CFO Roundtable: Hospital execs innovate to overcome uncertainty
Providers are seeing increased pressure to balance their books while also satisfying their patients. That stress was evident during the Healthcare Financial Management Association's annual conference last month in Orlando, Fla. Modern Healthcare Editor Aurora Aguilar met with several chief financial officers then to talk about the fiscal challenges facing the nation's hospitals, including growing patient debt and the possibility of lower volume as a result of potential Medicaid cuts. The executives around the table were Michael Browning, CFO of Toledo, Ohio-based ProMedica; Penny Cermak, senior vice president and central Texas division CFO at Temple, Texas-based Baylor Scott & White Health; Carol Friesen, vice president of health system services at Bryan Health in Lincoln, Neb.; and Mark Meyer, executive vice president and CFO of Grady Health in Atlanta. The following is an edited transcript.
Modern Healthcare: How are you helping your systems navigate the current stormy political climate?
Carol Friesen: Based on the prediction of state block grants for Medicaid, we are spending more time advocating at a state level. In the last eight years, we've experienced federal control in regulation, rule-making and innovation. With the shift to state control, now we'll reallocate resources accordingly. This significant methodological change in state funding will have an impact on our organization, especially in mental health programs and women and children programs dependent on Medicaid funding and the current essential covered services. Medicaid funding will be subject to more politics than before and may look starkly different from state to state. We're not a Medicaid expansion state, but we have the same number of lives covered regardless.
Penny Cermak: We're not an expansion state either, and so we've spent a lot of energy and time in the state realm as well as reviewing block grants and waiver programs that are getting ready to expire and what that looks like in the future. Our leadership has been more focused on how we move forward into population health management versus waiting to see what comes to us from the state or federal government. So we're really focusing on getting the efficiencies and seeing lower cost of care and being well positioned for whatever may come from federal or state legislators.
Mark Meyer: We have two items in addition to what has already been said. Several of our board members as well as our CEO and others are working closely with senators and aides, explaining Grady's concerns about the proposed legislation and the potential adverse impact on Grady as well as other safety net institutions around the country. We are fortunate to have very engaged Georgia senators and a great deal of support from other organizations, such as America's Essential Hospitals, to help provide guidance on the legislation. So at this point, we are guardedly optimistic about the outcome. Secondly, and closer to home, our executive team is very focused on the quality and cost of clinical care and providing the best information to our medical staff to ensure we are aligned to provide a high level standard of care.
Michael Browning: What is unique about our organization is that we own a large well-established health plan. We have a significant amount of Medicaid and Medicare lives covered, so it is necessary for us to stay in tune with what is occurring with both the federal and state governments. We also engage firms at the federal and state levels to keep us updated on legislative matters on a real-time basis. Being a "payvider" (both a provider and a payer) in a Medicaid expansion state, we must stay current on legislative issues because we have to balance all aspects of the healthcare delivery system and fully understand how the proposed changes will impact our overall business.
Friesen: We recently saw (President Donald) Trump is looking at an administrative directive related to 340B, the drug discount program which supports safety net hospitals, many academic medical centers and rural critical access hospitals. A change to the 340B program would be a significant financial loss for these organizations and the unserved populations they serve. So that's one we're watching very closely.
(Editor's note: At deadline there was speculation that the Trump administration was backing off of any plans to alter the 340B program.)
MH: Some of the biggest costs in recent years to health systems have involved drugs, technology and staffing . . . all things you can't do without. So, where are you looking to adjust and cut costs or assess budget lines?
Meyer: Grady has been very focused and successful over the past five years in improving our revenue cycle and productivity, and future gains in those areas are definitely more complex. Our group purchasing organization is Vizient and we have various cost savings initiatives with them each year to ensure we are managing and reducing costs. Our collective view of significant future gains in the overall cost of care is primarily associated with our utilization, throughput and severity-adjusted average length of stay, which means we have to have physicians, nursing and administration equally engaged and committed to bringing about these improvements in the quality of care. Also, as an Epic hospital, there is much value to be gained by improving the way we utilize Epic to ensure our care delivery is of the highest quality.
Browning: We offered early retirement to over 1,000 employees last year. More than 400 selected the option and it was a win-win for both the employee and the organization. We are working very hard to be proactive with our cost reduction strategies. We initiated an efficiency strategy last year called Transforming ProMedica. We have a three-year goal of creating a 3%-plus efficiency improvement each year, thus accumulating to a 10% improvement over the three-year period. We feel that this strategy will become part of our culture. We understand that efficient organizations cannot "cost cut their way to success," so we are also looking for strategic relationships with other organizations to reduce our overhead and back-office costs. For example, quality, service and efficiency can be achieved by combining departments such as revenue cycle, supply chain, accounts payable, payroll, etc.
