Scott Webb (Host): Welcome to the Healthcare Executive Podcast, providing you with insightful commentary and developments in the world of healthcare leadership. To learn more, visit ache.org. I'm your host, Scott Webb. And on today's podcast, we're going to talk about the state of healthcare from a financial and strategic perspective with Lisa Goldstein. She's managing Director at Kaufman Hall. And Lisa's going to be presenting a CEO exclusive session at ACHE's 2025 Congress on Healthcare Leadership, which takes place March 24th through the 27th in Houston. To learn more and register, visit ache.org/congress

Lisa, it's so nice to have you here today. We're essentially going to talk about the state of healthcare from a financial and strategic perspective and what that means, of course, and you would know, being an expert. So, I just want to have you start here by describing your role at Kaufman Hall and how you support healthcare clients.

Lisa Goldstein: Well, thanks for having me, Scott. I'm delighted to speak with you for a few minutes this morning, and of course, looking forward to the Congress, end of March in Houston. I wear many hats at Kaufman Hall, but my main practice area is Treasury and Capital Markets, what we call TCM internally, and TCM focuses on all elements of balance sheet management, asset side of the balance sheet, liability side of the balance sheet.

My background prior to coming to Kaufman Hall was with one of the rating agencies for many, many years. So, I work with the team and with our healthcare clients, helping them to manage their credit ratings, their messaging, their investor relations, and bring my analytical skills that I've developed and refined over many, many years to help our clients really think critically about their approaches to strategy, financials, debt structure, anything that they find a challenge where we can help them.

Host: Sure. It sounds like a lot of hats for sure. And I know Lisa, for the most part, financial performance for hospitals appears to rebounded somewhat since late 2023. So, what are a few keys that can help that momentum keep going?

Lisa Goldstein: Yes, this is really good news for the industry. As you know, Scott, and all of our listeners, it was a difficult 2021, 2022, in part 2023. It does appear that the industry is coming out of that, which one could say was the worst time in financial performance in recent history. And there are indeed a couple of key drivers.

I would say the first would be a tremendous focus on operations, efficiencies, doubling down on both revenue growth and expense management. So for example, we are seeing clients across the country focus on reducing length of stay, which is patient throughput. We've seen a tremendous reduction by many, not all, but many in premium or contract labor, which was very expensive in demand, during the pandemic when a lot of clinicians, nurses left the industry. Now, many clients are getting their arms around expense management, primarily labor, which, you know, for any hospital, Scott, is going to be the biggest expense line.

I think the second issue is volumes. We are a volume-sensitive industry, and volumes are back for many, back to pre-pandemic 2019 levels. It took a little bit longer than I think the industry expected to come back to the volume trends we saw pre-pandemic. But for many, especially those in stable to high growth areas, volumes are back, and that feeds in part top-line revenue.

And then, the third issue is related to top-line revenue, always a challenge with payers. But there are some new state and federal funding programs that have enhanced revenue for many, and it could not come at a better time.

 So, I think one of the trends driving overall, the improvement is that we are seeing revenues outpace expense growth for many, not all. And this was the opposite during the pandemic. And I, Scott, I don't know of another enterprise or industry where you want your expenses growing faster than your revenues, but that's what was happening. And now, we're back to the preferred favorable dynamic of revenue growth outpacing expenses, and that's fundamental.

Host: Yeah, fundamental for sure. And I know, Lisa, that Healthcare Executive Magazine spoke with you recently, so congrats on that, about the strategies that can help hospitals and health systems achieve financial success. It was the cover of the January-February issue. In there, you suggest that hospitals and health systems should be wary of sacrificing their futures to protect their bond rating. And we've discussed bond ratings a little bit already today. So, how should hospitals consider bond ratings as a part of their financial plans?

Lisa Goldstein: Yeah, great question. And that indeed was my background prior to coming to Kaufman Hall, bond ratings for the not-for-profit hospital industry for many, many years. And I stand by the mantra or the thinking that indeed ratings are important. They remain important. for not-for-profit hospitals who borrow debt in the capital markets, and many do. That's how they afford big capital projects, through the use of debt. Ratings are indeed one of many factors, but an important one of many that help determine the cost of capital. So, the higher the rating, theoretically, the lower the borrowing rate. So, hospitals want to strive for the highest rate possible.

That said, strategy should come first. Protecting a rating at all costs is a very short-sighted strategy that will catch up to a hospital eventually, either through thwarted capital spending or not being bold with a certain strategy that may contain some risk. So, ratings are indeed very important. We should strive for the highest. But before all that, long-term strategy and viability must come first. And if that means taking a downgrade, you know, depending on where your starting point is, then you take the downgrade. So, there's a little bit of tension of wanting to preserve the highest possible rating, but also doing what's right for the organization for the long-term.

Host: I see what you mean, right? The high bond rating would be great and ideal, but isn't always doable or practical in all situations, so case by case basis, of course. And just wondering if there's some other financial strategies that hospitals and health systems can consider?

