Headline Deep Dive: Challenges and Issues Faced by Retail Giants, Financial Pressure for Hospitals, and a new look at the Change Healthcare Hack

Can retail giants like CVS, Walgreens, Walmart, and Dollar General successfully venture into the healthcare sector, or are they doomed to fail? Join us for an eye-opening episode as we examine the obstacles these major retailers face in integrating healthcare services into their business models. We dissect the financial constraints and complexities of the healthcare market that have led many to scale back or even shutter their healthcare initiatives, shedding light on broader systemic issues within the U.S. healthcare system and the dominant role of insurance companies in capturing substantial profits. Uncover the unique challenges retailers face in managing healthcare services compared to traditional retail products and consumer perceptions that complicate their efforts.

Next, we tackle the profitability struggles within the healthcare industry in the aftermath of the pandemic. With nearly 40% of U.S. hospitals operating at a loss, outpatient clinics and inpatient hospitals are in a precarious position despite a rise in outpatient revenue and ER visits. We explore the myriad of issues contributing to their financial woes, including escalating costs, staffing shortages, and the expensive reliance on travel nursing services. The impact of inflation, rising employment costs, and insufficient payer reimbursements on smaller, independent hospitals are discussed, along with the urgent need for updated managed care contracting to optimize reimbursement.

In our final segment, we delve into the critical financial challenges hospitals face as COVID-related grants dry up, exacerbating their dire financial situation. The significant fallout from the Change Healthcare hack is also on our radar, highlighting the financial losses and administrative burdens it has caused. We raise the provocative question of whether Change Healthcare is too big to fail and consider the broader implications for healthcare providers. Additionally, we offer a behind-the-scenes look at the dedicated team efforts that make this podcast possible, giving you a glimpse into the coordination and hard work that goes into bringing each episode to life. Join us for these vital conversations and more, as we navigate the complex landscape of healthcare.

Show Notes:
Headlines discussed in today's episodes include:

1. https://www.kaufmanhall.com/insights/research-report/national-hospital-flash-report-april-2024-metrics
2. https://www.beckershospitalreview.com/cybersecurity/hhs-change-responsible-for-notifying-patients-about-data-breach.html
3. https://www.beckershospitalreview.com/ehrs/judy-faulkner-is-single-biggest-obstacle-to-ehr-interoperability-oracle-leader-says.html
4. https://www.beckershospitalreview.com/cybersecurity/scripps-health-ceo-fear-keeps-systems-from-reporting-cyberattacks.html

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Transcript

Aaron Higgins: 0:51

Well, hey there, jason. I'm glad to see you this morning. How are you doing? Hey, good morning Aaron. Good to talk to you about some headlines today. Yeah, we got a whole bunch ahead of us today, so let's jump right in. What do you got for us?

Jason Crosby: 1:06

Yeah, well, the last, I would say, 45, 60 days. It's been an interesting sort of gathering of articles related to something we've talked a lot about, and that's the retailers. Right, I think we're all kind of fans of some form of disruption, and, lord we know that they've come in like gangfire here over the last couple of years. But the last couple of months have certainly not been of the positive type of headlines, right, we've seen CVS, for example, is out there seeking some private equity funding for the Oak Street clinics which opened up 30 more this year. But they're looking for some equity. They want to make sure, you know, they meet earnings, perspective and that sort of thing the next year, but so they're needing some financial backing, not necessarily a negative thing, but just something out there that catches your eye.

Jason Crosby: 1:54

But the others had sort of a more of a downtrend. You had Walgreens closing 150 of their Village MD clinics Around. The same time you had, of course, the big Walmart announcement shutting down their respective clinics and their virtual health platform. So big news there. And then something else that caught my eye, that we've talked about, dollar General, which I know we thought, wow, that's going to be interesting to see how that unfolds their DocGo pilot program, a mobile clinic sort of model they rolled out. Well, they've decided to close that as well. They rolled those out in the Tennessee market and the theory there with DocGo was more of annual physicals, you know, urgent care, some labs, things of that nature. But I believe they saw maybe a thousand or so visits. But the good thing there is they have a treasure trove of data and they are going to use that data they say for for some good and some other programs of theirs.

