Matt Heywood, president and CEO of Aspirus Health, is aware of the potential economic and business challenges facing health systems. His understanding of these "adversity risks," as he calls them, is helping shape Aspirus' strategies.
Wausau, Wis.-based Aspirus includes 18 hospitals and 130 outpatient locations across Wisconsin, Northeastern Minnesota and Michigan's Upper Peninsula.
Mr. Heywood has led Aspirus since June 2013. He told Becker's his focus for 2025 includes advancing an integrated network model to optimize existing resources, achieving at least a 5% operating margin, and maintaining honesty and transparency with the workforce. He discusses these priorities and more below.
Editor's note: Responses were lightly edited for length and clarity.
Question: What do you expect to be the biggest financial challenge facing health systems in the coming year, and how are you preparing to address it?
Matt Heywood: We've looked at the environment and started to come to the conclusion that many executives, especially in healthcare, have lived in what I'd call the "moderation era." It's been an era since probably the mid-'90s where there's been very much a moderation on inflation and very muted recessions, other than the 2008 financial crisis. The country has done a lot of outsourcing to China and the Far East during that time. So everybody's standard of living went up, the cost of goods went down and everything was stable, from a relative perspective, compared to what I call a much more "tumultuous era," which was prior to the mid-'90s.
After World War II, you had a lot more inflation, deeper and more aggressive recessions, and healthcare was different. During the more "tumultuous era," we were able to get percentage-of-charges payments. We had more commercial payers, so we were able to flex more readily in that environment. But now, we have fixed-rate payments with diagnosis-related groups. We have fewer commercial payers, more governmental payers, so our revenue structure is far more rigid and far less able to flex up and down.
That worked in the "moderation era," when you had low inflation, low recessions, and you had 2% or 3% swings [in operating margin], at the most, throughout each period of time. If we go back to that "tumultuous era" — and we believe we're going back to that — we're returning to an era of more aggressive swings in inflation, more aggressive swings in recessions. If you go back to that era with those bigger swings, with our payer model for healthcare, with our cost structure being high labor, high supply usage and high fixed capital, we are going to be in a world where the financial challenges we've faced in the last few years are not going away. They are only going to be exacerbated and become even more acute.
Then you throw in what I call "business adversity risks," which is the changing business environment that's creating "multimillion-dollar hits" on top of a recession or inflation. That creates risk of other damages to your income statement and balance sheet. You could have a major cybersecurity event — you never had those before [specifically targeting healthcare]. You could have major labor disruptions. Unions are becoming far more aggressive, far more active, with far more strikes. You have profit-driven litigation: hedge funds financing litigation for class-action lawsuits to make a profit.
So you throw these things in the mix. You then put that on top of these environmental changes — swinging inflation and swinging recessions — and I think we are in for 10 to 20 years of very challenging financial times.
Q: Given the current economic climate, how are you prioritizing capital investments for the upcoming year? In what specific areas do you see the highest ROI?
MH: You have to worry about your income statement first. There are too many health systems that are talking about long-term improvement in their income statement — that they're going to slowly get to 2% or 3% — and many people are claiming that the new norm is to get to a 2% to 3% margin and consider that good. Our belief is that's not going to keep you alive. You take one of those major cybersecurity events, you take a major inflationary spike, and you're going to wipe out your bottom line in a heartbeat.
And if you wipe out your bottom line, the only way you keep surviving is to go into your balance sheet. If you go into your balance sheet, then you can't make any capital investments, and you can't borrow money easily. So the first thing you have to do is improve your income statement. And a lot of people don't want to make those tough choices.
Our view is you have to get to 5% or better, and you need to get back to where you were before COVID. Then, if you've got your income statement able to absorb these shocks, that means you have access to your balance sheet. And if you have access to your balance sheet, you can borrow money to make the strategic choices.
We're striving to get our margin to the 4% to 6% range. Right now, we're running about a 4.85% [margin], and that allows us to feed our balance sheet. We're prepared for those bricks that might hit us.
Now, what strategically do we want to spend our money on? Because the cost of capital in this new environment is going to be a lot higher than it used to be, you can't just buy and build. So our first step is to fully leverage the assets you already own. We don't believe in a hub-and-spoke model. We believe in a network model.
That means we're not taking everything out of our regions and sending it to our tertiary centers and letting our Prospective Payment System hospitals and our critical access hospitals not fully utilize their resources. We've created archetypes, which assign and define a specific role for each hospital in our system.
We've been pushing more volume into our local hospitals, and it created more of a network flow of patients that has allowed us to increase our discharges by about 2,000 to 3,000 in the last six to 12 months because we are pushing patients into our existing structure. From there, you then say, "I'm maximizing my resources. Where do I need to put my resources?"
