win if we can take out the excess work on both sides and really see that those regulations are enforced," Scoffic says.
In its January-released final rule, CMS says insurers must implement and maintain application programming interfaces to "improve the electronic exchange of health care data, as well as to streamline prior authorization processes." Additionally, the agency puts forth new process requirements for payers meant to ease administrative burdens and care delays, including:
Turning around prior authorization decisions within 72 hours for urgent requests and seven calendar days for standard requests
Notifying providers of the specific reasons behind prior authorization denials
Publicly reporting certain prior authorization metrics on their websites
Provider reception of the policies, many of which take effect January 2026, has been positive.
"The AHA commends CMS for removing barriers to patient care by streamlining the prior authorization process," said association President and CEO Rick Pollack in a statement.
For her part, Scoffic is hopeful the rule will cut through some serious red tape.
"We are not only losing millions of dollars of revenue every year, but there is also so much excess time being spent on Mercy's side—and I'm sure on the payer side—doing non-value-add work," she says. Major culprits of costly denials and appeals processes are two-midnight rule discrepancies, excessive prior authorizations, and AI-powered batch denials, she adds.
As they await implementation of the prior-auth rule—and petition government leaders for thoughtful enforcement—Mercy's managed care team members are chipping away at inefficiencies by meticulously tracking denials, as well as the system's impressive quality and cost efficiency metrics, Scoffic explains.
All these numbers come in handy for leading "very frank conversations" with insurance partners (e.g., during peer-to-peer reviews or contract negotiations), she notes. "We're starting to see a few payers who are willing to automate that authorization process for specific common procedures."
It's a point in favor of keeping all eyes on the big prize. "Our goal here is to get the patients the timely and appropriate care that they deserve," Scoffic says. "Those conversations, and putting that data in front of them, has shown some early successes."
Healthcare insiders 'DSH' on IPPS, 340B eligibility, and the future of telehealth.
The fiscal year (FY) 2025 IPPS proposed rule, released April 10, bodes ever-tighter financial futures for hospitals: Next year's projected increase is 2.6%, down from this year's 3.1% bump.
"That will truly be a challenge for us, and I'm sure all healthcare systems," says Denise Scoffic, CFO, east region, at Mercy, a St. Louis, Missouri–headquartered health system with more than 50 hospitals and 50,000 team members across four states. "It's disappointing to see the lack of recognition of the current state of inflation that we're in, both from a labor perspective and from a supply and drug perspective."
Disappointing—"woefully" so, perhaps—but not surprising.
"I'm in Washington, DC. No one's talking on Capitol Hill about, 'let's put more money in healthcare,'" says Richard L. Gundling, FHFMA, CMA, senior vice president of content and professional practice guidance at Healthcare Financial Management Association.
For health system CFOs, it means getting even comfier doing more with less—while keeping an eye toward the regulatory movement bubbling beneath the surface.
"If you're not paying attention […] that can come back and bite you on the back end," says Venson Wallin, CPA, CGMA, CFE, CHC, CHFP, FHFMA, HCISPP, managing director and national healthcare compliance and regulatory leader at BDO, a global financial advisory firm.
Ahead, how not to get bit by less-buzzy regs.
Setting the stage
Mercy's fiscal year ends June 30, so forecasting is top of mind. "We definitely need to be realistic about what's coming our way," says Scoffic. "We must build in these regulatory challenges, such as the IPPS rate increase," even as "we'll continue to advocate for more reimbursement."
It's a balancing act.
Given the slim increase proposed for 2026, Mercy is seeking ways to "think and act even more quickly," says Scoffic, in part by exploring automation and ensuring all caregivers are working to the top of their licenses. She's also tapping team members across the organization for insight.
Mercy Hospital St. Louis, which is part of the system's east region that Scoffic helms, has an innovation center in one of their inpatient nursing units "where we engage the frontline caregivers to collaborate and think with us" about how to maintain high care standards while improving efficiency, she explains. The collaboration has yielded "great progress in reducing our length of stay and improving our throughput."
Wallin also supports a long view. When it comes to regulations, finance leaders should think beyond basic compliance to areas of risk and reward. "Where is your biggest focal point, and what could either benefit the hospital the most, or what could create the largest negative impact by not addressing it immediately?" Wallin asks.
As an example, CMS introduced new cost reporting requirements in the 2024 IPPS final rule, which apply to Medicare bad debts, Medicaid eligible days for disproportionate share hospitals (DSH), charity care charges by patient, and total bad debt by patient.
"This is not something that has been traditionally done in the past," Wallin says. And failure to comply could bring increased audit risk or, in the worst-case scenario, a "pause" on certain federal payments that hampers cash flow and threatens 340B eligibility (more on that next).
DSHing on 340B eligibility
CMS projects Medicare uncompensated care payments to DSH providers will increase $560M in FY2025. Although that'd be a rebound from this year's "staggering" $957M cut for providers serving a significant number of low-income patients, it may not be enough of a boost.
That's because DSH rules impact hospitals' eligibility for the federal 340B Drug Pricing Program, which requires Medicaid-participating pharmaceutical manufacturers to sell outpatient drugs at a discount to providers that care for many uninsured and low-income patients.
"The 340B program is on the radar, and under a lot of pressure at national and state levels," Scoffic says. Mercy Hospital Saint Louis, like several sibling sites, qualifies for 340B based on their share of Medicaid patients. "It's very important that we continue to advocate with our governmental officials."