Jason Crosby: 2:54

But they had to shut down those clinics, unfortunately. So kind of sad to see. You know, you and I know from being in the industry quite a bit, and our listeners as well. It's not just another widget, not another service or product. You've got payer complications in the middle and financial healthcare finance is always kind of a tricky slope. It's not your usual go and buy, you know, a loaf of bread and there's your cost in the bread sort of thing to make a profit and I think retailers are discovering that unfortunately. So, yeah, something you and I know I've passionately talked about over time. But it's kind of sad to see that these things didn't really work out to this point. I mean, who's to say how Best Buy is going to unfold, or CVS still, and you have, you know, some Walgreens still in the game, but not a good last 60 days on the retailer side.

Aaron Higgins: 3:44

Yeah, honestly, it's kind of been a bloodbath of a lot of major closures. You know, the Walmart one was probably the most surprising. But I also think, like you said, these retailers are discovering that healthcare isn't the same as slinging jars of pickles and loaves of bread, that there is very rarely intrinsic profit built into the margins of the services provided, margins of the services provided, which kind of leads to maybe even a greater discussion about how healthcare is structured in the United States. If it's a multi-billion dollar industry, potentially multi-trillion dollar industry I haven't seen the latest figures where is that money then going? If it's not ending up in the end user's pocket, in the sense of the providers of of care, if they're not the ones getting the money, who's? Who's actually getting the money, I think?

Aaron Higgins: 4:43

I think the answer is probably pretty clear to those who've listened to the uh program for a while. It it's mostly into the pockets of the insurance companies, and I think this really highlights it If these big retailers that have a large footprint already, that are already paying rent on their building, so they're essentially building these clinics rent-free, operating these clinics at a very low cost as a result of that, because rent usually ends up being close to 50, 60% of your cost and they're not able to turn a profit on it. You have to ask yourself why. I doubt it's lack of use. I really do. I think it's a combination of a lot of factors. It's gotta be those that maybe don't have health insurance or who are under utilizing their health insurance and going to these clinics clinics or maybe there's a consumer perception of well, if I'm going to walmart to get my milk and groceries and goods, is that really the place I want to go to get my strep throat checked out?

Jason Crosby: 5:53

it's funny you say that. Um, you know, Blake Madden, who heads up the hospitality blog and newsletter, which he did a great piece on all this about a month ago, said the exact same thing that when he thinks Walmart, he sure as hell doesn't think about going to see a primary care physician. And so there's his words. And so, yeah, there is a perception, and it's funny you say that. And so, yeah, there is a perception, it's funny you say that. But to add to that, there's got to be a combination of lack of foresight and the capital needed. Right, you had Amazon, for example, which acquired one medical just a year ago for nearly what? $4 billion, and here, several months later, we're cutting jobs. You have Walgreens with a huge like $6 billion hit on their investment in VillageMD.

Aaron Higgins: 6:41

So all this lack of foresight in the capital needed in healthcare is interesting, and you would think, going back to Walgreens and CVS too, they've been in the medical space, right, that's their bread and butter is pharmaceutical sales, and they can't figure it out.

Jason Crosby: 7:03

Yeah, exactly, you would think CVS might have an edge, given their Aetna relationship now. So they've got a little bit of a payer side to them, a large payer side, some more to tell there. But you're right to not understand that capital that's needed. It kind of made me think, wow, this may go back I don't know 25, 30 years. You had aol and time warner merged as the dot com right, and you had.

Jason Crosby: 7:28

So you had print media and new online world sort of coming together and I can remember them talking about well, we think this is going to simply double the viewership of our content sort of mindset, because you're taking one platform and another one platform being handheld newspaper sort of thing. Right, but I don't know if that was sort of the mindset here. Well, hey, we're going to take foot traffic in our retail space and sort of double that by way of having folks come in and get lab work done, space and sort of double that by way of having folks come in and get lab work done and, to your point, that volume. Maybe it didn't transpire as they thought it. I go to Walgreens sometimes to get LabCorp. It's nice, but it doesn't mean I'm buying a Walgreens product while I'm there. Maybe that sort of perspective just didn't take hold with the Walgreens executives.