Everybody's rushing to put resources into the outpatient ancillary side. We really use our smaller hospitals as outpatient ancillary service centers as well as inpatient service centers. So we don't need to build as many ambulatory sites. At Aspirus, we're seeing a need to probably build out our tertiary capability a little more, because as the population ages, we believe they're going to need more tertiary care.
Our current challenge — even though we're pushing patients into the region — is that we're overwhelming our ability at our tertiary sites to take the growing volumes that we're having. So we'll probably add some growth in our tertiary sites while we continue to maximize the use of our outpatient areas.
Q: How is your M&A strategy evolving to support your organization's long-term goals, and how do you determine which acquisitions will add the most value to your health system both operationally and culturally?
MH: There seems to be a strategic theme, which is get out of the inpatient side, scale back your inpatient side, and get into ambulatory sites and ambulatory surgery centers. That's where the money's at. I would say that might work for some, depending on your system and your market, but it might not work for others.
Taking a one-cookie-cutter strategy obviously doesn't make sense. Let's use us. Being a rural healthcare system, it doesn't make sense for us to build multiple surgery centers when you've got a critical access hospital that could do surgery there, and you can maximize the use of the beds, the facility, the imaging equipment that's already there. You get more efficiency by basically using your PPS and critical access hospitals as hospitals and large outpatient service structures.
We have 18 hospitals now. Of the 18 hospitals, two of them are tertiary centers, four or five are PPS hospitals. The rest are critical access, but we maximize those critical access hospitals and PPS hospitals as if they're outpatient surgery centers, outpatient ambulatory sites and hospitals. It doesn't make sense for us to go out and create more surgery centers for our existing structure in our market, but it also makes sense for us to maximize the use of those beds and make sure patients can go there for inpatient care, too.
We're a $3 billion system, and we're covering 48,000 square miles. So in our world, the value for us is to maximize the use of our existing structures. And what we're seeing is we are under-built for the tertiary side of the business. When you look at us, and you count 18 hospitals, and you only have 450 tertiary beds in the whole system, you start to realize we're already heavily outpatient-built. So we are already ahead of the curve for what people are trying to do today. We're just doing it with our critical access hospitals and our PPS hospitals. We feel we're going to need to build out our tertiary capability a little bit more.
So that's our existing footprint. As for the future growth plate, we believe that you might want to continue to grow, but you need what we call a tuck-in strategy. We need a PPS or critical access hospital that tucks into our tertiary centers and feeds them and works within this integrated network structure we created. We may build out some ambulatory surgery centers in our newer markets where we don't have access to hospitals.
For instance, we just announced we're going to open what we call a small hospital in Chippewa Falls, Wis. So we will open up some small hospitals as well in certain markets to feed our network structure. That's our near-term plan. If we get another major acquisition opportunity, it would be what we call a node, another tertiary center that has the ability to create and replicate that network feeder structure that would then make it self-supporting. That would be how we would scale to the next level. But we wouldn't just go in and get a small PPS hospital in a market that didn't tie to anything.
Q: What specific strategies will your health system deploy in the coming year to improve employee retention, particularly in critical front-line roles?
MH: As I reflect and listen to staff, the No. 1 thing they appreciate is hearing Aspirus leadership say: "We see this [economic and business environment]. We have the foresight to see it; we accept it; we don't deny it. But yet we tell them there is a path forward." Many people tell me, "Matt, you have a lot of doom and gloom." I say, "Yeah, that's what could happen, and we have to be prepared." But we give the team and staff a way through it. The team takes that foresight, takes that plan, and delivers on it. And there's pride — you see it swell up. People are happy to be working here.
They see organizations without foresight, that don't make changes, have to make tough decisions, and can't give answers about what's going on. People want to work for a company that sees the environment, understands it, has a plan, and will lead them through it. When you do that well, they feel pride and comfort, safety and security in having an organization that's here for them.
Sure, they worry about salary raises — they're never going to not worry about that. But here, satisfaction, engagement and retention are going up. We're going to treat people fairly [with respect to compensation]. And I think that comfort in honesty and transparency, in the world we have today, is welcomed.
Q: How are strategic partnerships with community organizations and other healthcare institutions shaping your efforts to address key challenges within your health system and drive long-term success?
MH: One of today's "business adversity risks" is that I don't feel the people we're partnering with are consistently delivering on their promise. And it is something we're struggling with — figuring out, how do you know a partner is going to deliver consistently on a promise to you? We're starting to say, "At what point do you do it in house, where you can control it as best you can? At what point do you have a partnership because you can't deliver it effectively? And if so, how do you create a relationship where that partner wants to truly act like a partner, and what do you put in the contract and in that relationship to guarantee consistent delivery of the partnership?"
We are always out working with people in partnership, always trying to collaborate in the community, with other businesses. But with this new lens, we have to look at it a little more carefully because I'm finding I have too many little — what I call — grenades of relationships that are breaking down. And I, and the team, are spending time trying to jury-rig around, over and through them. And that shouldn't happen — that didn't happen in the past.