Adding to recent stress on the program, this year's final rule introduced tightened criteria for Medicaid Section 1115 days that can be included in the DSH payment calculation. And fewer days could mean less reimbursement for many.
It could also jeopardize providers' access to 340B dollars altogether.
"With DSH, if you reduce your percentage, it reduces your reimbursement; with 340B, if you fall below the threshold, you get nothing," Wallin explains. The potential loss is magnified for small- to mid-sized community hospitals that may rely on 340B to make payroll and keep the lights on, he adds.
If your status stands to shift, consider reassessing your intake process to ensure you're properly capturing Medicaid eligibility as soon as patients walk through the door, Wallin advises. And if losing eligibility is unavoidable, brace for that impact to your bottom line.
Despite the challenges, Scoffic is heartened by recent moves to enhance the 340B program oversight. She points to an April 19 final rule introducing a pathway for resolving pricing disputes with drug manufacturers.
Additionally, Scoffic believes in the power of storytelling to win hearts and minds. "It's important to […] put stories to those dollars that we hope and think will be helpful in advocating that that 340B program continues on."
As part of their advocacy efforts, Mercy Hospital St. Louis puts a percentage of 340B dollars each month into a dedicated patient assistance fund, which is governed by a committee composed of members from the community, the hospital's mission team, and clinical leadership. All told, they're able to provide over $2M in annual assistance to patients undergoing costly drug therapies.
The hospital has also used program benefits to stand up substance use recovery programs; hire additional social workers to serve areas with underinsured patients; and invest in new technologies, like modern imaging platforms, in those same areas, "which, honestly with the pressure on finances, we wouldn't otherwise be able to do," Scoffic notes.
It's a testament to the program's role in "really, truly allowing us to get healthcare access back to those challenged communities," she says, "not just dropping to the bottom line."
Transcending physical boundaries
Looking at reimbursement beyond the IPPS, healthcare insiders are bullish on virtual care. In a recent address to AHA members, Rep. Brett Guthrie, R-Ky, who chairs the House Energy and Commerce Subcommittee on Health, said "there will be an extension of telehealth" because it's "convenient" and "helpful."
The remarks came days after AHA submitted a statement to the subcommittee, voicing support for telehealth proposals that would extend flexibilities set to expire this year and expand patient access.
At Mercy, whose systemwide virtual care program serves 600,000 patients across seven states, there's excitement over "starting to see recognition from a reimbursement perspective," Scoffic says. "Virtual care is really important to bring care to the patient, regardless [of] if they're in a rural area or elsewhere, with a goal of making the access [...] even easier."
M&As are on the rise. Take a page from one exec's playbook on how to find your perfect partnership.
M&As are all the rage.
The past 12 months have seen 81 health system deals announced—the highest volume in the past few years, according to an April report from healthcare investment banking firm Cain Brothers.
The first quarter of 2024 has been especially busy, racking up 18 prospective transactions, worth $10 billion for buyers. That's a 50% uptick in deal volume and 194% increase in revenue compared to the same period last year.
For the savvy CFO, it all spells opportunity to forge new paths to delivering high-quality care on "record-small margins" that many are still seeing, says Kevin Lenahan, CPA, FHFMA, executive vice president and chief business and strategy officer at Atlantic Health System, which has seven—soon to be eight—hospitals across New Jersey and Pennsylvania.
In a January letter of intent, the $3.7B non-profit system unveiled plans to welcome Saint Peter's Healthcare System, a $583M Catholic not-for-profit with a single, 478-bed hospital in New Brunswick, New Jersey, into the fold. Lenahan hopes the two organizations will finalize a definitive agreement within the next few weeks.
Ahead, more on how to find—and align—the right fits from someone going through it.
Meeting the moment
Transitioning from the pandemic's peak, everyone is "trying to figure out what the new norm is," and "feeling the pinch," Lenahan says.
Although they're easing in some areas, expenses are still high on everything from labor to transportation, and payer compensation—which is often locked in two to three years out on the private side—is failing to keep up with inflation. "It's very difficult to make up that differential cost," Lenahan says. So joining forces to streamline operations can make all the difference.
Beyond the bottom line, M&As can help systems honor their commitments to quality, affordable care, Lenahan says, by opening additional access points or new specialty services.
Charting the course
Once Saint Peter's and Atlantic Health have signed their definitive agreement, next steps include garnering state approval according to the Community Health Care Assets Protection Act, which Lenahan said could take 12–14 months.
Additionally, he's hopeful the deal will pass muster with the Federal Trade Commission (FTC), which blocked Saint Peter's proposed merger with RWJBarnabas Health in a 2022 complaint, citing anti-competitive practices that could arise from merging New Brunswick's only two hospitals.
In contrast, Atlantic Health and Saint Peter's have "no overlapping territory," Lenahan says. "In my mind, this is a green light." The system's attorneys agree, he adds.
Building on a track record of success
The Saint Peter's deal would extend Atlantic Health's lineage of successful integrations: The system acquired Chilton Medical Center in 2014 and, within a year, helped the location top the list of Jersey's Best hospitals with fewer than 350 beds, a distinction it's held eight years running. CentraState, which became part of the system in 2021, also charted in its category, as did four additional Atlantic Health locations.
Other integration highlights include launching robotics surgery at Newton Medical Center, which came aboard in 2011, and growing Hackettstown Medical Center, which joined in 2016, to accommodate more admissions than they've seen in a decade, and more ED patients than ever before, Lenahan notes.
