Annual Conference Day 3: Some positives for the healthcare industry, but challenges and concerns abound

Amid the challenges of the present moment, it may seem hard to find reason for optimism. But some metrics and trends represent a solid foundation on which not-for-profit hospitals and health systems can brace themselves against the headwinds.

“Of the key tenets we look for in the sector, volumes are back to pre-pandemic levels and then some,” Kevin Holloran, senior director with Fitch Ratings, said during Tuesday morning’s general session at HFMA’s Annual Conference in Denver. “You may even have some issues with simple access, basic blocking and tackling. Balance sheets are at all-time highs.

“We’ve kind of solved, at least temporarily, this labor thing. We’ve gotten to a pretty good place of homeostasis.”

Daunting times

Nonetheless, it’s easy to feel overwhelmed by the challenges, Holloran acknowledged during a conversation onstage with Dennis Dahlen, CFO of Mayo Clinic.

Even aside from the funding cuts being considered by Congress, NFP hospitals and health systems face rising costs from uncertain tariff policies.

“Maybe they’re 10% higher, they’re not going to be 145% higher,” Holloran said. “Maybe they’re 30% higher, but at some point, it’s going to start chipping away at the second-largest line item in your expenses, which is supplies [and drugs].”

Tariffs on steel and aluminum could especially factor into hospital construction projects, and labor costs for such jobs could be affected by immigration policy.

“[As a hospital] my cost of construction is going to go through the roof,” Holloran said.

Policy developments around the 340B Drug Pricing Program and cuts to National Institutes of Health grants will affect some hospital categories.

Those concerns don’t even speak to the Medicaid cuts looming in the budget reconciliation bill known as the One Big Beautiful Bill Act. The Congressional Budget Office (CBO) estimated that 16 million people could fall off the Medicaid and Affordable Care Act marketplace rolls by 2034, and the CBO has not announced a score for the Senate’s version of the bill, which has more extensive healthcare cuts than the House version.

“That is the hammer that probably makes us go right to negative on the sector outlook,” Holloran said.

Fallback strategies

Dahlen asked Holloran what advice he would have for finance leaders trying to steer their organizations through the tumult and keep their credit ratings strong.

“You can do those no-regret strategies,” Holloran said, citing steps such as shoring up relationships with physicians and bondholders and finding ways to fortify the balance sheet.

“Be very careful on spending — measure twice, cut once when making those decisions,” he said.

“Most importantly, though, is following your mission. When we’ve analyzed places, organizations that have stuck to their mission [and] not gotten too far ahead of their skis have really done better for the long haul.”

Key investments

Dahlen shared the investment strategy of Mayo Clinic, widely recognized as one of the world’s premier health systems.

The organization is looking to replace human effort in business processes as much as possible through implementation of AI technology. About 80% of the health system’s business process automation is taking place in the revenue cycle.

“Now we’re doing the same thing in the clinical realm,” Dahlen said. “That takes a little longer because the price of failure is high. So you’ve got to make sure you build in that reliability and resilience.”

Mayo Clinic also seeks to use generative AI and large language models in vast quantities of clinical data, trying to generate insights that previously might have taken months or years.

Another area of investment, which Dahlen referred to as a “Hail Mary pass,” is figuring out a way to fill the primary care shortage via technology. The impetus will become all the greater as the population ages and healthcare demand surges.

“It is a crisis in waiting,” Dahlen said. “We’ve got to figure this out, and it’s easier to address the sooner we do it. I actually think that [with] the demographic cliff in the mid-2030s or early 2030s, if necessity is the mother of invention, maybe that’s the necessity that pushes us toward the future.”

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The need to revamp diagnostics

The state of diagnostics in the U.S. healthcare industry is ripe for advancement and disruption in a way that dramatically improves the patient experience, Vin Gupta, MD, formerly chief medical officer with Amazon Pharmacy, said during Tuesday’s keynote address.

“People do not like the screening tools that they have available to them that all of you largely are subsidizing or paying for to make sure that your patients have them in your various health systems,” Gupta said.

Countries such as Israel, South Korea and Switzerland are ahead of the curve, using smartwatch-type technology in new applications that improve screening for hypertension, which causes nearly 13% of deaths a year, according to the World Health Organization.

When Gupta was with Amazon, the company conducted a survey that found 90% of people on blood pressure medications never used their cuff. They found it uncomfortable and inconvenient.

Gupta showed a demo of a “smart mirror” in a Tel Aviv hotel that uses low-energy electromagnetic waves to gauge a person’s blood pressure when they stand in front of it and look at their reflection.