Lisa Goldstein: Yes, I think so. It's important for whatever strategy the hospital is embarking upon our health system that it be accompanied by financial planning. Multi-year, detailed financial planning based on realistic to conservative assumptions on volumes and trends and market share and recruitment, et cetera, payer rates. Adhering to these financial plans, which includes next year's budget, is very important when they think about building a strategy and the financial performance needed to support that strategy. That would include, of course, my area, which is effective balance sheet management. You got to have the cash flow, but you got to have the balance sheet that goes along with it.

I think also, as a part of strategy, there's a new focus, a revised or reinvigorated focus on ambulatory strategies, creating access and accretive strategies. Even not-for-profits need to look at accretive strategies from day one or year one, for their long-term financial viability.

Host: Yeah, Lisa, I know that weight loss drugs, everywhere you look in the headlines, seems like folks are talking about weight loss drugs. And you've written recently about the effect that new weight loss drugs and other pharmaceuticals and development could have on hospital and health system operations, you know, as well as capital and financial planning. So, what might that look like in the foreseeable future?

Lisa Goldstein: Yeah, these are something. Some have called these the new miracle drugs. , we will have to wait and see. I think we're in the early stages of their success. And what we don't know as an industry is what the long-term success will be with these drugs, but we certainly know the uptake has been very strong. And you know, Scott, you can't turn on the TV now and not see a commercial, right?

Scott Webb: You sure can't. Yeah.

Lisa Goldstein: If these drugs are truly effective for the long-term, will hospitals need to or have an opportunity to reconsider where they spend their capital? So, if it helps with chronic diseases such as diabetes and lowering the incidence of diabetes in the country or heart disease or joint replacements, could we take that, you know, precious finite capital and invest in other strategies that these drugs don't address? This is, you know, going to be a long-term play. But we know what the impact was from, say, penicillin. Are these drugs kind of on that echelon of really transforming healthcare in this country? So, it's a bit of a wild card, but it may have a direct impact on capital decisions, especially if Medicare comes through with coverage for weight loss, not just diabetes. So, we'll see.

Host: Yeah, it does seem like a sort of a wait-and-see. But as you say, every time you turn on the TV, everywhere you look, folks are talking about weight loss drugs. And of course, it makes sense that the hospital and healthcare systems would also be doing that and considering maybe where they fit in all of that.

And I know, Lisa, you're presenting a CEO exclusive session about the state of the nonprofit hospital industry from a financial and strategic perspective at ACHE's 2025 Congress on Healthcare Leadership. So, give us a little sneak peek. What will attendees expect or what can they expect to hear in that session?

Lisa Goldstein: Yes. And as I develop the agenda and the talking points, we're going to take a look at recent financial performance of the not-for-profit hospital industry, what the trends are. We've got very current data, so I'm excited to share the latest data with them on performance. We'll probably take a look at balance sheet trends as well. And I'll talk about some of the near-term issues facing the industry and what the financial impact may be. , There's a lot going on right now with the change in administration, so we have perhaps some peek into the crystal ball of the near-term future. We'll talk about it. We'll talk about and have a frank discussion about the disruptors. The disruptors are here, they're not emerging, they look differently, they may feel differently, so who they are, what they're doing, what their latest strategies are, and what the proactive and in some cases reactive response has been by the hospital industry. So very excited.

Host: Yeah, I can understand why, as you say, near-term, long-term, you know, proactive, reactive, a lot to consider. And, yeah, I'm sure the folks that attend that session are going to be in good hands. I just want to finish up here, get a sense of what you'll be looking out for from a strategic outlook perspective in 2025. You know, no pressure, Lisa, but how can hospitals set themselves up for success?

Lisa Goldstein: I think what we're seeing coast to coast is a return to long-term strategic planning. You know, during COVID, it was very much in the moment. People put long-term plans on the shelf. Now, they're coming off the shelf. There's a re-look at strategies now with a more kind of jaundiced or lessons learned from the pandemic viewpoint. We're seeing more three-year planning than, say, five-year planning pre-COVID, very tactical planning. We're seeing a real commitment to the true integration of strategic financial and capital spending versus three different orbits or silos because they must be integrated. That's what really defines a higher performing organization of any size.

We're seeing really a great focus on efficiencies and sticking with them, not just the low-hanging fruit that I know the industry has talked about for years. I think there's a real commitment now to patient access, and that works both ways, Scott. It's not only giving patients access to a great hospital or health system, but it works the other way too. It's the hospital or health system having access to new populations as they really do a lot of more of what we call precision planning on service lines, footprint, facilities, everything, inpatient and outpatient. So, I like the word precision planning and I think that's being embraced for 2025.

Host: Yeah, I love it. And I've loved this today. It's great to have your time, your expertise. Again, you're going to be presenting that CEO exclusive session. Thank you so much.

Lisa Goldstein: Thank you, Scott. I really enjoyed it today.

Host: Once again, that's Lisa Goldstein,

Scott Webb (Host): Managing Director at Kaufman Hall.

Host: She's going to be presenting a CEO exclusive session at ACHE's 2025 Congress on Healthcare Leadership, which takes place March 24th through the 27th in Houston. To learn more and register, visit ache.org/congress. And if you enjoyed this podcast, please share it on your social channels and please consider rating and reviewing our show. Thanks for listening.