Aaron Higgins: 8:15

Well, and I think at this too is that most of the time when you are going and getting healthcare particularly if you're younger and generally healthier you're only going to the doctor because you're not feeling well At least I can speak for me. But I kind of have to think if you're not feeling good, you really want to go and potentially spread your germs to other people. Because I think about that too. Is I'm sick, I have a runny nose? I'm not going to be touching everything. That's gross. That's not fair to my community to be spreading my illness around.

Aaron Higgins: 8:49

So I also think there's that too. It's not just the annual wellness checks, it's the runny nose, the scratchy throats, those sort of encounter visits Is going to Walmart convenient for me Because it isn't Particularly the Walmart near me is difficult to get in and out of. I would rather choose plenty of other places to go for those sort of checks. So I think there's more power to the disruptors, and I think this is an important point in our healthcare delivery. We're trying new things that haven't ever been tried before and some of them aren't going to work out, and I'm okay with that. But more power to the disruptors, because I think there's going to be some things that do work and that do help improve care by improving the delivery of care and more care in theory equals more, better outcome. So we'll see on this Again, may was a bloodbath.

Aaron Higgins: 9:54

Going into early June. Here it really was kind of surprising because this has all been post-pandemic we're only four years post-pandemic and all these announcements and access to care and such and I think these disruptors have realized how hard it is to disrupt.

Jason Crosby: 10:10

It'll be interesting six months from now what the latest headlines will say. I'm putting my dollar on CVS. I think that's going to be the winner. Amazon is still sort of out there, but I think I'm going to hedge my bet on CVS if I had to put a dollar out there on one of these guys.

Aaron Higgins: 10:26

Let's take a quick break. We'll be right back.

Julia DiGiacomo: 10:29

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Jason Crosby: 11:02

So what all do you have on your plate there? What headlines have caught your attention lately?

Aaron Higgins: 11:11

This. I think it's a perfect pivot point. Talking about profitability, particularly on the outpatient clinic side, let's talk about profitability on the inpatient hospital side. A recent flash report by Centilis Performance Solutions was released very recently and the data is through April of 2024, so it's very fresh. And that's 40%. So very nearly half of hospitals in the United States are not making money. They're losing money in their operations.

Aaron Higgins: 11:46

And so here we are again, four years post-pandemic, things are starting to return to normal. Outpatient revenue overall in hospitals this is a hospital look has increased 10% year over year. That's good. Length of stay dropped 4% year over year that's probably good. It's almost negligible. But that shows things are kind of normal and ER visits or ED visits are surpassing pre-pandemic levels now. So that shows that things are busier in healthcare than ever before.

Aaron Higgins: 12:21

But yet 40% again, nearly half of hospitals aren't profitable and that's a problem because we're already seeing pressures on hospitals to pay their staff more. We see hospitals unable to hire staff at their current rate, their current employed rate, and so they're having to rely more on travel, nursing services and that sort of thing, and those are more expensive and so that's eating away in a profit margin right now On average. The average not for profit hospital margin is a whopping 4.3 percent. That's up 33 percent. So you know, kind of going back to these disruptors trying to disrupt outpatient clinic and discovering it's not profitable sound the alarm bells. I guess same problem is happening, if not worse, in the hospital sector.

Jason Crosby: 13:21

Yeah, they've always had a struggle. It's funny you say that I've probably read where those that maybe are doing better, or those that are more PE-backed or corporate-bound or part of larger multi-state sort of system versus your more independent sort of facility, whether it's large urban or small rural, those are going to be the ones that maybe struggle the most. And to the other point you mentioned as well, you just seem to read more about okay, how much of an impact has inflation had? If volume is back and it feels more diverse in terms of the volume across service lines, then how much of an impact is inflation plus rising employment costs having, plus employee benefit costs, how much those are having? Then I think you start getting into the well, have you negotiated?