Gupta has spoken with U.S. regulators who say the technology is not ready for market until it achieves a 99% sensitivity and specificity rate. But the breakthrough technology in other countries only comes in at 85% accuracy, meaning 15% of diagnoses are false positives.

That number does not concern Gupta, given the urgency of addressing underlying population health problems.

“This [new technology] is what I would say is imperfect innovation,” he said. “It’s not perfect. It’s wrong, maybe, an unacceptable amount of times in your opinion. My push to all of us is how is 2049 going to look any different from 2019 unless we start to take some strategic risks, especially from a regulatory perspective?”

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Discussing the future of the healthcare CFO role

A panel discussion Tuesday afternoon delved into how the position of healthcare CFO is changing amid the current pressures facing hospitals and the rest of the industry. Participating on stage were (from left) Brad Dennison of HFMA, Scott Cooper of Ovation Healthcare, Rich McGinn of SSI Group (speaking), Matthew Cox of Corewell Health, Stephen Forney of Covenant Health and Emily Ledet of Bank of America. (Photo by Marshall Clarke)

For much more, check out HFMA’s special report, The Healthcare CFO of the Future.

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340B rebate model rules are coming

The next federal action on the 340B Drug Pricing Program is the expected release of federal rules on the use of rebate models by drug manufacturers, according to information in a session Tuesday.

The “340B Rebate Guidance” proposed rule has been under review by the Office of Management and Budget since June 1. That is the last stage before it is released publicly, although there is no set time frame.

The guidance was required by a federal judge in one of two cases challenging manufacturers’ use of rebates. Five manufacturers have tried to require 340B covered entities (CEs), including hospitals, to switch from the standard approach of upfront discounts on 340B drugs to taking rebates.

The judge had required the guidance after the Health Resources and Services Administration (HRSA) initially challenged manufacturers’ use of rebates.

Hospital leaders were concerned that the rebate process would both cause long delays in receiving 340B savings and create burdens by requiring CEs to provide various information — well beyond contract pharmacy data — to obtain the rebates.

“The idea that you’re going to be able to submit a claim and get paid right away is just craziness,” Maureen Testoni, president and CEO of 340B Health, said during the session.

Other federal rulemaking was expected to implement an executive order to retry a cut in Medicare payments for 340B drugs, as previously attempted during the first Trump administration. That cut was reversed by the Supreme Court because a required survey of hospital acquisition costs was not conducted.

Testoni expects the new attempt to include the required survey. She worried the effort also will cut hospitals’ 340B payments closer to acquisition costs.

Legislation

The budget reconciliation bill advancing through Congress does not include explicit 340B provisions, but it remains possible they could be added, Testoni said.

Several 340B bills in the previous Congress have yet to be reintroduced, but a few are likely, including one from a bipartisan group of senators and another from Sen. Bill Cassidy (R-La.). Cassidy, chairman of the Senate Health, Education, Labor and Pensions Committee, issued a report this year critical of how two health systems were using 340B revenue and was expected to offer 340B transparency legislation requiring hospitals to identify how they apply the revenue.

Testoni believes the senator will push to limit hospitals’ use of 340B revenue to ways that directly benefit 340B patients.

Charlton Park, CFO of University of Utah Health Care, urged hospital leaders to create and make available to state and federal policymakers their 340B “impact file,” to identify improvements funded by 340B revenue at their organization.

Inflation Reduction Act

The ongoing rollout of the Inflation Reduction Act’s (IRA’s) drug price negotiation provisions will continue to affect 340B revenue.

Already, two manufacturers of drugs targeted under the law have cut prices to the extent that they have reduced 340B revenue from those products.

Testoni also warned hospitals that they should not spend the rebates from manufacturers for IRA-targeted drugs in 340B because 340B money can be clawed back by drugmakers under federal rules.

— Rich Daly, HFMA Senior Editor

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Intriguing times for price transparency

Stricter enforcement, at least for hospitals if not also payers, is one of several key developments in regulations on healthcare price transparency, according to a presentation Tuesday.

Changes were instituted in May guidance issued by CMS, responding to a directive from President Donald Trump. Rather than giving hospitals a runway to make adjustments, CMS already is starting to send out warning letters for violations of the new guidelines, said Joe Wisniewski, head of platform growth at Turquoise Health.

“The fact that you had something roll out on May 22 and then warning letters are already being sent three weeks later definitely showcases how this is spiraling,” Wisniewski said. “It’s moving faster and faster and faster. It used to take months if not years for a warning letter to be sent.”

