ADAM: Hey guys. Adam Peebles, Jason Nardella back here for another weekly Prescription for Growth. So excited to join you today. Jason, I wanted to specifically corner you today about something that is on the mind of every CFO across the country right now and that is thinking about their ‘21 budget. So this is the first time in, I think you said earlier, nine or 10 years that you have not been going through budgeting season for a hospital as a former CFO. That's what you kind of live and breathe for several years there.
JASON: I'm thankful for that too.
ADAM: So, I think a lot of hospitals are right now trying to struggle with not just really from COVID and the impact of COVID, but they're also looking forward and trying to get a better understanding of what... We know that there's going to be a budget loss right now. There's going to be a dollar we have to makeup. What is going to happen over the next 12 months? How can we really predict this? A lot of people have been pushing this off for a long time.
And so if you could put back on, blow off the dust of that old CFO hat and finance side, put that back on and maybe give some insight on at least how you're thinking about it and then primarily what you've been talking to some of our partners about from a budget and a strategy standpoint, and making sure they're deploying capital in the most effective way.
JASON: Sure. Yeah. No. And thank you for the question. So here's how I would look at it, right? I think first of all, whenever I approach the budget, I would try to almost take a look at and almost set up this economic graph, right? What is my fixed cost? What is my marginal cost? What is my marginal revenue, right? If you can understand where you are in that graph and where you are on that curve, it really starts to put into perspective, well, which volume do I need? Right.
Which volume do I need to grow? And then from that volume, how much is that marginal revenue going to be? How much is that marginal cost going to be and understanding where you are on those cost curves and knowing that within the hospital and the healthcare system, everything is a step, right? So where are you on those steps? Are you right at the end of it? Are you the most efficient you can be? Or are you sort of at the beginning of the step? Right? So is every marginal dollar, every marginal patient or encounter coming in there going to have more and more marginal revenue? So knowing where you are on that is that think the first thing I would do.
The second thing I've done is really invest in those margin accretive services, right? So in my experience, you could never have too many coders. You could never have too many people helping, making sure that all the documentation's done and that your CBO is running strong, right. Payer negotiations. So if you've got any of those coming up this year, what do you need to succeed in those payer negotiations and not just get the standard 3% bump who have maybe start to push the envelope to you? How do you get 4 or 5%, right? Which services again are you trying to grow and you want to increase the reimbursement on so that you can really get that double multiplier on it, right? It's volume and price so if I increased price and I know I'm going to increase volume that's really the game there.
I think lastly too, and this is something that we've really been focusing on a lot here at Trilliant and I did serve in my prior life as well, but trying to take a step back and not look at your hospital or your health system as a sum of encounters, but really start to look at your consumers, right. So look at all of your patient base, who are you actually seeing? What are you always seeing them for? And to understand and know those consumers at the heart of it is much, much better than just saying, "Well, I did 100 orthopedic surgeries this year. I would like to do 105 next year." How are you going to get those 105? Who are those patients? Where are you going to have to either shore up care coordination between a PCP and an orthopod or reach out to a physical therapy clinic or a partner to get some of those folks that are struggling with either hip pain, knee pain or something of the like, right. Those are the consumers, that's how you should be focusing on sort of that future growth, right.
All too often. I know in the past we've started our budget on, "Well, what happened last year?" The biggest assumption in every budget is whatever happened last year is going to happen this year. First of all, nobody wants this year to happen again so let's just throw that out right now. Let's just take 2020 and assume that that baseline is garbage, right? So let's do the zero sum budget. Let's actually get back to zero and start over and build up those services that we need and that we want around the consumers and the patients that we need and we want to attract into the health system. Right.
ADAM: And where you don't want to be too, right? I think that sounds great. We've heard it's sometimes a bad thing to talk about trying to get out of a service line. We're not saying to abandon the community on that by any stretch. I think if there's other people that are offering those services and you're not competitive and it's not as profitable for you, redirect those dollars. And it's not that we have to pull the bandaid off today, but create a plan for recognizing that, and then create a plan for moving out of that.
I think so often people are just focused on cutting expenses and cutting expenses and cutting expenses that at some point you're going to cut bone, right? You're not going to be able to keep cutting away and the old adage that you... What is it? That you can't cut your way to prosperity. I'm not saying to go out and spend hundreds of millions and billions of dollars on unneeded expenses, but there is a certain portion that you need to be investing in strategic growth in your service lines, in your physician recruitment strategies, in your consumers and your marketing. Turning those spigots off temporarily is one thing, turning those off for good is a really scary thing, I think.
JASON: Yeah. I mean, one thing that I've found too, is if you're having a problem around a service line or there's something that just isn't working for you, chances are the place down the road is having the same problem. Right?
JASON: And so is there a way to... Again, you want to care for the community, you need to have all of your patients cared for. So how do you work something out where you partner, right? And maybe it's a low volume service for you and it's low volume service for them. So instead of both having doctors, why don't you to have that one community doctor and that you split, right? And that you have patients and you're both putting the patients that need to go there and that way everybody wins, healthcare cost is lower and everybody's being cared for in the community.
I think the one other thing I'll say is if you don't know what your consumers are, where you want to be, or if you're having trouble kind of thinking about that, just go take a look at your best performing doctors, right. Go into their EMRs, go into their electronic health records. Who are those patients? Where else do they show up in your hospital? Where else do they show up in that health system? Because what you'll end up seeing is that there starts to be sort of a cohort or a set of demographics that are the ones that you really want to focus on and that if you can continue to grow, you're going to have a much better success for your whole health system.
So I mean, use what you know, use the examples you know. Also, feel free to use us. We have all of the market information. We have the consumer information. This is literally what we do every day. We've got a whole strategic resource team that does work on M&A, de novo stuff, as well as just where you want to be in your market. So, we're here to help, where we want to help, but the budget is a really important place and I think that Adam's previous point, cutting your way to prosperity is just you can't do it. Right. So invest in the things that are going to grow. If you're having trouble understanding what those things are, let us help give us a call and we can help you out.
ADAM: Yeah. Well, I think that's a good point. We do these calls every day. CFOs, CSOs, VP of Strategy, VP of Finance, Managed Care. And I think that we certainly are wanting to open up and democratize data to where people have more access to that and they have answers to questions that they haven't been able to answer before. So to Jason's point, if you do have questions, certainly reach out to us. We'd love to talk about it. Jason would probably back on the CFO hat for you guys for a little while and talk shop so.
JASON: Only for a little while though.
ADAM: Just get through the month. But yeah, yeah. I think that's really, really helpful. Jason, thanks for the time. I appreciate that Apollo, your cat, joined us for this video too. Hopefully, he can continue to make some special guest appearances and we'll have a great one. But everyone, thank you so much for joining. We appreciate the time and we'll talk to you very soon. Thanks.