Welcome to Charting with Doctor McNeil.

To Charting with Doctor McNeil. We are privileged today to a conversation that is of interest to everyone. A little bit complex, but a lot of fun to talk about.

I have two of my colleagues here to help guide us through this conversation who are experts, especially in the state of Maryland and for Adventist HealthCare regarding finance. The topic of this conversation will be talking through what does healthcare cost so much? Why is the bill so high? Why are we leading the entire world in how we charge our populace for how they get basic healthcare and healthcare particularly when you land in the hospital.

That's gonna be interesting conversation today here on Charting with Doctor McNeil. I'm gonna have my colleagues introduce themselves. I have today with me Kevin Cargill, the CFO of Adventist HealthCare.

Kevin, introduce yourself. Let the people know who you are.

Hi everyone. It's a pleasure to be here and thank you Doctor McNeil for this opportunity. My name is Kevin Cargill. I am the Chief Financial Officer of Adventist HealthCare. I've been in healthcare for approximately twenty five years in different phrases. Started my career, in a for profit organization, and I was there for seventeen years, and I've been at Adventist HealthCare for approximately six years.

And we're happy to have you here. I'm going to go ahead to the wonderful Katie Eckert, who is really a state expert here with this Maryland model that we have. Katie, tell the people who you are, your title.

Thank you, Doctor McNeil. I'm so excited to be here today to talk about something that I geek out about every day. But Katie Eckert, I serve as our Senior Vice President for Strategic Operations here at Adventist HealthCare.

I like to tease Kevin that I'm a recovering CFO. I'm a CPA by training and came up the finance path. But my happy place is really working with data and using data to drive strategy and how we strategically execute on our mission to serve the community, and then to optimize and have world class performance using data to understand where there's opportunity and to hold ourselves accountable to that. So that's really my happy place.

I've been at Adventist for about three years. And as Doctor McNeal noted, I have the distinct honor of being our leader in house on all things related to the Health Services Cost Review Commission, which is our state regulatory body that sets prices for hospital services. And so I think we're going to talk a little bit about that today.

Indeed. So let's get to it. Let's talk about money.

Favorite topic. Let's talk about money. Let's talk first about billing and the cost of healthcare. I'm going say right now that when I was early attending within the first four years, one time a patient whipped out their bill and showed me in outrage what the charges were.

And I have to be honest here, I was shocked. You go through your entire medical training, you don't talk about billing, you don't see it. And they showed me the itemization of what the costs were for their healthcare. And I was shocked at the level of height and it was confusing.

I couldn't read it with any ease. So I'm going turn to you, Kevin. I want you to answer as well, Kay, why does healthcare cost so much? Why isn't Aspen thirty five dollars Why does it cost so much?

Yeah, that's fantastic question. And one that, you know, as a CFO coming up through the finance ranks, I've addressed over the years with several communities that I've worked in, because that's a common question that we get. But we wanna make sure we separate two things. Number one, the charges that show up on your bill may not necessarily represent the cost of the healthcare itself. Now, healthcare is expensive, but they're two separate issues. So let's talk about why healthcare costs so much. When we think about healthcare as an ecosystem, healthcare is incredibly resource intensive.

A lot of research goes into healthcare. So we think about the advanced technology and treatments. When you go to a hospital and you're diagnosed with a particular issue, there are advancements in cutting in technology that physicians can utilize to really help you get better. And that costs a lot of money, costs research and development.

So that contributes to incredibly high healthcare costs. When we take a step back and think about the physicians, the people who actually provide the care to us, You have specialists, you have generalists, you have nurses. They go to school for years for training. Those cost a lot of money.

We have to have a way to pay for that. When you think about pharmaceutical drugs, if you watch TV, many of us watch TV on a daily basis and we see a new drug came out to help us with a particular diagnosis.

That's very expensive, that costs money. So all those different channels of costs come back and show up on a hospital bill in some form or fashion. And those are very resource intensive, very expensive, in regards to taking care of patients.

It's a good point because as a patient, if I'm sitting in an emergency department bay, I'm sitting there, I'm waiting, I'm waiting, I'm waiting. And what I see is the doctor comes in twenty minutes, they draw some blood, they leave the room, they come back and tell me that I'm sick. This is what you need do, take these pills and leave. It's been three hours.