Successes aside, Atlantic Health has been selective in adding hospitals, instead focusing most of its expansion efforts on new and acquired ambulatory centers that can help "reduce the total cost of care" and "create more access points," Lenahan explains.
They've been adding specialty centers, which feature services like urgent and primary care, radiology, PT, lab, cardiology, and oncology, at a rate of 1–2 per year over the past five years and plan to continue at this clip.
"Let's meet the patients where they are," Lenahan says. "That's what drives us."
Finding the perfect match
When assessing potential partnerships, Lenahan looks for fit across a few key dimensions:
Quality: It's Atlantic Health's top focus in potential partnerships. System decision makers consider ACO, state, LeapFrog, and Magnet award data, and they aren't afraid to "walk away" from potential opportunities with organizations that don't show progress or promise on the quality front. "Too many people make gut decisions," Lenahan says. "Let the data support what you're trying to do." Also let it check you on your biases. "Be open that you may have some," he advises. "When you look at the data, it will identify new processes, new ideas, and new suggestions."
Beyond reviewing metrics that matter, consider relationships and past work together. As an example, Lenahan has "a lot of respect" for Saint Peter's mission and leadership because he's known CEO Leslie Hirsch for over a decade and partnered with the system on initiatives like the Healthcare Transformation Consortium, in which New Jersey–based health systems team up to administer their self-insured employee health plans.
Culture: For Atlantic Health, that means shared values must amount to more than lip service. "We believe in population health. If you […] believe mostly in fee-for-service, it's not going to work here," he explains. "So you've really got to ask probing questions." And once a deal is closed, the real cultural work begins. "We will send our Atlantic team down to Saint Peter's to be the at-the-elbow support, so they're going to get to meet their Atlantic brethren," Lenahan says. "That will assimilate the cultures really well."
Geography: Saint Peter's location fills a "white space" in Atlantic Health's central Jersey assets, Lenahan says, which makes the system more "attractive" to partners like insurance companies and employers, plus more convenient for patients who already visit Atlantic Health's physician offices in the area.
When considering geographic needs, take the long view, Lenahan advises. "If you do one transaction, does that prohibit you from doing another one because now, all the sudden, there's another territory that you can't do?"
Business structure: Pay attention to operational and organizational nuances that'll need to be codified, Lenahan advises. As an example, Saint Peter's, a Catholic-run institution, is bound by the Ethical and Religious Directives for Catholic Health Care Services, so when it comes to the balance sheet, Atlantic Health will designate the location as an entity under the system rather than as part of AHS Hospital Corp, Lenahan says, to "honor the Catholic integrity agreement for Saint Peter's at Saint Peter's."
Cyber security: Given the high-profile, higher-stakes breaches as of late, strength of cyber management is an increasingly vital consideration when vetting potential partners, Lenahan says. Atlantic Health now engages an independent contractor to conduct cyber analysis on all entities they're interested in acquiring "because once you're in the system, you're in the system, and you know, we want to make sure we identify anything up front."
Infrastructure, both the physical and technological kind: Once the deal closes, early integration goals include transitioning the new joiner to Atlantic Health's EHR instance "as quickly as possible," Lenahan says. "All our partners go on Epic so that we can just track those patients to make sure they're getting the right care in the right spot for us." When it comes to Saint Peter's physical infrastructure, Lenahan anticipates early investments will center on building out the location's ambulatory network and connecting it with the system's assets in neighboring regions.
Openness: Though rigor in dealmaking is vital, so too is curiosity. "Be open-minded," Lenahan says. "Every acquisition we've ever made in Atlantic, particularly the big ones, we've learned something new, […] and it enhanced all of Atlantic."
"Folks are very frustrated right now," says Robin Damschroder, MHSA, FACHE, executive vice president and chief financial and business development officer at Michigan health system Henry Ford Health (HFH), which has more than 250 care locations, including five acute care hospitals, and upward of 650,000 members enrolled in its Health Alliance Plan (HAP).
"Profitability on Medicare Advantage plans has dropped significantly below fee-for-service payments" for many providers, Damschroder explains.
It means "you're seeing more and more health systems selectively partnering and/or exiting" their MA partnerships, says Brian Fisher, director of healthcare strategy, provider and payer, at global consulting firm Guidehouse.
And now, shifting regulatory winds are only fanning these "flames of conflict," says Richard F. Bajner, partner and payer and provider leader at Guidehouse.
During the height of COVID, payment "very much tilted in favor of health plans," he explains. Now, things are "tilting a little bit back," and payers are feeling the heat. But amid all the heartburn is hope for a new negotiating table—one with "mutual growth" on the menu—as early as next year.
"It's forcing the dialogue between payers and providers to shift," Fisher says. "It's becoming less transactional and more focused on, 'What are our demands and pain points that, on each side of the table, we need to solve for.'"
Make your pitch
Determine what you need from—and can offer to—prospective payer partners based on your goals and circumstances. Consider what you "need to solve" on strategic and operational fronts, both today and five years from now, and who's going to help you get there, Fisher advises.
Because payers are doing the same. "They're looking at markets and saying, 'okay, who do we want to align with as our health system leader or health system of choice that helps us improve on our cost of care, our quality, and our initiatives," Bajner explains.
To find common ground, "focus on alignment where growth benefits both parties," Fisher says, and look beyond cost to compatibility in places like service lines, quality aims, and administration and marketing capabilities.