Friesen: One market change that's somewhat alarming but also follows the natural course of things is significant consolidation among IT vendors. Basically, there are two vendors now, Epic or Cerner. We're seeing that same kind of consolidation with the national insurance providers and plans, too. These changes in market dominance affect cost and reimbursement structures. At the same time, hospitals are evaluating an increased volume of technology advancements such as robotics or other kinds of innovations. These innovations come at the expense of something else. With scarcity of resources, we cannot afford to not make those infrastructure investments and ongoing operational expenses without a negative impact on margin.
Cermak: One thing we've seen recently in our market is an increase in uncompensated care and that has forced us to take a second and third look at cost reductions. For example, I meet regularly with our physician leadership in the Scott and White clinic based out of central Texas, which employs over 1,200 physicians and 400 advanced-practice providers. And they said, "What do we need to do because supply costs and drug costs have been running over budget?" And while they have fairly good utilization and standardization, they're raising their hands and saying give us actionable items and we'll go do it. As a result, there have been further exchanges surrounding how we better look at our drug formularies and get our best practices into all of our sites. I've been blown away by the level of activity and engagement of our physician leaders. So, I'm optimistic for the future but there's a lot of work to do. And the area we're tackling hard is supply and drug costs. But everything is under the microscope—staffing, technology, shared services. Everything.
MH: High-deductible plans are causing many consumers to have to foot more of the bill themselves. Potential policy changes might further strain consumers. What are you doing to make sure that those bills are paid?
Friesen: Healthcare has been beaten up and battered in the last five to 10 years. The perception is that we're too costly. This negative perception has inadvertently decreased the amount of personal accountability of patients. Therefore, we're seeing amounts that are due after insurance increasingly harder if not impossible to collect. The responsibility and accountability has shifted to patients. They are choosing higher deductibles because it addresses the immediate premium relief needs. Unfortunately, they're not typically saving this money to be prepared to pay the higher deductibles when incurred.
Cermak: Some of it is going back to the basics. I agree with Carol that things have slipped. As an industry, we've gotten beat up with perceived unfair practices. And so we're going back and revisiting pre-authorization. Sometimes we don't do as good a job at that on the uncompensated-care side as there's not an insurance company holding us accountable. We strive to be equitable across all patients and payers and that means making sure that those who can't afford to pay are getting appropriate care, too, following effective clinical guidelines. For example, giving a drug that's expensive and still being tested for efficacy needs to be looked at in terms of whether it's really the right decision to make if no one is bearing the cost. We're making sure we're alerting people up front to what their co-insurance pay is, and we try to collect that before the procedure/visit. The hard part is putting a definition around medically necessary care because we want to make sure people receive that.
Meyer: As the safety net hospital for Atlanta, the vast majority of our patients are either self-pay, Medicaid or dual-eligible Medicare/Medicaid, which means in many cases the patient simply cannot pay much out of pocket. So first, we accelerated our billing and collection process to collect the copays where there are resources to pay and then move the account to our collection vendors who are better trained to set up payment plans and find other resources. We collect over 60% of our cash either at the point of service or with our first billing statement. Therefore, we compressed our internal billing process to maximize our internal cash collections. After 60 days, we send the account to third-party collection firms that are better equipped to set up payment plans. Secondly, we do look closely at individual employee collection rates to ensure we have the right people in the right role.
Browning: The unfortunate part is that high-deductible plans are causing people to delay care. This delay in care can sometimes cause catastrophic situations, which is increasing the cost of care. We are improving our front-end process to include improved financial counseling, point-of-service collections and more flexible payment options for our patients. Also, we are initiating a prompt-pay discount for our patients. Finally, we are calculating our uncompensated care by managed-care plan and communicating these amounts to our payers. Since many of our managed-care contracts were developed prior to the high-deductible plans, it is important that we communicate the increase in uncompensated care to these payers so that we can develop a strategy on how we can fulfill the initial intent of these agreements.
MH: The issue of readmissions has been a focus in efforts to improve quality and lower costs, but it causes a conundrum for financial executives since those readmissions still bring in revenue. How are you accounting for any lost revenue when you're trying to keep readmissions down?