What I don't see is the pharmacist running around in the background. I don't see the fact that this building costs maintenance. I don't see the fact that there is somebody reading my x-ray. I don't see the fact that somebody has to process the blood that has to go to a computer I had to pay for.

You don't see all those background costs.

That's a really great way.

What do you think?

No, was gonna I think Kevin laid it out well. And that's exactly how you have to think about it. You know, when we look at healthcare as an industry compared to other industries, healthcare is an industry of people taking care of people, right? It's not people building widgets. It's people taking care of people. And so when we navigate the health care system, we see the doctor, maybe the nurse, but we don't see the full support staff and resources that need to be around that person so that they can do their job.

So, you know, somewhere between sixty and seventy percent of our operating costs are related to labor in some way, shape or form. And when you think about it, like of all the people, if you start with, okay, you walk into the doctor's office, you've got a team sitting at the front desk. Okay, how much are they making per hour? And then look at the software that they're using to register you, right?

Okay, then the nurse comes and takes you back. So now you've got someone else who's touching you. I'm saying this in quotes. How much are they making per hour?

And what education did they have to have? And then you are in the doctor's office and the doctor comes in and think about that provider and the education that they had and what is going on with medical education expense in the United States and their medical loan debt that they have and then how that plays into the marketplace for recruiting doctors, because doctors are going to come out of school with high medical expense. And so then they're going to want to go work a job where they can pay it off. And so it creates this, you know, natural economic marketplace.

And so you just keep pulling that string. And so you can start to see how a fraction of everyone's time that touches you and intersects with you starts to add up to why is it so expensive for the primary care visit that I just went in and had. The other thing that I think that we need to think about here is that the United States is very litigious. And so that is a hidden cost of health care.

We have to plan for lawsuits if something happens. We are humans taking care of humans. And so that is a cost of doing business that you may not have in other industries.

Yes, they're in other industries, you could have a product recall or something like that. But it's not on the scale of in healthcare where someone has a baby and something goes wrong.

And so that is something that we have to factor in to every single patient that we treat so that we can stay in business and continue to provide care for our community. That cost gets spread to everyone.

That's great. I just had a revelation right now, which is when you compare us to other countries too, all of a sudden all these costs are totally different. The cost of medical education for physicians is less than half in other countries than it is here in the United The legal fees and the amounts that are rewarded are monumentally less in other countries than they are in this country. Drug costs, less.

Labor costs, depending on which country, can be more or less, but the insurance costs to the employer are automatically going to plummet, and the wraparound costs that it takes to have that employee are going to go down compared to United States. And so it's very interesting. All of a sudden it makes sense why United States is all of a sudden going to be much higher than it might be in Jamaica or even England or even in India. Costs are going to be quite a bit.

Well, let's go one step further there comparing the United States. There's two other things that significantly differentiate the United States. The United States is top in the world for emergency care and for if you get really, really, really sick with a rare disease, you want to be in the United States. So that is something that the United States is very good at.

But as you can imagine, taking care of the rarest diseases, our cancer care and when you have catastrophic injuries, that's extraordinarily expensive. So in the United States, we win for having the best in the world emergency care. The rest of the world wins when it comes to population health and helping to keep their citizens healthy. But if you have a catastrophic failure of some sort, you want to be in the United States.

But the flip side of that is look at the United States and with the health of our nation, Our entire economy and industry in the United States is built around paying for emergency care, not for paying to keep people healthy. So in the United States, we also have a sicker population that has more chronic disease than in other countries because we have not prioritized that as a country. We've prioritized emergency care. And so now you want to talk about the cost of health care and why is it so much more expensive in the United States?

We're sicker.

We are sicker. We're sicker and we're not educating people on how to take care of themselves as vigorously. Our lifestyle is all about work and driving and sitting and not up and moving and so forth. That you make some really good points.

Now, Kevin, you have a tendency, I'm sure it happens to me, know as a healthcare leader, patients will complain about many things, which is their right, and things that help us be able to take care of people better. Complaints help you do that. The majority of the complaints I get all go back to a bill, most of the time, not the care. Talk about that a little bit and what you see people complaining about that you wish healthcare let us do better.