In other words, lean in on where you can complement (and maybe even compliment) each other. Despite "the animosity," payers and providers both have roles to play in delivering value-based care, says Richard L. Gundling, FHFMA, CMA, senior vice president of content and professional practice guidance at the Healthcare Financial Management Association. "Providers are great at performance improvement; payers are great at risk management." So how can you work together to do both?
Take it easy on the hardball
Too often, both payers and providers come into negotiations with the mindset of, "'Here's our set of demands, and if you aren't able to reach those demands, we're going to walk,'" Fisher says. "That's a tough line to toe, and you know, sometimes it's not putting the patients and the members at the forefront."
Instead, come to the table prepared to give and take on multiple fronts, not just "how are we getting paid?" he advises. "It gets important to say, 'here are our objectives,' but doing so in a way that leaves the options for how we contract or partner together rather open."
This framing will allow you to have better, more strategic conversations from the vetting process onward. And sometimes, Fisher says, that may mean culling partnerships from your portfolio that are no longer a fit. So don't be afraid to say, "Look, if this doesn't make sense for us, and it doesn't make sense for our patients, then maybe this isn't something that we need to be participating in moving forward."
At the same time, remember that real change takes time, Damschroder says. Quality scores are—rightfully—"often a gatekeeper" to dollars in risk-sharing agreements, "and you can't affect those by being in a contract for one or two years."
Go long (and short)
Once you've determined your needs and offerings, shape them into an incisive value proposition. The sooner the better, Fisher says, because "time kills deals."
Not so fast, though. Even in today's environment, "where short-term returns are creating the necessity to prioritize short-term actions," speed shouldn't equal shortsightedness, Bajner says.
Instead, he recommends seeing payer partners "as another lever and chassis for growth." And that means thinking beyond terms like unit prices to bigger-picture considerations like PMPMs.
It's about creating a "strategy where short-term decisions don't negatively impact that longer-term strategy and sustainable model," Fisher says. Because moves that are "helpful tomorrow" don't always aid "those growth opportunities five years from now."
Field admin curveballs
Ending the "administrative arms race" is a must to reduce the cost of providing and receiving care, Damschroder says.
Your payer partners should help, not hinder, this goal. "How is a health plan willing to invest in health system capabilities so that we're better managing patients across the continuum of care?" Fisher asks.
Assess how your collaborations can strengthen core administrative functions, including those involving utilization, prior authorization, medical necessity reviews, referrals, care management, and related documentation, experts advise.
When such considerations are overlooked or mismanaged, it's patients who are left in the lurch, Gundling says. "It just causes so much dissatisfaction and plus just adds a lot of administrative costs" in an environment where "no more money's coming in."
Finding efficiencies takes a lot of talking, says Damschroder, who has "ongoing dialogues" with Michigan's dominant payer, Blue Cross Blue Shield, along with other major players like Aetna and Humana.
Additionally, Henry Ford Health just revved up their machine for addressing denials and audits—both of which are up by 30%—with more staff and tech capabilities, including Epic's payer platform to "ease the exchange" of documentation, Damschroder says.
Since rolling out these enhancements, HFH has managed to overturn 90% of the denials. But it hasn't been cheap.
The system is planning a sit-down with their largest payer to discuss how administrative hurdles are costing both entities, Damschroder says. "We spend $4.5 million dollars on pre-authorization for their members, and we want to know, if we're spending $4.5, how much are they spending, and collectively, what could we do to reduce that spend?"
It's all in service of something better, Damschroder says: developing "a mechanism where we trust each other."
Aside from staving off skirmishes with external payers, proponents say it's a way to boost care quality, integration, and affordability for their communities.
But that doesn't mean it's easy going.
"It is not for the faint of heart," says Robin Damschroder, MHSA, FACHE, executive vice president and chief financial and business development officer at Henry Ford Health (HFH), which has more than 250 care locations, including five acute care hospitals; more than 33,000 team members; and upward of 650,000 covered lives throughout Michigan. "You do have to live through the insurance cycles."
For HFH—whose Health Alliance Plan (HAP) was born in 1960 from automaker union and community members championing high-quality, affordable healthcare—that's meant braving everything from the genesis of DRGs and tightly managed care in the 1980s and 1990s to the emergence of Medicare Advantage in the 2000s.
Sure, it's a rollercoaster, but success is possible with staying power and prowess, financial execs and experts tell HealthLeaders. Ahead, some tips for stout-hearted CFOs mulling a payvider play.
Why (or why not) now?
While value-based partnerships between payers and providers have been around for years, payvider models, which involve a contractual or joint ownership arrangement between the two entities, have gained popularity in recent years amid forces like intensifying financial strain, an aging population, and a redoubled emphasis on the quadruple aim.
In a 2021 Guidehouse and Healthcare Financial Management Association (HFMA) survey of health system CFOs and finance and managed care executives, more than half of participants indicated that they were pursuing payvider model(s), including shared-risk/capitation payment arrangements (54.7%), direct-to-employer partnerships (47.4%), provider-sponsored health plans (32.8%), and payer/provider joint ventures (30.7%).
Today, though, shifting winds are fanning "flames of conflict" and forcing reconsideration, says Richard F. Bajner, partner and payer and provider leader at Guidehouse.
During the peak of COVID, payment "very much tilted in favor of health plans," Bajner explains. Now, things are "tilting a little bit back the other way," he says, pointing to a March MedPAC report, which recommends increased Medicare reimbursement for hospitals in 2025.
