Small and rural or large and urban—health systems’ size influences decisionmaking

In healthcare, size matters. It influences just about every aspect of how health systems operate and do business. Modern Healthcare finance reporter Tara Bannow sat down with the chief financial officers of three very different sized health systems—two single-hospital systems and a 23-hospital system whose revenue exceeds $11 billion. The panel included Michele Cusack, CFO of Northwell Health, based in New Hyde Park, N.Y.; Gary Fulbright, CFO of Citizens Memorial Healthcare in Bolivar, Mo.; and Lisa Medovich, chief financial and compliance officer with Peterson Health in Kerrville, Texas. The three discussed how their systems differ and align with respect to value-based payment, cost accounting and outsourcing revenue-cycle functions. The following is an edited transcript.

MH: Tell me about your approach to consolidation. It seems like Peterson Health and Citizen’s Memorial are solidly in the camp of staying independent. How do your payer mix and shifts in reimbursement models influence your decision on that?

Medovich: Kerrville is unusual in the state of Texas in that we have a very solid Medicare payer mix. Some of you may think that’s not good, but it really is. Around 60% of our gross patient revenue comes from Medicare. We are unique in that we are not hampered by a single large industry. I came from Youngstown, Ohio, where the closure of the GM Lordstown plant and Delphi Packard and the astronomic fallout from those closures made a very viable community hospital not so viable anymore. We don’t have that type of issue in Kerrville. We’re also unusual in that we are a retirement community. So there’s a lot of well-to-do folks from Houston, California and Colorado coming into Kerrville. At one point, when we were doing our bond offering, we had the second-highest wealth in the state of Texas. So we’re not concerned about having to go out and consolidate with a for-profit entity. I’ve been part of larger health systems. It’s not fun to be taken over.

Fulbright: We are in a somewhat similar area. We are about 30 miles north of Springfield, Mo. Even though we consider ourselves rural, we are having some population growth. It’s allowed us to add specialties. We are pretty heavily Medicare, as was mentioned about the hospital in Texas. We provide a variety of services, not just hospital. We also have clinics, home care and six long-term care facilities. Our goal is to remain independent. We did look at consolidation two or three years ago. We signed a letter of intent with the Cox Medical Center in Springfield and, through due diligence, weighed the pros and cons and just felt that we, for the time being, wanted to remain independent.

Cusack: We’ve been seeing an increase in our population as well, albeit slight, but the increase has predominantly been in those covered by Medicare and Medicaid. There has been a lot of consolidation in our marketplace. That has been part of the reason for these stand-alone facilities to choose partners such as Northwell; it was for financial viability because they were no longer able on their own to maintain the level of service and investment they would need to be sustainable in the long term. The payer mix is obviously one of the challenges and just the cost environment we’re in. Through consolidation we’re now 23 hospitals. They are able to leverage our infrastructure and take advantage of shared services at a lower price point. That enables them to continue on and continue to invest. It’s a combination of price as well as the payer mix shift, which continues to shift more into government. We’re at about 65% government payer mix overall.

MH: How are you catering to patients’ demands for price transparency? How would the Trump administration’s proposed regulation that hospitals make public what they charge insurance companies for services affect your health system?

Cusack: We’ve been at this for a while. We were actually the first in New York state. Probably back in 2010, we put up an online expense calculator to estimate patients’ out-of-pocket costs. Since then, we’ve added other tools to enhance the transparency of our pricing information. We have a back-office call center that has direct engagement and connects patients back with their insurance companies as needed to make sure they have the most accurate, up-to-date information. With respect to Trump and putting the pricing out there, I think it’s going to cause some confusion. A lot of the key principles he issued to guide Congress do not seem possible to implement in the near future. And as far as publishing rates, I think it’s going to cause more confusion than clarity for patients because they’re only going to be looking at pieces of services they’re getting rather than at their entire healthcare needs across the spectrum.

Medovich: We initiated what’s called a Revenue Cycle Governance Council to help us effectively and strategically perform ongoing price analysis. This allows us to review the high volume of services and find price breaks for a patient. When you think about how hospitals continue to improve the patient experience, it’s also improving your revenue-cycle patient experience. Preparing to pay for healthcare services is probably the most challenging, stressful issue for patients to deal with. We developed a card to distribute in physicians’ offices that states the following: “Peterson Health is committed to improving your health, including helping you afford the care you need. Call and ask about our ways to make your healthcare affordable.”

MH: More providers are outsourcing their revenue-cycle functions as patients are being made to shoulder a higher proportion of their medical costs. Bad debt is increasing. How are you addressing that?

Fulbright: We have outsourced some in the past, and it seems like it was with mixed results. Probably our goal is to keep those functions, those jobs in the community if we can. I think a lot of times we feel like we can do a better job than that, but we do ask for some, of course, bad-debt collections.