Well, I would say this, and this is one of the points I wanted to address in my last comment. One of the biggest complaints we get is about the pricing of services on their bill. And I've had many conversations about this over my career, you know, and I remember one particular instance where I was educating some patients about their bill in a large form.

And after I explained to them that hospitals don't get paid what actually we charge, I had one man come up to me and waved his finger in my face and said, I don't believe you. You're getting a tax rebate. You're getting something for this. And I said, No, that's not how it works. So for a hospital, the average hospital in the United States negotiates a contracted rate for their services. So what we charge is not necessarily what we get paid.

Okay? And sometimes our charges can be three to four times the amount that we actually get paid. So what this does for us, you know, overall the perception is when you see a Tylenol for thirty five dollars when you see a Band Aid for fifty dollars that hospitals are making a lot of money, right? But when you actually look at the reality of it, when you journals, hospitals are going bankrupt every day, right? Our patient population is getting older. People are requiring more care. Hospitals don't have the ability to take care of the patients just because of the lack of the financial resources.

And a lot of hospitals are really struggling right now. So there are a lot of reasons why hospitals may charge more than what they get paid. And we can get into that later in this conversation. But overall, charges do not equal the cash that's coming in the door at a hospital.

That's something that we really have to continue to emphasize over and over again, just not to our patient population in our community, but also our lawmakers, because they don't understand that. They don't. Sometimes too, when they're creating policy. So we have a big task in front of us to really educate them on that.

I'm gonna go back to some things you say, because what you've said the first time I heard this when I was involved in healthcare as well, I was like, what do you mean? What are you talking about? Why are you telling me that there's no other place in any industry that anyone's ever heard of. If you go into the grocery store and the orange costs two dollars you can't really say, Guess what?

I'm paying you forty five cents. You're welcome. It doesn't work that way. Only in healthcare does it work that way.

So I'm gonna have you back up a little bit. Talk to us about what you mean by contracted rate. What does that mean?

So a hospital, each hospital contracts with insurance companies, for example, Aetna. Okay? And let's take the example of a knee replacement. Say I need to go get my knee replaced.

I used to run a lot, my knee hurts, I'm getting it replaced. That hospital has a contract with my insurance company that for my knee, for this particular knee replacement that I'm getting, they're gonna pay five thousand dollars for example. Okay? Now, for each diagnosis, and this, it goes for Medicare also, there was a predetermined case rate.

There's a negotiated case rate on what the hospital gets paid for that particular procedure or diagnosis. We call that diagnosis related group. Okay? So just because I may charge you fifty thousand dollars for a knee replacement doesn't mean that the hospital gets fifty thousand dollars in cash.

They're going to get the five thousand dollars negotiated rate from Blue Cross, Aetna, whoever it may be for that particular procedure that was completed.

What happens if the hospital decides to charge you the same amount of money though?

In other words, if we know that the going rate is going to be five thousand dollars why don't we charge six thousand dollars or seven thousand dollars instead of ten thousand dollars a question because you have to remember, you have multiple payers that you're negotiating with and we don't have a different charge for every single payer.

Okay? So we have multiple payers. So we actually set a flat rate, right? And Blue Cross may pay a different amount than say, Aetna. Aetna is gonna pay a different amount than Medicare and Medicaid. The difference between what you actually negotiate and what we get paid is called a contractual, and that's what we write off.

Sometimes the contracts are a percent of charges.

So if you have, I mean, we could have a hundred different insurance companies and plans that we're interacting with. And so let's use your example of buying an orange at the grocery store, Right? So that orange at the grocery store, the difference is you don't have an insurance that's a third party intermediary now. So now the price of the orange depends on who your insurance is.

Right? And so the orange supplier needs to set their charges to be able to navigate one hundred different situations. And so if the contracts are largely based on a percent of charges, then you got to kind of We have to do that. Swag it to make sure you're going to win a little bit on some and you're going to lose a little bit on others. And you just hope that you come out on the other side okay.

Because there's only so much you can predict in what patients are gonna show up or shoppers are gonna show up at the grocery store who wants to buy your orange.