Jason Crosby: 14:12

And your payer reimbursement has kept up with those rates as well, which most of the time it has not. So you got the cost side increasing but just because volume is probably up, the reimbursement of that volume probably hasn't followed, would be my guess and you know we've had this discussion lately too, especially on the smaller hospitals are the grants. You know there's plentiful grants coming out of COVID that we know has what kept some of hospitals afloat and thriving. Now those grants are starting to filter down a little bit. What's the revenue stream operating or non-operating revenue right, especially for the smaller hospitals. If these grants are sort of fading away, they just haven't really used their strategy to plan. Okay, what do we do when these grant funds go away? And I think they're starting to unfortunately see those consequences they're starting to unfortunately see those consequences.

Aaron Higgins: 15:09

Yeah, I guess you could say I am a little worried right that if we have 40% of hospitals not profitable, you know how long can they go. What sort of safety net do these sort of safety net hospitals have? And we've seen some major closures in major cities of very core, important hospitals. Atlanta last year that was Grady closed suddenly and shocked everybody. And if these hospitals in urban settings that are very busy can't afford to keep their doors open, what about the rural hospitals? Then you start putting pressure on these rural residents that still need healthcare.

Aaron Higgins: 15:54

Someone has a heart attack? Yeah, the ambulance may be able to come and potentially stabilize the patient, but then if it takes an hour to get to the hospital, you know a lot could happen in that hour. So you know there's some real concern here and I'm not sure there's a good answer. I know this is a happy, upbeat sort of headline that we are famous for giving, but it makes me wonder, wonder. What is this going to do? And I think you're right. The grants running out, the pressures in health care, the underpayments that happen by the insurance companies and they seem to get away with it these are things to be concerned about. I think our listeners need to think long and hard, particularly those in the hospital side of things, and hard, particularly those in the hospital side of things. What can they be doing to plan for the future here, because profitability isn't going to improve unless severe actions are taken.

Jason Crosby: 16:53

Yeah, yeah, and it's. You know. We're starting to see a little bit more traction on things like the rural emergency hospital model that came out recently. There's a little bit happening. I think that's a plus, where smaller hospitals, rural hospitals, are figuring out the best model for their community. Isn't the one-all, be-all, inpatient acute care kind of hospital? I think obviously that's a drop in the bucket, but challenging just how to manage your costs. I think there's got to be. How do we roll out? A different patient care model is going to have to transpire over these next few years.

Aaron Higgins: 17:26

Absolutely, and you know. Then you also have other disruptions, like the whole change healthcare hack, and we're still feeling the fallout of that. I think there's still plenty of people who haven't been paid or so in arrears that they've had to take out loans and it's affected their business. They've had to do layoffs. We've heard these stories right from our clients telling us that they've had to take out loans simply to pay the bills because they just weren't getting paid by change and so now they have to pay all that extra interest, and you know the worry and the stress that that has brought about too. So you know we have all of this other thing that's completely out of the control of these hospitals or practices with change and that kind of leads us into the next story of HHS has said yeah, change is in trouble here. Hhs came out and said that change is now responsible for notifying everybody that was affected by the breach, so pretty much any American who has received any form of health care ever that they potentially have to pay penalties here it's still being investigated. That's a really big deal, and so the change health care hack isn't going away anytime soon. At least the fallout from it isn't, even with the payments still being issued dating back to the beginning of the hack. They're just starting to work through payments payments.

Aaron Higgins: 19:08

Unitedhealthcare reports they expect to lose $1.6 billion with a B as a result of the hack and they reported $872 million in direct impact to their business. So they'll lose $1.6 billion. That's $1.6 billion that they're going to have to spend, and then they lost almost a billion, almost nine hundred million dollars in lost revenue during that hack time too. So you know, total all that up and we're at two and a half billion dollars lost due to this one hack. So, yeah, I can see why HHS is saying yeah, united Health Group, slash change is responsible for this. They're in deep water. It'll be interesting to see how this ultimately plays out. I hate to say it, but is change too big to fail? Oh, wow.

Jason Crosby: 20:02

Pull out the big headline. I like that Well. I'm glad to see it because I think we talked about before one of our headlines where the financial impact that was hitting on the provider side right, the loans that some providers, especially the smaller groups, were having to take out because of such action. It's good to see you've got to take some burden off of the provider side. Even if it's simply notifications, that's still at least an administrative burden that to me, feels like it's a necessary thing. Yeah, so one of those that's a good for the provider side, good for the consumer, something that needed to happen well and honestly, it'll be easier for change to do the notifications they they have.