That means health plans may be feeling a financial pinch. "So now you have two parties that are saying they're financially challenged, and one needs to save more money and the other one needs more money, and how do we get past that?" asks Brian Fisher, Guidehouse's director of healthcare strategy, provider and payer.
It's an impasse that could shape a new state of play, including a "mutual growth agenda," as soon as next year, Bajner says, assuming we can muck through "all the mudslinging."
In the meantime, there's a bit more trepidation when it comes to payvider models—even the provider-sponsored kind—compared to what we were seeing five or 10 years ago, Fisher says. "Capital is a challenging thing to overcome and getting to scale is equally as challenging."
And when the going gets tough, "delivery systems start to get out," Damschroder says.
So why bother?
Payvider proponents see provider-sponsored plans as one way to wrest back some control over reimbursements and reduce wrestling matches with external payers doling out denials.
And, they argue, it can be just as rewarding for the communities they serve. The model provides "a microcosm" where providers can "manage the value-based care," says Richard L. Gundling, FHFMA, CMA, senior vice president of content and professional practice guidance at HFMA.
Indeed, Henry Ford Health's value-driven approach has brought "a lot of success" in the quality arena, Damschroder says. As an example, HAP's covered lives have consistently earned high NCQA scores for services like HbA1C control and breast cancer screening. "When you combine being the insurer with being the provider, you get a lot more flexibility of what you can decide to do as it relates to programming and driving engagement and health and the outcomes that you're seeking."
Plus, the model can be a hotbed for innovation, creating opportunities to "pilot and try out and incubate different kinds of care and insurance models that could get us that much further," Gundling says. "And maybe to eliminate some of the denials."
What does success look like?
It's no surprise that competition is fierce, with "really large national companies" like UnitedHealthcare and Aetna CVS Health expanding their footprints across government and commercial markets, Damschroder says. So partnering up can make all the difference.
"We, as integrated delivery systems and provider-sponsored payviders, are going to have to think about things that we can do together to help us compete," she explains.
In January, for example, HAP teamed up with managed care provider CareSource on a state Medicaid bid, a move enabled by the pair securing regulatory approval last year to pursue a joint venture. The decision, Damschroder says, stemmed from the desire to create "comprehensive capabilities that would actually change the outcomes we see here in the state of Michigan."
It's something that would be hard to deliver alone.
"We all want to meet our benchmarks for quality, safety, experience, and financial outcomes, but truly, when we come together and look at it, and we put that partnership together, it was really, how could we do better?" Damschroder recalls. "And we owe the state of Michigan to do better."
This isn't the first time Henry Ford Health has collaborated to better serve their state.
Available to Medicare-eligible individuals throughout Michigan, the plan features a $0 premium and $0 primary care provider copay, plus a flex card to use on benefits like dental, vision, hearing, and companion services. Members have access to HAP's full HMO network of more than 50,000 practitioners across the state.
Pictured: Robin Damschroder, MHSA, FACHE, executive vice president, chief financial and business development officer of Henry Ford Health. Photo courtesy of Henry Ford Health.
Building on successes in the plan's first full year of operation, the 2024 offering expands availability to individuals in 48 Michigan counties, compared to 46 at launch. And it has provided a springboard for MSU Health Care to announce its intentions to introduce additional MA plans on the employer front, along with insurance products in the commercial arena. "We want to get in the game and be what is the future of healthcare: a payvider," MSU's CEO, Seth Ciabotti, said on a recent podcast.
What does it take?
Clear benefits aside, getting an in-house offering up to scale at speed is a big challenge.
"What we've seen over the past 10 to 15 years is provider-sponsored health plans that are really challenged to grow a large enough market share or bolus of members to mitigate risk, particularly in a new insurance company," Fisher says.
To ramp up, providers often accept "significant discounts on their own health plan," Bajner explains. And with capital constraints being what they are today, CFOs should ask themselves whether these cuts, which can be as high as 30% to 50%, are the right move.
Here's what can make the juice worth the squeeze.
Analysis: You need a good read on the regulatory environment, especially for government payers, as well as the competitive landscape for commercial entities, Damschroder stresses. And that includes what's on the horizon. "We've had to change with the times as different programs and different emphases come into play," she says. Without this expertise and foresight, "you can lose a lot of money, and then quickly, it feels like a money pit."
Capability: Sponsoring a health plan requires "a completely new set of capabilities, particularly on the administrative end, that, without a partner, have to be created from scratch or contracted out," Fisher says. So prioritize finding the right collaborator—or developing the requisite skill sets in house, Damschroder advises.
Balance: Ensure your offering covers people in a range of health circumstances, or risk getting "kicked out of the market," Damschroder says. "When you look at the COVID cycle that's just gone on, there's been a lot of volatility in medical claims, right, and you actually have to have the fortitude to maintain your risk-based capital with the department of insurance in your state," which wants to know that you're "investing and supporting the medical claims activity."
Stamina: This isn't "a get rich quick scheme," Damschroder says. "You have to be in it for the long term; it's not a three-to-five–years game where you're automatically going to be making money." It means "doing what's right for the community and getting those health outcomes," as well as "pricing reasonably" and making enough profit to cover losses, particularly in the Medicare and Medicaid domains. Also look for openings in the market. As an example, UnitedHealthcare is focused on profitable services (e.g., ambulatory and physician) and "staying away from hospitals," Damschroder says. "That would be our domain."