Yeah, and I will also add that in a lot of our contracts, well, a couple of things. Number one, the majority of contracts are situations between the provider and the insurance company today are not percent of charges. Back twenty years ago, the majority of them were. Most of them are gonna be on a case rate, but Katie's absolutely right. You're pricing your charge master to account for that five or ten percent.

That's number one. Number two, the contracts are also set up in a way that if even if I have negotiated a rate or I'm on a fee schedule, if I charge below that fee schedule, they're gonna pay me that lower rate that I charge regardless of what the fee schedule said. So we always have to make sure that our charges are above our fee schedule because if you charge below, you'll be underpaid.

So let's talk about this even a little bit more. You used a couple of terms I think that people are unlikely to know, including physicians.

And have you defined what chargemaster means?

Chargemaster, I would say, is like a menu at a restaurant. Okay? At a restaurant, you go in, you see a burger for five dollars it lists out all our services and the prices. It's no different for a hospital. We call it a chargemaster, a restaurant calls it a menu.

That's nice. That's a nice analogy to be able to make the folks understand.

But I think the important thing from what you two have said though, hospitals are going bankrupt often because depending on the insurances of the people in their community, if the orange costs two dollars but the insurance is consistently paying you forty five cents because your patient population, you're gonna go out of business.

Absolutely.

And so if you are a rural hospital, you keep hearing about hospitals in Kansas and Iowa that are closing because the people who are in these small towns and communities often aren't working for big business and they don't have the type of insurance that allows the hospitals to survive, or they're not coming to the hospital and the volume that allows the hospital to survive, to pay the pharmacist, to pay the roof for leaking, to pay for all the things.

Is that a right statement?

That is. And Katie touched on a point briefly, a concept we call cost shifting in healthcare. So at a hospital, just because we have this structure where you negotiate rates, generally your governmental rates, your Medicare and your Medicaid, those rates are set by the government. Those are based on your costs to a large degree.

Medicare reimburses at cost. We turn in a cost report on an annual basis and they calculate what our cost is, and that's what they reimburse us at. Medicaid reimburses below cost, just as a general rule. So if you have a hospital where you have a large government population and you have seventy percent of your population being reimbursed at cost, another twenty percent being reimbursed below cost, that ten percent commercial is not enough to get you over that hump.

There is a minimal amount of cost to run a hospital, a minimal amount of fixed cost, but it's a large cost to run a hospital.

And based on your payer mix, that's going to help you get to a point where you can drive and cover that cost.

A hundred percent. Now Katie, what does this make you think when you think about the silver tsunami that's coming we're gonna have a huge number the baby boomers getting older and older.

My baby boomers, they work hard, but they're coming with a force. What's this going to do to hospitals and healthcare when you think about the fact that also people are becoming a little less employed than they used to be? Maybe increase the Medicaid, maybe not, or taking away Medicaid costs and older people with Medicare. Talk to me.

Oh, I think what that means is that we're gonna have a rationing of access. We're gonna have limited access.

And that is scary.

To us.

What does that mean?

What does that mean?

It means that, just like, think about like during World War II and rationing of bread and sugar, right? There's going to be a rationing of how much services can be provided in different communities because health systems are only going to be able to provide what they can afford to provide. And so, you know, Kevin made a great point. Medicare pays at cost, but they don't pay at cost at the time of service.

So typically at the time of service, Medicare's fee schedule is rough and ready eighty percent of cost. And it might take you ten years to reconcile your annual reports of cost to get that final twenty percent. And then you might not even get all of that because of things like denials, where you're arguing about was the care that you provided actually legitimate? Did you have the permission from the insurance to provide that care to that patient?

So you've got that included as well. So you think about it, like if you're running your home, okay, you have a certain amount of cost to run your home and your income, we're only going to give you eighty percent of your income now. The rest of the twenty percent of your income, you might get over the next ten years, maybe. So you have to float that, right?

And then Medicaid pays like twenty percent less than Medicare on average. I'm using I'm way overgeneralizing this to make it simplified.

And it's the same situation where you've got long delays in getting the cash. So you have a massive timing problem where you provide the care, but you don't get paid one hundred percent for that care real time. And there's a massive lag when you actually get the cash.

Let's talk about patient impact and community impact.