Aaron Higgins: 20:42

In theory, they have everyone's information who was as a part of the ransomware right. They have that information far easier than a practice may have. A practice may have multiple clearinghouses that they submit to, and change is just one of them. In the case, change will know who all the people who are affected. So that is the right thing to do. I think HHS is making the right call here, but we also have to remember United Healthcare slash change dragged their feet for days and days and days before they finally admitted and contacted the FBI. It went on for days before they involved the proper authorities. Going back to our last news episode, we talked about another big hack and within hours of the hack being discovered, they have the FBI on the phone. They're being congratulated for doing that and and it goes back to my advice to anybody listening if you're, if your health care system is hacked, you're, you're part of the bigger chain of command within your organization, whether it be a small hospital, large hospital system, private practice, whatever and you're part of the chain of command. Don't cover it up, please don't cover it up. People get hurt when you cover it up, it's going to ultimately cost you more. In the end, change and UHC are going to be thrown under the bus by HHS over this. The best thing you can do is pick up the phone and call your local FBI office. They have the resources to try to help you undo the ransom. Sometimes there are tools out there, depending on what sort of ransom software they use, that can actually decrypt your entire environment and you don't have to pay the ransom. But you know, if you do have to pay a ransom, you have to go through the government to pay that ransom. You can't arrange it yourself to do that. It's illegal. So pick up the phone, call the FBI. They will help you. It's seemingly no-brainer advice, but people think they're going to get in trouble. No, you'll get in more trouble if you try to cover it up like change did. Change was finally forced to do it because there was leaks happening. People were starting to call the FBI themselves and so finally the dam broke. If you find yourself in that situation and honestly it's not a matter of if, rather when call the federal government. They got the resources to help you. So just keep beating that drum. There's no need for people to get hurt over this. Make the call, yeah, make the call, one call, that's all Okay. Well, kind of putting a bow on things.

Aaron Higgins: 23:26

I wanted to share this just because I thought it was so spicy. Oracle, if you recall, in 22, oracle bought Cerner. It was kind of this very big deal. And Oracle's big thing that they wanted to really tout is interoperability. According to Executive Vice President of Oracle, ken Glewick, he wrote a blog post, which this wasn't even an interview. This is in writing in black and white. He says, quote Epic founder and CEO Judy Faulkner is the biggest, single biggest obstacle to EHR interoperability, is the single biggest obstacle to EHR interoperability. In the blog post he goes on to talk about how Epic has intentionally stonewalled, stopped and hampered interoperability with other EHRs purely because it quote threatens Epic's franchise. This was a spicy take. Very rarely do you see competitors within the healthcare industry really going at each other. You typically see it in the tech bro world. You don't really see it in the healthcare world. So I was floored by this. Any thoughts on it?

Aaron Higgins: 24:46

I know we typically don't deal a lot with with epic, uh, in our world, because our, our clients are smaller and can't afford epic. But what? What's your thoughts on this?

Jason Crosby: 24:54

I'm surprised by the spiciness yeah, exactly, you don't ever hear that, um more so. Usually something like that's triggered by the final straw that fell, sort of thing. So what triggered him to do that right? What encounter, what headline, what customer interaction, what feedback said you know what? I've had enough, I'm going to post something like that. That's. What I would want to know is what was so damaging to some sort of interoperability initiative in his mind to warrant such? Yeah, that would be nice to know, because if there's truth to it, there's truth to it. But to simply make a blind post to that, okay, now we're kind of bravo tv, but what? What was the thing that led to it could actually be productive and meaningful? That's what I'd like to know.

Aaron Higgins: 25:47

Yeah, so I'll put on my EHR administrator hat, which I haven't worn in a little while, so I need to dust it off here. Epic was the hardest to always interoperability with if that's a verb now and you could get it to work. But it took a lot of work, comparative to creating interfaces with other EHRs and interconnecting and that sort of thing. Epic, we always kind of rolled our eyes in the IT department and said, oh man, we have to do this. So I can see, and, mind you, that was what six, seven years ago now. If that was a problem then I'm sure it sounds like it hasn't gotten better. And reading this blog post and we'll have this in the show notes I see a lot of frustration from Mr Glewick and I think it really took a lot to get him to this point where he's calling out a competitor as directly as he does. It is worth this blog read. Here's a great excerpt from it.