Friesen: We controlled readmissions by providing great care, but also by ensuring patients were leveraging the most appropriate post-acute care available. In some cases, we've seen overutilization of post-acute services to be on the cautious side for patients without adequate support systems at home. Value-based programs like Medicare Cost Per Beneficiary and (Comprehensive Care for Joint Replacement) Bundles are focused on reducing post-acute utilization and costs. The competing priorities of the programs create a tension between keeping readmissions low, while limiting post-acute care utilization. Providers and physician partners are in the middle of a balancing act to find the best course of safe treatment and recovery for their patients. Financial professionals are involved in helping physicians understand the impact through data. In our state, we are challenged by a large rural geography. Our patients may be at our organization for three days, but we're responsible for the previous three days before the stay and 30 or 90 days after the stay. To recap, the patients are spending 87 days of the 90 days, or 30 days of the 33 days, somewhere else. That is likely several hours away from us at Bryan. So, we need to step back and consider, we all want to bring costs down, but have we thought of the unintended consequences of one program pitted against another?
Browning: ProMedica has had a health plan for over 20 years and we have done a nice job with readmissions. Providing the best care in the right environment is the most appropriate thing to do, so we use the continuum of care to help us manage the healthcare dollar. We also have several population health contracts with other payers and we have heavily invested in our population health strategy. While there has not yet been a strong return on this investment, we have had success with eliminating waste from the system.
Cermak: We've used home health services more while trying new things. We're bringing back office visits and sending a medical professional into the home, through our advanced-practice providers and also engaging our ambulance services, especially through one that we own. Parahealth staff can determine whether they can treat the patient at home or bring them back into the hospital.
Meyer: We spend over $5 million a year in post-acute care for uninsured or Medicaid patients. For Grady, given our inpatient cost of care and lack of capacity, it is a worthwhile investment to safely discharge patients to a select group of collaborative post-acute providers that have high standards of care in order to reduce the possibility of a readmission. Grady also has a mobile integrated health service which involves sending a truck into the community—homes, shelters, wherever patients live—staffed with advanced practitioners, social workers and other care deliverers, who can assess medications and compliance in the field. It is not the most efficient model, but it has served to reduce readmissions with a very vulnerable population. We also are looking to telehealth opportunities to see if that can be done effectively and efficiently.
Cermak: We've been doing that already on a limited basis, and Texas just made it open to do that more broadly, so we're excited to take it out to more people now.
Meyer: Does the reimbursement follow that?
Cermak: We're working on it. With our own health plan, it helps as a starting point. It has the potential to bring down the cost of care especially for our employee population, and in our health plan so it makes a lot of sense. We're still working on fee arrangements with other payers.
MH: How are you advising your systems on where to spend their money or plan for growth while there are so many uncertainties regarding payment and policies? And how do you see that affecting the continuum of care?
Meyer: At Grady, we plan total capital expenditures as a percentage of operating cash flow and then split the capital expenditure between more routine repair, replace, maintenance and strategic service line investments. The service line investments this year, for example, focus on cardiothoracic, stroke and trauma services and have a better return on investment than our more traditional safety net services. From a capital expenditure standpoint, we also have had incredible philanthropic support from the Atlanta community. Although the uncertainties this year are probably greater than most years, Grady always seems to find itself battling for existing funding streams to be maintained whether its federal, state or county. At least this year, it's not just Grady and the safety nets that are at risk, but potentially the entire acute-care healthcare system—I find some comfort in that.
Cermak: As we look to the future and as an integrated delivery system, we recognize the importance of quality preventive care in optimizing the health of our communities. We also believe that investment in the front-end of the care cycle allows us to better appropriate resources and ultimately lowers the cost of care. Additionally, we are investing in palliative-care resources to partner with our primary-care physicians in order to truly provide the kind of quality, cost-effective care that most patients want as they end their lives with dignity and in a way that incorporates what truly matters to them.
Browning: While we will continue to invest in initiatives that support our current facilities, equipment, technology and growth strategies, we also understand the importance of investing in strategies that prepare us for the future healthcare delivery system. Under the future healthcare delivery system, it will be essential that we continue to invest in the full continuum of services. As more of the financial risk for the delivery of care is shifted to providers, it will be essential that we invest some of our capital and operating investments into the initiatives that help us better manage risk. We understand that we cannot be everything to everyone, so we likely will need to partner with other organizations that can assist us in meeting these future needs. While some of our investment strategies will be similar to what we have done in the past, the future presents many unknown opportunities. These opportunities will require us to be innovative and take risks unlike we have done in the past. We will make mistakes, but we cannot allow these mistakes to deter us from developing the best healthcare delivery system for our patients, physicians, employees and community.
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