Does this have anything to do with the fact that they're closing OB all across the United States right now? You talk about rationing care, reimbursed in other states of Maryland to start there. Then we'll talk about Maryland a little bit. If you are a community hospital in a big city or a small city, you think about the fact that we talked about how much doctors are expensive, OB doctors are expensive.

The medical legal cost for them is through the roof. And then you talk about reimbursement and then a hospital or healthcare system has to decide, do I really wanna do OP care? Can I afford to do OP care? Does that make sense?

Does that resonate with what you guys just talked about?

Yeah, absolutely. Because, you know, as a hospital administrator, or if you're looking at providing services to a community, the question is all about sustainability. How can I position us so that we're able to continuously provide care to this community? And if you have to look at particular service lines to reduce so that, you know, from an overall perspective, you can continue to provide services to that community, that's a decision that you're most likely going to make just so that healthcare remains in the community versus not at all.

Absolutely. And Adventist HealthCare does a good job at trying to provide care in two areas, are beginning to be less in other places. One is behavioral health, which we have the second busiest behavioral health area in state of Maryland. And we do OB because we think the community deserves those two services and they're hard to do well. We do them very well, but I just wanna make sure the community knows it's hard. And this is why.

And as a woman, OB services hit really close to home for me, as I think about what it's like to be pregnant and to want to have care in your community and near your home. And so when I think about what's playing out across the United States, in the rest of the country, hospitals lose money on OB services. And you know, I like to think about running a hospital or a health system like running a stock portfolio. You need to have services that make money in order to cover the services that lose money.

This is one of the reasons that I feel so passionate about working for faith based health care, because it becomes very, very easy to figure out what your priorities are, right? We're not in this to make money. We are nonprofit, faith based care. And so we are going to figure out a way to provide those services to our community because it's just part of how we show up.

And so I think that that's really challenging when you look at for profit health care and other types of health care as it presents itself. Because from a pure economics perspective, if you're just sitting down and saying, Should we provide OB services? It loses money.

The answer is pretty much a no.

And you completely jeopardize the entire, I didn't use an accounting concern, going concern or ability to stay sustainable of your organization because one or two births that go wrong that are outside of the control, you've done everything right. But in the United States, you could have a massive legal finding that an award that could absolutely bankrupt you. And so then you talk about a risk, take a risk strategy of do I run OB knowing that I'm going to have to shut down dialysis and access to heart attack and and cancer? Absolutely. Or do I shut down OB so that I can provide everything else? And that's a great example of what I'm talking about rationing of care because there's no easy choices. It's picking between a rock and a hard place to try to maximize.

As far as patient impact and community impact is concerned, too, when you think about OB care, then we're gonna probably move past this. Even in areas very close to where we serve, if you think about the availability for people to get OB care, you think about Prince George's County.

If you're a mother who has to deliver in Prince George's County, you're gonna have a drive because there aren't places in Prince George's County where you can deliver. Labor and delivery, you have to go up to Holy Cross or go into DC or go into Virginia. So that means when you're huffing and puffing and inactive later, you're gonna be in the car for an hour in a lot of places. So just, it's not just in the middle of nowhere. It's not in the middle of rural Wisconsin or rural Maine or rural Kansas we're talking about. These decisions that are made in American healthcare impact everyone, your neighbors, yourself. And so it's something that really people should understand and know.

Yeah, and when it comes to OB, I think there are other models of operating OB access, you look at how other countries have handled it. But they don't have the regulations that we have in place in the United So there's certain statutory requirements that we have to meet that add costs to provide the environment that is mandated. But then on top of that is the litigious environment of the United States. And that is why I know across the country, and I've even seen it play out in Maryland, where certain Maryland hospitals have decided to close OB. And when your operating margin annually is twenty million dollars a year, and it sounds like a lot of money, But when a hospital costs three hundred million dollars to maintain that and to continue to provide care in the community, we have to make really tough decisions. And it's unfortunate.

It's very unfortunate. We're going to switch to another topic that I know there's passion across all of us on this topic, and that is living in the great state of Maryland and how complicated the healthcare ecosystem is as regards finance and regulation.