Aaron Higgins: 26:52

Oracle believes outcomes are easier to obtain when providers can collaborate and gain insights across systems, data and application silos. Our strategy is to build everything in a modular way that is EHR agnostic. We're continuing to deliver the industry's most open interoperable EHR system and increasing our APIs by more than 300%. Okay, the normal salesy stuff, but this is where he goes. Privacy Epic's contracts explicitly appropriate all patient EHR data as Epic's own, stretching HIPAA beyond recognition, while Oracle's turners explicitly state medical centers must opt into any data sharing. So essentially, he's saying all that patient data that's in there isn't coming into our systems. Patients are suffering as a result of it because they have created a walled garden and they claim that data as their own, which isn't true, and I think he's right. But I think you're right too.

Jason Crosby: 27:48

There's a lot of happen behind the scenes and there was a straw that broke the camel's back yeah, yeah, and we know healthcare is still trying to be more interoperable, right, we've been talking about that for decades. It feels like and so and those headaches and barriers still exist. So I'm sorry someone like him was like that. That's it Frustrated, had enough and reputations of different vendors like an Epic kind of stand on their own. But, yeah, say, it's spicy, interesting. You know what? Sometimes you got to look at that like the retailers. It's a disruption. Let's see what comes out of this. Maybe it'll actually be productive.

Aaron Higgins: 28:22

Yeah, no-transcript. What happens? I'll be like that segue uh we're coming up on the end of our season, so tell us about, uh, what our listeners have to look forward to, jason yeah, we are.

Jason Crosby: 28:58

That's probably the deepest we've gone into, uh, one of our seasons here. We have two more interviews left before we wrap up, which those will conclude at the end of June Tom Campanella of Baldwin Wallace University. That should be a great, informative, educational sort of interview, and then Dr Ben Watson, state senator of Georgia, and so we look forward to both of those conversations here in the coming weeks.

Aaron Higgins: 29:26

Yeah, that should be fun Now, without spoiling too much or over-promising and later under-delivering. What do we have during our summer break?

Jason Crosby: 29:36

Yeah. So we end with some great interviews and of course, we end with even a better A&J shenanigans wrap up show, right. But to help you guys, as you all go on your vacations and look into the fall, we'll have a sort of best of SHP beyond the stethoscope podcast series running us through in between seasons as we look forward to the fall kickoff of next season. So be on the lookout. We're not going to go away, we're not going to hibernate like we usually do. We usually kind of take off, but this time we're going to have our weekly replays playing, starting in probably mid-July.

Aaron Higgins: 30:12

I'm looking forward to it. There's a lot of great content and this is that reminder to everybody Be sure to rate our podcast. Rate it on your whatever app you're listening to Apple Podcasts, I would say say, google podcasts, but RIP um, you know, spotify, amazon. Those are great ways of sharing the the program with others without directly sharing it. Uh ratings really help the show grow and uh help us get the word out about uh're talking about and anything else, jason, that our listeners need to know about.

Jason Crosby: 30:51

No, no, we appreciate all the feedback. We hope you guys have enjoyed some of the headlines and please, as Aaron mentioned, as you listen to these last couple of interviews, we welcome any and all feedback, good or bad. We are here for it.

Aaron Higgins: 31:06

All righty, Jason. Well, you have a wonderful day and, to our listeners, we will see you next episode.

Jason Crosby: 31:11

Thanks everybody.

Aaron Higgins: 31:13

This has been an episode of Beyond the Stethoscope Vital Conversations with SHP. If you enjoyed this podcast, please be sure to rate and share it with your friends. It sure helps the show.

Jason Crosby: 31:24

Production and editing by Nala Weed. Social media by Jeremy Miller.

Aaron Higgins: 31:29

And our co-hosts are me, aaron C Higgins and Jason Crosby. Our show producers are Mike Scribner and John Crew.

Jason Crosby: 31:37

Thank you for listening and we'll see you next time.