“I worry, at what point does that become a fine? A small hospital like ours, we wouldn’t be able to sustain if we were getting fined on that,” said Ashley Allers, CFO with Van Diest Medical Center. “It’s unfortunate because it’s data that our patients aren’t using, so it’s just costing the system more.”

Hospitals are at a disadvantage in part because payer transparency files are much more complex and harder to navigate, so more scrutiny is applied to the hospital files, Wisniewski said. He noted there have been 27 hospital fines for noncompliance and zero payer fines.

He added, “There is more interest in [conducting] payer enforcement, but I’ve got to see some real action here.”

The next stages

In negotiations, more organizations are merging price transparency data with claims to get a true sense of cost, Wisniewski said.

Previously, he said, “We saw this back-and-forth between price transparency data vendors [and] claims vendors, [with] the claims vendors saying, ‘Oh, PT data is terrible.’ And then price transparency folks feel all claims [data] is really out of date.

“It’s almost been this interesting truce that’s occurred over time where everyone’s kind of accepting [that] OK, this data’s here to stay, it’s around, you’ve got to use it, but I do [also] need utilization. Why should I be distracted by a rate that looks really high if that hospital’s only done it three times?”

A wild card potentially looms in the advanced explanation of benefits (AEoB) requirement that was included in the No Surprises Act. The requirement has been tabled ever since, in large part because of concerns about the technical infrastructure needed to transmit good-faith estimates from providers to payers.

Implementation of the AEoB would be part of a ramped-up effort to get pricing data in the hands of patients, and it could mean a situation in which “the revenue cycle [starts] with billing,” Wisniewski said. “I think that’s this world that we’re headed towards, whether we like it or not, whether we think it’s fair or not.”

Such a circumstance would pose risks because good-faith estimates that end up being off by a certain amount are subject to a dispute resolution process. But Allers also sees a possible benefit.

“To me, this is an exciting thought where maybe we could finally flip that paradigm and make it so that we’re actually doing what every other service industry does, where you pay upfront, or at least a portion of it,” she said.

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Integrating bundles with direct contracting

A direct-contracting program at Vanderbilt University Medical Center paid off in lower costs for employers, strong clinical outcomes and substantially higher patient-satisfaction measures, according to a presentation Tuesday.

The contracts feature bundled prices for nine specialties, among them maternity care, bariatric surgery and treatment for substance-use disorder, said Ruchika Talwar, a medical director with Vanderbilt Health Employer Solutions. Some of the bundles include follow-up care over the span of a full year and all of them waive patient cost-sharing.

The bundles cover 11,000 patients and have lowered employer costs by 16%, Talwar said. The maternity bundle saved $1 million in NICU costs and reduced C-section rates by 25%.

“We keep patients healthy, we keep them out of the hospital, we keep them at work [and] productive,” Talwar said.

She added that the net promoter score for the bundles is 83, while across healthcare, the average is 46.

“That really hammers home the patient experience that is central to this program,” she said.

Key considerations

Features of the bundles include high-touch support from patient navigators, who help patients avoid delays in care. Clinicians design the care models, knowing they do not have to worry about prior authorization, and receive incentive payments based on cost and quality metrics. Input from employers also helped shape bundle priorities.

The health system contracts with independent physicians on bundled services to ensure patients can access care conveniently. Catastrophic coverage is available via outlier policies with employers. Vanderbilt also remains flexible in accommodating third-party administrators.

Future bundles being considered include oncology, gastrointestinal and behavioral health, the last of which could incorporate the existing substance-use disorder bundle.

Questions that don’t have easy answers include how to cover increasingly available but expensive treatments such as GLP-1s and gene therapies.

“It’s a miracle for our patients, but from a healthcare system perspective, it’s really unsustainable,” Talwar said.

Similarly, Vanderbilt offered a weight-loss program that included taking risk on pharmacy spend. The program proved not to be viable, in part because of difficult questions as to when patients should be titrated off the medications.

Said Talwar, “How long are you going to cover it for? … Innovating is going to be critical because pharma costs are not always in our control. It’s not a cost-quality lever I have a lot of say on.”

Lessons for adoption

Talwar said considerations for other health systems seeking to follow Vanderbilt’s path include:

• Identify high-variation, high-cost conditions.
• Engage clinicians to design evidence-based care pathways.
• Partner with actuaries for pricing and risk modeling.
• Include wraparound services, not just the procedure.
• Invest in navigation and patient communication.
• Monitor performance and iterate.