Healthcare in general in the United States has more regulatory oversight than any other country in the world. It does. There are other countries who have a lot, though I'm not saying that people don't have regulated healthcare in, for instance, Dubai, which they have a lot, but nobody comes close to us. We'd like to over perform in this particular area. But then let's go to Maryland where there's an even more complicated layer on that. So we have patients, team members, physicians, people listening.

Let's keep this in a capsule conversation a bit, folks, because this is going to get a little complicated. I'm going start with Katie and go to Kevin. Why is Maryland different than other states when it comes to health care costs?

So in Maryland, we have a state regulatory body that sets prices. So I know to a lot of people that I have to try to explain what I do for a living when I'm out and about in my neighborhood and talking to my friends.

This blows their mind. I usually have to say it a couple of different ways, couple of different times. That's right.

We do not have free market economics.

There is a state committee, a commission that literally sets the prices for the services that we offer.

Wow, that exists.

Okay. You're giving me a warning look, Doctor McNeil.

No, but my warning look is I want you to explain that, but make it Macy's.

Make it Macy's?

Make it Macy's or make it a store. Okay.

So people understand that if this same system was put into a concept of a usual Like a Macy's.

Like a Macy's.

So if it was Macy's, everybody knows something. So Kevin, you're coming in to go buy a suit at Macy's, right? And so Macy's, they are working with their suppliers to get their Calvin Klein's, to get their various designers and offerings, right?

And so Macy's as an independent company gets to decide what they want to set the price at. Now they can make whatever decision they want on setting the price, right?

But if they set it too high, Kevin, how are you going to feel about that five thousand dollars Calvin Klein Probably not going to buy it.

No. Okay. So now if that Calvin Klein suit is maybe two hundred or three hundred dollars would you maybe be more That's Okay.

So Macy's needs to know its customer and needs to know the free market balance of what the cost it was for them to procure it and what their customer is willing to pay.

Now at our hospitals here at Adventist, we get a price list from the state of Maryland that for certain services. So each OR minute, we get to charge a certain price. For each day that you spend the night in one of our beds, we get to charge a certain price. But we don't get to pick that.

Kevin as the CFO doesn't get to pick that. We get an official notification twice a year from the state that tells us what our prices are. So back to our early part of our conversations, we actually have no control over what our prices and charges are in the state of Maryland.

So as a contrast outside of Maryland then, we don't get to set our prices except from a negotiation standpoint. We have the ability to influence what we get paid by negotiating with the commercial payers, which is what we were talking about earlier in our conversation. So that's the difference. I just wanted to clarify that since we were talking about two different models Great. Great as we're having this podcast.

But I will say this, as well as people understand. You walk into Apple and you buy your phone or you buy your iPad or you buy their five hundred dollars headphones, which are by the way too high Apple, you're listening to me.

Apple has a margin that's like twenty five percent, Right? So in other words, they have a profit that they can drive because they control all this.

American HealthCare, across the board, inside and outside of Maryland, the profit they can drive is like low single digits because of how difficult this is.

Get a four percent margin.

It's a celebration.

You're like dancing down the streets, baby.

Disco ball drops in Yes.

There's a disco ball drops in the sky in the boardroom and people start dancing because that is outrageously high.

And why don't we talk about what our margin is?

Our margin, is if if I'm home and I get a paycheck for a hundred dollars, and I have two dollars left over after I pay all my bills and my expenses, that two dollars or two percent is what we call our margin in business. So when we say margin, it's what we have left over at the end of the day to reinvest into our community.

So these businesses like Apple or like Macy's or like Nordstrom's or Toyota, you know, their profits are gone back into the product. So you have a better shirt, a better car, better, and their profits go back into shareholders.

And to shareholders.

So that means that the people who are investing in the company get that money back.

That's right.

We are trying to make the community better. We are investing in buildings. We are investing in the latest technology. We're investing in making sure our doctors get paid, our nurses get paid. All the things that we talked about earlier that are the things that land on your bill are the things that we're investing in trying to make sure that you get taken care of well.

Yeah. And I'll even go, I'll even add to that a little bit, Doctor McNeil, we're investing in diabetes clinics.

Absolutely. We're at times investing in things that may not contribute to our bottom line or may shrink our margin, but we know that these investments, when we talk about population health and doing what's right for our community, these investments are what's right for our community. So we make the choice and the decision to invest in those areas.