(More) collaboration: "Many times, even within a health system that has a payer and a provider side, they still are not as close as you would think they were," Gundling says.
That's because infighting can flare around competing priorities, such as how to handle administrative hurdles like prior authorization and medical necessity. And it's the patients who suffer most.
"If somebody really needs back surgery, let's not delay it for three months to get them that surgery or to have them scared that they're going to get a huge bill at the end of it," Gundling says. "They're having back surgery. Let's alleviate that other stuff."
It takes a balancing act, Damschroder says. "Culturally, you have to be suited for that tension, and I think you also have to be well invested in the health of the population—of what you can do together, versus separately," she explains.
Henry Ford Health has worked hard over the past two years to integrate its care management team across its provider and payer entities. The partnership has produced a protocol of care that limits pre-authorization requests between HAP and HFH to a handful of circumstances, such as when certain new drugs are in play or there's variability in how a service is being delivered across the system.
"Our clinicians and our medical management team at the plan have been able to come together to develop processes that aren't an administrative burden, don't cost a lot of money, and better yet, the patients' speed to care treatment is quicker," Damschroder explains.
Resolve: If a plan of your own is the right fit, don't let the challenges scare you away from a model that could improve care quality, access, and affordability for those you serve. "We're highly integrated into our communities, and I think we're a very important part of this ecosystem," Damschroder says. "There's a danger if we just hand this over."
Don’t let unchecked tech prune your most promising candidates before their application even crosses a human's desk.
AI is making a splash in talent pools. Or is it a belly flop?
According to a February report from Rutgers University's Heldrich Center for Workforce Development, 71% of workers are concerned about the impact of artificial intelligence (AI) on jobs and just as many are worried about employers using the tech in hiring and promotion decisions.
That means HR leaders who want to attract and keep top talent must champion the ethical application of emerging tools in People domains.
"We've had unconscious bias for so long and have underestimated women, people of color, people with disabilities for decades in the workplace," says Hilke Schellmann, assistant professor of journalism at New York University and author of The Algorithm: How AI Decides Who Gets Hired, Monitored, Promoted, and Fired and Why We Need to Fight Back Now. "Humans have caused massive damage, so we don't want to go back to that."
In hiring, this can play out like an AI-powered applicant tracking system (ATS) scoring candidates based on irrelevant and potentially discriminatory application details that it mistakes for predictors of success, such as the name "Thomas" or hobby "baseball" appearing on a resume (both real examples from Schellmann's research).
Legal and ethical implications aside, failing to mitigate such risks can mean your AI tool does the exact opposite of what you're intending: Weed out your most promising candidates before their application crosses a human's desk.
"AI can be a powerful addition to any recruitment team's arsenal … but I think it's equally important who you choose to do business with and why you choose to do business with them," says John Higgins, vice president of talent management at Essentia Health, which has 14 hospitals and more than 15,000 employees in Minnesota, Wisconsin, and North Dakota.
Higgins has partnered with several third-party vendors to introduce AI-enabled chatbot and programmatic advertising capabilities to accelerate the hiring process and enhance the candidate experience. "Ensuring that [vendors are] eliminating bias is part of the way in which those tools are supporting you. Because the last thing you want to do is make it more difficult, especially in healthcare, to find the right talent."
Often outfitted with AI and built either in-house or by a vendor, the software helps move candidates through the hiring process by storing their information and materials; tracking the status of applications; and automating time-intensive tasks such as screening for fit, reading resumes, scheduling interviews, and sending out notifications.
Additionally, AI is increasingly used to prescreen candidates before they make it to a conversation with a human recruiter through tasks such as gamified assessments and one-way interviews with pre-recorded prompts, both completed from computer or phone, Schellmann says.
Chatbots are attractive for teams who look after talent, both current and prospective, because they can help manage work influxes stemming from acquisitions, mergers, and notorious busy seasons. Open enrollment, for example, is the "Super Bowl for HR," says Ayanna Pierce, vice president of benefits and talent relations at Mercy, a St. Louis, Missouri–headquartered health system with more than 50 hospitals and 50,000 co-workers across four states.
To help with such upticks—and replace a chatbot that was retired at the same time as their previous benefits system—Pierce's team collaborated with their tech counterparts to launch Joy in late February, just in time to help with the winddown of open enrollment. Within a week, the benefits chatbot had answered 1,200 questions, a number that's expected to keep climbing as news of the launch spreads.
"We have so many benefits at Mercy that it can be overwhelming for co-workers," Pierce says. "We communicate a lot and so to have a chatbot that can synthesize the information and help people get what they need when they want it is huge, and it's a satisfier for our co-workers."
Essentia Health partnered with vendor Paradox to launch their recruiting-focused bot, Olivia, which appears as a widget on the system's career website and moves candidates through the hiring process by answering questions in real-time, at any time—including when human recruiters are sleeping—about things such as benefits, company culture, and specific roles, Higgins says.
Once candidates are engaged, the bot can help them complete applications for many roles through a simple text conversation rather than any formal submission process. And, because the bot integrates with Essentia Health's instances of Workday and Office 365, it can schedule a phone interview with a recruiter or hiring leader. All told, it makes things "easier" and more "delightful," Higgins says.
How AI can help
Chief among the goals of using AI, talent leaders tell HealthLeaders, is creating resonant experiences for candidates and employees by enhancing—not replacing—the talent team's capabilities.
