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Scott Kelley:    Hello. My name is Scott Kelley, and I'm the Director of Mission Integration at Loyola University Medical Center. I'm here with Dan Isacksen, who is the Chief Financial Officer for Loyola Medicine. Welcome, Dan.

Dan Isacksen, MBA: Thank you, Scott. It's a pleasure to be with you today. I appreciate the invitation.

Scott Kelley: Could you tell us a little bit about your professional journey and current responsibilities?

Dan Isacksen, MBA: Sure. So I always start out by saying that I was raised on a foundation of faith by a banker and a nurse. So working in a mission-based healthcare finance was probably locked in early in life without me even knowing it. But after receiving an accounting degree, I went to work as an auditor with Deloitte for a couple of years. While I was there, I was exposed to many different industries, including manufacturing and financial services, et cetera.

At one point, I was put on some healthcare audits, including Catholic healthcare, and I really felt a connection to the mission, the vision and the values. And, these were places where the higher purpose of the work was easier for me to see, so to speak, and feel than other industries. And I ended up spending the last 25 years serving in healthcare finance roles with progressive responsibilities. Today, I am responsible for the financial and strategic functions within Loyola Medicine, where I am proud to serve, as you mentioned, as the regional CFO.

Scott Kelley: As I think about the last year, which is really kind of the premise for this first season of our podcast, I’m very grateful that we didn't go out of business thinking about all of the challenges that we faced from a financial perspective. Yeah. But instead, we managed through those, which brings me to saying that I kind of have a love-hate relationship with, which is no margin, no mission. And I love it because it's an opportunity to talk about stewardship, broadly and its relationship to mission. But what I don't like about it is it has a lot of misconceptions embedded within it. So I'm hoping we can really lean into that saying today. But first, can we go over some, basics, some finance basics?

Dan Isacksen, MBA: Absolutely.

Scott Kelley: people use the word margin. What do they mean?

Dan Isacksen, MBA: Yeah. Well, great question. So simply put, the margin is the result of the revenue or the payments that are earned or received by organization less the expenses or the costs that have to be paid or incurred to run the organization's operations. So that calculation, the revenue minus the expenses provides you with what many referred to as the bottom line, as we say, which is really either an operating income or an operating loss. When you take that income or loss and you divide it by the total revenue that the organization earned, this results in a metric that we refer to as the margin or the operating margin. And it really expresses what is left of the revenue after all the costs are accounted for, and that difference is what can be reinvested in the organization.

Scott Kelley: So what happens when an organization has zero margin or negative margin?

Dan Isacksen, MBA: Well, when an organization's margin is below what is needed to support and enable its operations and mission, that organization will begin to experience a decreasing ability to make the investments needed to keep the organization growing and thriving, which is where all organizations desire to be.

If this situation continues for long periods of time without a positive change in direction, the organization can actually experience a declining reputation, which has all kinds of impacts, including it can lead to the inability to even attract colleagues and people to work there. It can also lead to scrutiny by financial institutions and investors, which ultimately then in a full circle impacts the cost of capital and makes everything more expensive, which only makes things worse. And ultimately, the operations and, most importantly, the mission can be put in jeopardy if that continues for too long,

Scott Kelley: So it's important, we're a nonprofit, we have a tax status as a nonprofit, but that does not mean no margin, right?

Dan Isacksen, MBA: Exactly. Exactly. So does not mean that. In fact, an organization like ours, the purpose is, you know, we reinvest our margin back into continuing the mission. We do that in many ways, funding capital investments, including patient-centered medical and diagnostic equipment, care facilities in the communities we serve. And now, you know, the most recent is digital technologies that makes access and care easier for our patients and their families. But it also helps us invest in our greatest asset, which is people, in particular, our frontline clinical colleagues, our heroes as we like to call them; physicians, nurses, patient care techs and other professionals.

I should be clear that healthy margins for non-profit health systems usually average 2% to 4% in stable times. So, you know, needless to say, the margins are thin at best. we're not talking 30%, 40% like a lot of organizations. There's very thin margins and, you know, that positive margin also allows us to honor our mission and values by providing care and services to those who are poor and, as we say, especially those most vulnerable, so, you know, the margin, there's definitely a role for the margin in our mission.