One hundred percent. Yeah, there's a phrase that we use a lot, which is, no, if you don't have a margin, you don't have a mission.

No mission, no margin, no margin, no mission. It's a double edged sword. And I like to say, you know, the better we can run our company and the more margin we have to then expand the mission. And I think there's also a misconception sometimes when I talk to folks who don't have a business background.

You know, nonprofit doesn't mean that we don't make a profit. We have to make a profit because we have to reinvest to maintain our capital. So what I mean by that is think about all the buildings that you walk into when you're a patient or the technology that you encounter as you're navigating your care journey, right? That's something that we have to pay for out of our margin.

They're one time costs that we have to fund. And so if we don't have a margin, then you go out of business, basically. So there has to be a margin. The question becomes what's an appropriate margin for nonprofit healthcare?

And two percent is generally, actually I defer to you, Kevin, what the latest that we're hearing from the rating agencies, because this is what it comes down to, is we have to be able to borrow money to be able to finance the stuff that we need to do. And so the rating agency actually tells us what margin that we need in order to access funds, right?

Kevin, just tell people what rating agencies are and what they Yeah, so a rating agency is an organization that evaluates the financial strength of an organization and assigns a grade.

In school, it once when you, make a grade, you get a a b c d or an f. I just had to think about that.

Because he never went below a b, folks. That's what happened there.

I I I like the faith.

I love the faith you have in me.

Yeah.

So so a rating agency does the same thing. You may have, there's a grading scale, triple a, triple b.

There are three rating agencies, Moody's, Fitch S and P.

And S and P. Okay. And, they we meet with them annually and they assign a rating to us and, investors can look at our rating when they determine if they want to invest in our company through debt, through bond offerings. So that's what who the rating agencies are.

So when we think about the two percent margin, I think the two percent margin was a goal that we've always had in the past.

I don't know if that's that that's helping us I don't I think that's old.

I think that's old. Yeah. Right? When when I'm looking at where we are as an organization, when I look at the industry overall, three to four percent is potentially where we need to be.

So we really have to realign our thought process and start having conversations around how we elevate ourselves from that two percent because we have to really manage, our capital structure. Right? Well, let me let me not say our capital structure that more lends itself to financing, but investing in capital for our system to reinvest in our system. We need that margin to really grow.

We do. And let's talk about why that is. Pre pandemic, there were costs that probably aligned with two percent. Post pandemic, guess what's happened? Technology.

That's it.

Technology has come our way and things become expensive.

Labor costs, inflation. There's a reason why pre pandemic, was paying a dollar for an organic apple and now I'm paying almost three.

Things have changed, costs have increased, the care and feeding of a healthcare system has gotten quite expensive, which means we need more money to do the care that we want to do for patients who deserve it.

Let's talk about innovation really quickly.

What do you think are the innovations that have the biggest potential to reduce cost?

And what is holding those innovations back from landing in healthcare?

That's a great question. Innovations that can help us reduce costs. So I will tell you that, I'm gonna I'm gonna say something that's going to shock you.

Okay. I'm bracing myself.

AI. Everybody everybody talks about AI.

It's the magical machine.

The magical machine. So when when it comes to our thoughts around AI, I'm I'm not a particular believer that we need, AI to replace people.

I think we need AI to help us identify and do the redundant work that many of our team does on a day to day basis, and we need to have people doing more value added work for our organization.

So when I think about the future, I'm a very forward thinking individual. I would love for us to get to a point as a healthcare organization where we're less reactive and more proactive. And I believe that technology can help us get to that point.

One of the issues that I've seen from my chair as my financial chair over the last twenty five years is that we're so reactive. If you think about the month end close process, we get our reports on the fifteenth, which tell us what happened in the last month. Well, a lot of time has gone by. We need to get to a point as an industry and especially as an organization where we're very, we can forecast, we're very proactive about what's happening in the market, not only from a financial standpoint, but from a service standpoint.

What do our patients need, right? How can we respond to their needs in a timely manner? How can we give them, get to them and give them the services that they need where they are versus where we want them in our brick and mortar facility? So that's the change we're going through right now.

I think technology can get us there. Think AI is a big component of that. And that's what I'm looking forward to in the future.

I like that.