Recruiting "can be really administrative heavy," Higgins says. Offloading tasks such as scheduling frees up time for recruiters to "be more consultative" by "nurturing their relationships with those candidates and partnering with those hiring leaders to make better hiring decisions."
Beyond empowering teams to work "at the top of their license," Essentia Health uses AI to make things fast for candidates. "It's all about … getting them in front of us more quickly because in today's world—especially in rural healthcare—speed wins."
Because Essentia Health is a rural institution, Higgins also uses AI in a way that flouts prevailing narratives: to widen, rather than narrow, the talent funnel. "The concept of screening out candidates is not something that we want necessarily a technology to do for us," Higgins says. "We're looking more for, how can we screen candidates in?"
To that end, his team uses AI-powered programmatic advertising to mete out marketing dollars swiftly and strategically across all available roles, which can sometimes reach upward of 1,000 at once. "It's monitoring the number of applications that are coming in, and once it hits certain thresholds of, 'hey, you've got plenty of candidates for this job,' it stops funding the advertising for that particular element and shifts the dollars to jobs that aren't receiving applicants," Higgins explains. "It puts dollars where you need them to generate more candidate flow and make sure you're not overspending" on jobs that prove easier to fill.
The AI investments have paid off, Higgins says. Essentia Health is now scheduling more than twice as many interviews and hiring 20% more people, he estimates. Plus, they've reduced the average time from application to an interview with the hiring leader from 10 or 15 days to five.
How AI can hurt
The risks in AI are well documented. Among them: Hallucinations that confidently proffer incorrect information; encoded bias that amplifies the assumptions of the tech's human creators and perpetuates historical disparities reflected in training data; and privacy, copyright, consent, and labor issues stemming from whose work, art, or personal information is used to build the tech. Such pitfalls can translate to hiring misfires in several ways, according to Schellmann's research.
1. Using biased proxies for success
Calibrating tools using data solely from people who are or have been in the roles you're looking to fill can amplify bias that has historically existed and shown up as underrepresentation of marginalized groups such as women, people of color, and disabled people within positions of leadership or positions, period, within the organization.
"We see this again and again," Schellmann says. "These biased proxies come into play even though, you know, it may look facially neutral."
For her book, she talked to lots of employment lawyers and industrial organizational (IO) psychologists who are often brought into the AI technology vetting process for due diligence.
"What some of them have found is biased keywords, broadly speaking, in resume screeners," she says. In one screener, for example, the name "Thomas" was a "proxy for success." So those who had that word on their resume (e.g., as part of their name) "got more points." Ditto for the hobby "baseball" as compared to softball, and the countries "Syria" and "Canada" compared to their counterparts around the world.
"What this points to is problems in the training data and the way these tools are calibrated and the way these tools are monitored," Schellmann says. "There is no supervision" as the system keeps learning what success looks like from biased proxies even as organizations attempt to diversify their candidate pool.
"This is really concerning for employment lawyers," she says, because a court might consider such issues discrimination based on protected classes (e.g., national origin or gender).
And, what's more, because people are not a monolith, representation isn't always enough, especially in the realm of disabilities, which "express themselves so individually," Schellmann explains. For example, even if an autistic person is part of the training data, "that doesn't mean that their data would actually map onto the next autistic person," she says. "There's a real problem here, how a one-size-fits-all tool that is being used for hiring would work on people whose disability is expressed so individually and who are often not part of the training data, so I think that's a huge question that I'm not sure companies have started to grapple with."
2. Not measuring what you think you're measuring
A similar type of bias can play out in gamified assessments by elevating candidates who display similar behaviors, regardless of their relevance to success on the job—or whether style of gameplay even translates to the real world.
Typically, candidates play through a set of simple tasks such as using the spacebar on their computer keyboard to pump up balloons as quickly as possible to collect money. To determine what constitutes success, the organization has people already in the given role play the game to identify what sets them apart from the general population. An employer might determine, for example, that their current accountants are comparatively bigger risk takers. And so the tool would start moving applicants who display that behavior during gameplay into the "yes" pile.
Using an assessment that relies on dexterity and speed to determine fit for a job that doesn't have those same requirements poses risks for discrimination, Schellmann says.
When she tested one such game with someone who has a physical disability, "he was really worried that, if people had a motor disability in the hands, that maybe they couldn't hit the spacebar as fast as possible, they would get rejected for the job, although they could absolutely do the job," she recalls. "Are we excluding people who may have a motor impairment or another disability for no reason?"
And though U.S. companies must offer reasonable accommodations, a common challenge among the disabled job seekers Schellmann interviewed is, "they don't necessarily know what awaits them on the other side" of a "start assessment" button and thus what accommodation they might need.
Aside from the discrimination risks, being a "daredevil" in a video game doesn't necessarily translate to being a risk taker in real life and on the job, Schellmann explains.
One IO psychologist she spoke to described how a hospital found their most successful nurses were "way more compassionate than the general population." So the thought process for an organization looking to translate that finding to a gamified assessment might be, "okay, maybe we need to find people who are very compassionate, more compassionate than the general population, so we need to have a game that finds that," she says.
The problem is, when the IO psychologist went on to test the unsuccessful nurses, they, too, were far more compassionate than the general population. In other words, compassion set nurses apart, but it's not what made them successful. "Turns out, the successful nurses were more conscientious," Schellmann recalls.