Scott Kelley: So thinking about the challenges of the last year, what did our margins help us weather or how did they help us, you know, address some of the challenges that came up?

Dan Isacksen, MBA: Yeah. Well, they helped us to survive as an organization. We experienced some negative margins and lost a tremendous amount of revenue for some periods during these COVID surges. However, work that we had done collectively before the COVID storm hit, that worked solidified our operations and our financial situation, that was critical in how we went into and came out of these COVID surges. We were able to support our colleagues, particularly the heroic efforts of these in the trenches and made the necessary investments needed in terms of personal protective equipment, supplies and labor costs to get us through. We also, during this time, established a highly efficient vaccine clinic and also took our digital health presence to the next level, which is something that is here to stay for sure.

Scott Kelley: So thinking about the revenue side of the equation, if you think about a company selling widgets, one of the levers that it has is you can increase price to a certain extent. Obviously, you can only increase prices to a certain point that the market can cover it. But our environment in healthcare is quite different than that. Can you talk a little bit about the revenue side of the equation and the constraints that are in place?

Dan Isacksen, MBA: Sure. Well, so revenue is impacted by many things, including the economy in a kind of the state of the state insurance provider policies and operations, governmental and legislative pressures. Did I mention pandemics? I should certainly mentioned that. But, you know, the world is changing, and our healthcare models are changing along with it and will need to change even more.

Continued rapid movement to innovative digital health and care provided in the ambulatory setting will continue to shift care away from, historic inpatient hospital settings, which ultimately results in lower revenue per se. So just the model changing in and of itself is really putting a lot of pressure our revenue base.

To stay viable, we are embracing these changes as they are patient and customer-focused. We're committed to realigning our cost structure to whatever new revenue base exists. And this doesn't mean we just cut our way to success. It means that we are reinventing healthcare along with many others operationally, and the changes will keep cost and revenue aligned, which keeps margins healthy for continual reinvestment.

Scott Kelley: So thinking about the expense side of the equation, we have more control over some things than others. Can you tell us a little bit about the kinds of expenses that we face in healthcare?

Dan Isacksen, MBA: So a CFO always struggles with that question. we have some control over everything that hits the expense side of the equation. However, to what degree and in what timing? Changes could be made to make up the challenges. Labor and supplies expenses, they're usually the areas that many would argue we can control to the highest degree and in the least amount of time through efficiencies and utilization.

However, many of the other areas, you different links. For instance, you know, once you make a decision to sign a lease, you know, you're in there for the length of the lease. Once you purchase equipment, that depreciation is there for the life of the equipment. So you can impact those other areas, you know, over the longterm. But, the most readily available to impact and control are really labor and supplies in healthcare.

Scott Kelley: And thinking about the last year, some of those decisions had to be made in a very short period of time. Is that right?

Dan Isacksen, MBA: Oh, absolutely. Absolutely. You know, what we saw during the, pandemic has been timing unlike anything we had ever seen. We were making decisions on a large scale, you know, impacts to the organization within weeks. Things that, especially like with labor, things that would normally take, months to prepare for and socialize implement, these were things that were all done very quickly. And frankly, it was, because of the alignment with the revenue, right? I mean, there was a point I never thought as a healthcare CFO that I would ever report out to the board that, you know, we were down at 80% in outpatient surgeries for a period of time for a month or a month and a half. and, Just an amazing time. But those decisions had to be made quickly and those levers that were more timely had to be pulled first and quickly.

Scott Kelley: So what are some of the most important indicators or practices for improving margin?

Dan Isacksen, MBA: So In general, you know, the continuous monitoring of operations and financial performance is critical, which is obvious. But, you know, it's important to focus on the levers that will actually have a positive material impact. some examples are strategic investments in clinical services and the locations where you put those services, your revenue cycle, performance optimization, you know, optimizing the revenue that you're owed, and receiving for the services you provide and then the labor management that I just discussed.