Thoughts, So I agree with everything that Kevin said from a day to day practical, like this is something that we have control over and can implement perspective.

We're going to wrap some of this up. We've had a great conversation. What is one thing consumers can do to educate themselves before making health care decisions? We talked about costs of what it takes once you get to the emergency department, you know, or when you get admitted for elective surgery.

We talked a little bit about nutrition. But at some point they're going to open up a bill and say, what is going on? At some point they're going to need to discuss costs because they don't understand their bill or they get two bills and all of sudden have I paid this bill? What can consumers do to educate themselves before making healthcare decisions?

Yeah, this is probably gonna sound a bit obvious, but I think understanding your insurance is critically important. Picking up the phone, calling your insurance provider, getting in front of your plan, and going line by line and understanding what does my insurance offer me? And even start throwing out scenarios. What if I stay at the hospital?

What if I have to go to rehab? What does that look like for me? And look at understanding that in really plain terms. The beauty of the age that we live in now is that we live in an age of AI.

So even if sometimes if you're embarrassed to ask certain questions, when I say you you use AI, but you wanna verify. Okay?

But use AI to get you an initial understanding, but talk to an expert to ensure that your understanding is correct. But the knowledge is out there. We've never been in an age like we are right now when knowledge is at our fingertips. I would really encourage you to understand the coverage that you have and what your rights are before you find yourself in a situation where you have to use that product.

Empowering yourself, educating yourself has been a fantastic answer.

I one thousand percent agree with what Kevin said. I live, sleep and breathe this. And I still get confused by my bills and how to navigate And so I'm supposed to be one of the foremost experts in Maryland in the country because Maryland's so unique. And so if I still struggle with this, I can't even imagine what someone who doesn't work in this industry struggles with. So what I would say is feel empowered, feel emboldened.

You are paying for your health insurance.

They are accountable to you to explain what it is that you have purchased. I can't tell you how many times I've gotten on the phone with the insurance company and I have asked for them to walk me through my options for a specific procedure or a service. And they say, well, we need to know what the procedure code is. And I say, well, how on earth am I supposed to know that? We're talking about a hypothetical in the future.

And so they say, Well, I'm sorry, I can't help you. And so I say, Okay, I'd like to speak to your boss. And I just keep escalating it up and escalating it up until I get someone on the phone who can explain to me how to answer a question. Because a lot of times, remember, you're dealing with someone on the other side of the phone who's working off of a script. And so they are given standard questions in a decision tree.

They're not necessarily experts. They're just sitting in a call center answering your questions. So don't be afraid to escalate. You're paying for your insurance, get to someone who can answer your questions.

And like Kevin said, I can't tell you how many times I've also used Google or chat or Claude at this point to help me navigate of what are the right words should I be using to get the answer that I need? Because sometimes I feel like I'm not even asking the right question.

It's very true. I'm gonna say here out loud that I so wish that healthcare was built for patients. But the truth of the matter is medicine is built for patients and for doctors and nurses. Healthcare is not.

So you really need to empower yourself, educate yourself. And I wish that everybody hearing my voice, if they have a question, call those insurance companies. They have to upskill their folks in answering your questions. And so that insurance will work for you and not for the machine of healthcare that it is. And we're all working for it, are employed by it, enjoy it. But it is something that you need to do to empower yourself as the clinician in the room. I'm gonna say this about educating yourself before you get to healthcare.

Buy the fruit if you can. Buy the vegetables if you can. Eat them.

Drink some water. Walk outside your building when you can, if it's not one hundred and ten degrees outside or minus twenty outside. Sleep better. Decrease your stress whenever opportunities come.

And that will help you stay away from us as much as you can. Those are the things you should know. If you've got a health problem, you've got diabetes, you've hypertension, talk to your doctor. Look at your medications.

Know what the little green pill is, know what the little blue pill is, know what the dosing is and take them on time. Do those things and that'll help you stay away from us and help you be a better patient and consumer of healthcare.

We're gonna wrap up there. I hope that everyone takes these messages and understands healthcare a little bit better. It is complex. It is extremely complex as you know, but healthcare costs in the United States are high for good reason. We can take care of you very, very well, but there is a cost involved in doing that.

Charting with Doctor McNeil.