How to make it work
This is the moment for People leaders "to feel very empowered," Schellmann says. It means asking tough questions early and often. "We have to be a whole lot more skeptical of these tools and that starts with asking very skeptical questions and not just believing the marketing language that vendors sell."
Go for the goal: To avoid succumbing to shiny-object syndrome, start by defining a goal and then looking for vendors and tech that can help achieve it.
For Essentia Health, that meant making the job search faster, easier, and more satisfying than what they could offer with their ATS' out-of-the box capabilities.
It also meant meeting candidates where they're at: about 70% of visitors to Essentia Health's job site get there on their phones, so "if we rely on solutions that are PC-based, we lose," Higgins explains. It's why they've opted for a chatbot with robust SMS texting functionality for app completion.
For their part, Mercy looked for places where they could make swift, safe enhancements to the colleague experience. Launching Joy in the benefits space made sense because it presented a big opportunity with relatively low risk compared to a clinical use case. "We felt like it was something that we could do pretty accurately and that there was a benefit to our co-workers," says Kerry Bommarito, PhD, vice president of enterprise data science at Mercy.
Plus, the tech they had available at the time of the build—GPT-3.5 within Microsoft Azure— "allowed us to explore that branch of AI in a protected environment with no risk of protected health information (PHI) exposure or personal data being shared," she explains. They're now setting sights on newer GPT models for clinical use cases.
Lead with values: Make sure vendors and external partners share "the ethos of your organization," Higgins advises. Essentia Health focuses much of its programmatic advertising on Indeed.com not only because of the job aggregator's marketplace dominance—about 40% to 50% of Essentia Health's applicants come from it—but also because the organizations have similar stances on AI accuracy, bias mitigation, and relevance in matching candidates to jobs, as well as social justice and DEI. Both, for example, emphasize fair-chance hiring for people who've previously been incarcerated or convicted of an offense. "The work they're doing from a charter, mission perspective aligns really well," Higgins says. "So we choose to partner with them versus maybe choosing to partner with other organizations that don't have … those kinds of deep commitments in place."
Start small: Consider a focused test before committing wholesale, Schellmann advises. "Can we do a pilot program where we don't make higher stakes decisions yet, but we test the tool in the background?" Also consider the "question of consent," by letting employees and job seekers know what from their data, and how much of it, is being used to train AI systems, she adds.
Get technical: Both Mercy and Essentia Health vetted vendors for safety and fit with their existing People technology ecosystems. "We do incredibly deep dives on things like IT security when we're looking at vendors" to ensure they meet internal privacy protection and compliance standards, Higgins says.
Also ask for a vendor's technical report, which shows how they built and validated the tool, including any steps they took to test for bias, Schellmann advises. If they don't have one, "that's a red flag."
Within the report—or the internal equivalent for tools built in house—look at the size and demographics of the test group and how that all matches up with your current and prospective employees. "Sample size matters," Schellmann says. "It also matters, you know, were they diverse enough? Was there a wide plethora of people of different ages, abilities, demographic backgrounds, genders?"
Don't stop at individual EEOC protected classes; really probe how the tool treats the data of people with multiple marginalized identities. "We see a lot of tools start discriminating when you look at white men versus, for example, African American women," Schellmann says. "We don't see really a lot of scrutiny on that front."
Break things: HR and talent leaders can "test these tools before they're being implemented," Schellmann says. You don't need a technical background. And, in fact, if you can break a tool without one, that's a bad sign. "If I can test these tools and they break on impact because I speak a different language to them or deep fake my voice and just type out answers, and that is not being detected, and I get a result," it means the tool might not work the way it's advertised, she explains.
Get guardrails: To supplement the content filters that Microsoft's open AI service has in place to prevent inappropriate questions and answers, Bommarito's team programmed Joy using "retrieval-augmented generation." It means the bot only addresses questions that it can answer using information in Mercy's benefits documents. "It does minimize the risk of providing inaccurate information," Bommarito explains. When someone asks a question that's not benefits related, Joy is instructed to tell the co-worker that it doesn't know the answer and, as relevant, provide contact information for a live team member.
"They really did take steps to make sure that Joy won't go rogue," Pierce says.
This was a vital consideration because even though benefits may be lower stakes than PHI, they aren't without risks. Take, for example, someone who may access Joy when choosing between Mercy's two plan options for short-term disability. "We want to make sure co-workers don’t feel forced into an election that doesn’t work for them," Pierce explains. "And so they have definitely taken the liberties of vetting the process to make sure that Joy gives informative information but isn't making decisions."
Train your people: Don't assume that everyone is excited about AI, let alone well practiced in tools like ChatGPT. "Guiding people in how to phrase questions is important," Bommarito says. She's teaching colleagues that, for the best results, they should talk with Joy like they would with a talent colleague on the phone and ask follow-up questions as needed to gain clarity or context. "You're not just going to type in the word 'speech therapy.' You're going to say, 'how many speech therapy visits are covered by this specific insurance plan?'" Bommarito says. Her team has created tipsheets, FAQs, and other resources to help colleagues get the hang of it.
Part of this training is cueing people to the tech's limitations.
"Joy won't be able to solve everything," Pierce says. "There are things that take human empathy and compassion to deal with the situation and make thoughtful decisions. You know, HR is not black and white. We're gray, and that's our area of expertise. We deal in the gray, and you need people to deal in the gray."
Pictured: Robin Damschroder, MHSA, FACHE, executive vice president, chief financial and business development officer of Henry Ford Health. Photo courtesy of Henry Ford Health.