But, what's really important is using data and particular ratio analytics to understand the trends and forecasting, which is really vital for improvement. You know, it may be obvious, but non-finance leaders and colleagues almost always have the best ideas and the most significant positive impact when working to improve the financial situation. And financial non-financial colleagues must be included in multi-disciplinary functional teams in order to achieve success together. You know, finance can't improve finance in a vacuum. last thing I would say is it always comes back to mission discernment at the core. Are the investments and the operational improvements honoring and furthering our mission? Because the improvements aren't just for the sake of money, right? That difference in our organization is the purpose is for the funding of a long-standing mission to serve.

Scott Kelley: So when you hear people say no margin, no mission, what goes through your mind?

Dan Isacksen, MBA: Well, first, let me start off by saying that no margin, no mission is certainly a phrase that will always make me cringe as well. The concept has, been and will continue to be debated. That's for sure. Unfortunately, Scott, I think, there's some emotional damage that has been done with that phrase for many healthcare colleagues, as it has been used over the years as somewhat of a stick or a heavy hand by many finance leaders, which I believe detracts from the alignment of the true and genuine purpose of stewardship that is a critical thread within our mission.

At the core definition of the word margin is an amount by which something is won or falls short. You know, look in the dictionary, an amount by which something is won or falls short. So, for us, when we apply this to our mission, being effective stewards in generating those necessary margins to sustain and further the mission becomes clear. Margin is a component of mission because of what we do with the dollars we are blessed to generate. We cannot fall short as those we serve are counting on us as is God, I believe.

Scott Kelley: So when we talk about the relationship of margin to mission and in relation to our core value of stewardship, one of the things that I think is important is for people to understand that financial stewardship is one kind of stewardship alongside many others. So we're stewards of our human capital, our social capital, our, physical capital. How do you see these things connecting with one another?

Dan Isacksen, MBA: So I think whatever the object of stewardship, and there are many as you just had described, but the ultimate goal is not only to safeguard those assets that have been entrusted to our care, but it's actually to multiply them or increase them for the greater good. You know, we learned in the Parable of the Tenants, it's clear that bearing these things entrusted to us and avoiding the risk for the sake of return will not be honored or rewarded. And in fact, a lack of proper oversight and investment for return-- and I'm not just talking financial return, but any type of return. return can be increased justice, fairness, better community health, et cetera, if there isn't that proper oversight and investment and some form of return that you can see and tell the story about, you know, that ultimately leads to likely a change in the steward themselves, that we're not doing the work that we've set out to do.

Scott Kelley: And I kind of think of the organization as a living entity and, it has to flourish or it begins to slowly deteriorate. And so margin and, stewardship are core components of flourishing. And I wonder, you know, when people say no margin, no mission, if maybe that's an opportunity to explain a more holistic understanding of what stewardship requires of us.

Dan Isacksen, MBA: Absolutely. Absolutely. And, you know, I think concept behind no margin, no mission, like I said, I think it's been used as a heavy hand, but you could easily say, no mission, no margin, right? Our mission actually produces the margin that we reinvest in the mission. So, the concept itself, I think is, the real point I always say is, to me, there's no difference between margin and mission. It’s all one cohesive concept that it's kind of a frame of mind and something that we're always moving towards.

Scott Kelley: So, what's something you wish that all of our colleagues knew about financial stewardship?

Dan Isacksen, MBA: So, you know, I mentioned several things today. But I mentioned before, it's worth repeating, every single colleague in any position at every level is critical to the success of financial stewardship within our organization. It is really an organizational mindset, not a task, that when embraced by everyone, by all members of the organization, not only empowers people, but really moves mountains on behalf of many.

And, oftentimes when I hear, "Well, financial stewardship is a finance department's function," I always cringe because, we help, we educate, we support, we provide information, we monitor, we're advising, but it takes all of us together having that stewardship mindset in order for us to all move forward together and be successful.

Scott Kelley: Dan, thanks for sharing your insights and reflections with us. It's really helpful for understanding or having a window into world of finance that, sometimes is not easily understood by people. So I really appreciate your reflections and sharing with us. And thank you for your leadership a very difficult year.

Dan Isacksen, MBA: Well, thank you. It's been my pleasure to talk with you today, Scott. I truly enjoyed our conversation and you know, I have a passion for this and it's my life's work. And thank you again for having me.