Cusack: We outsource certain functions with the use of management. The management and all the policies and procedures around that are Northwell-driven. We dictate how they’re interacting with our customers. So specific to the functions, there is certain back-office follow-up we have outsourced with a strategic partner. There are certain coding functions that we’ve outsourced as well. Just simply a lack of resources within the local area with some of the specialties. Given our size, we’re unable to find them within the marketplace. It’s a hybrid, but all of it is managed by Northwell, because we want to ensure it’s in accordance with how we want to interact with the patient.

Medovich: We outsource what we need similarly to what Gary and Michele said. We have a vendor on-site to focus on Medicaid eligibility, charity care applications, worker’s comp, and motor-vehicle accident claims. It’s really just supplementing our current workforce, not to fully outsource, because we truly believe in looking at and focusing on the blocking and tackling strategies. It’s holding everyone accountable, and more importantly, holding your vendors accountable to make sure they’re doing their job. The key when you outsource is if they’re not performing, they’re gone. It’s holding them accountable as you would your own team.

MH: What percentage of your revenue is currently tied to risk-based contracts, both on the commercial and the government side? What would it take to push that number up?

Fulbright: We’re fairly low. Several years ago, we had our own HMO and participated in an HMO with some other hospitals. We learned quite a few things there. It was an expensive lesson, but it’s one thing we’ve been very successful at in the last two or three years. In Missouri, we’ve participated in the Missouri Medicaid medical home project. I think we’ve learned a lot there about how to manage patients and make sure they receive the care they should. It’s setting us up well to expand that to other providers. We do a similar thing with a couple of insurance companies. We also participate in Medicare+Choice, the chronic care management program and are applying for the Bundled Payments for Care Improvement Initiative this year. I think we’re positioned pretty well to be successful in that.

Cusack: If you’re just looking at specific risk-based components, it’s probably less than 5%, but we do participate in both commercial and government-type risk programs, which vary from pay-for-performance. I just mentioned various shared-savings arrangements and in one of our companies, Healthfirst, we have shared risk and full risk across various government products. So we’ve been at this for a while. We actually created our own commercial insurance company, CareConnect, which at its peak had over 125,000 lives, which we were at full risk for. (Northwell shut down that plan in 2017 after suffering financial losses in the prior year.)

Medovich: Right now, this is the easiest response you’ll receive: zero. We do not have that. We’re looking into bundled payments as an opportunity in regard to the BPCI Advanced. We’ll be applying for that. Other than that, we don’t have any currently.

MH: Why not?

Medovich: The majority of our contracts are already established and have been established for quite some time through what’s called the Greater Hill Country Healthcare Alliance.

MH: Commercial carriers, at least in Northwell’s area, want to move that way. Are you not seeing that?

Medovich: We’re not seeing that. We’re not seeing that at all. It’s a different market.

Fulbright: I think we’re very similar to what she expressed. We’re probably just not large enough to be on the radar that much for the health plans to try to do something and perhaps also the organization having the infrastructure to do so. What we’ve done so far in the medical home model, it’s not a full-risk type thing, but I think it is working well for us and the payers. I think that has some promise.

MH: I’ve talked to health system leaders about the importance of having a cost accounting system to track the actual cost of delivering care. That discussion has been in relation to the transition toward value-based care. Have your systems adopted cost accounting tools?

Cusack: We’ve had a cost accounting system probably since about 2000. We roll it out as new hospitals or entities join Northwell. In addition, we have a robust productivity tool and key performance indicators in some of the areas you mentioned: cost per operating room minute, for example, to be able to help find variation and understand where there are opportunities to gain efficiency from a cost perspective. We use our cost accounting system and these productivity tools to build our business plans. It helps with our contract negotiations and with identification of opportunities as we get into budgets each year. It’s definitely a discipline in terms of making sure that the model we have is well managed and people understand the cost assumptions underneath so they make the right operational decisions as they’re interpreting the numbers.

Medovich: We will adopt a cost accounting system probably in Q3 of this calendar year. It’s going to be a full cost accounting and decision-support system to do exactly what Michele said: Drill down to the service lines. You have to keep in mind that we’re nothing more than a rural, community hospital, and we’re going to do what we’re going to do best. That’s our area of focus. You don’t want to brag about being a half-billion-dollar company and lose money. I would rather brag about being a $100 million net patient revenue hospital and make money. You can get so specific you lose sight of the fact that cash is a fact, profit is an opinion. If your overall daily cash collection is under what you’re spending on a daily basis, Houston, you have a problem and you have to start looking at it. The reason we were delayed getting the cost accounting system up and running is that we had an upgrade to our electronic health record on March 1, 2019, so that probably took around a year and a half of our time and it was extremely successful.

Fulbright: We don’t have a cost accounting system. Of course, we do look at costs very closely in benchmarking. Recently we’ve had a project to look at all of our implants and other costs. Our productivity reporting, we do that every pay period and I try to get reports out in the managers’ hands within a couple of days after paychecks are issued. We definitely have to match staffing with volume.