3 Healthcare CFOs on the Election and Sequestration

Healthcare leaders have told HealthLeaders Media that, regardless of the outcome of the 2012 elections, most planned to carry forward with a reform agenda. But CFOs say the looming "fiscal cliff" could derail their efforts if not resolved.

I asked three financial leaders—Kendall Johnson, CFO at Baton Rouge (La) General Medical Center, Debbie Bloomfield, CFO for the Central Division of Catholic Health Partners and Mercy Health in Cincinnati, and Rick Hinds, executive vice president and CFO at UC Health in Cincinnati—about their plans in the months ahead, and how sequestration threatens those.

HealthLeaders Media: Now that there's more certainty around the government's healthcare agenda, is it influencing how your organization moves forward with its strategic agenda?

Kendall Johnson:There is one positive that comes from there being no change in the administration or in the balance of power: now we can stay focused on where we want to go under these new laws. The results of the election didn't change or accelerate our strategy at all, and the results weren't going to change our path either way. We realized that the path we're on is the future of healthcare, and so we're moving as fast as we can on it. We are focused on sharing information internally and externally and building a collaborative network with our managed care [payers] to control the health of populations and to improve the quality of care and safety of patients.

Kendall Johnson

We didn't plan for every [financial] event that could come out of this; there were too many unknowns. ... We're getting ready to go to the market to refinance $180 million, and I'm not concerned about raising the capital to grow, but [I am concerned] about the industry continuing to react to the need to make cost reductions through mergers and acquisitions.

Debbie Bloomfield: The election hasn't influenced our approach. We made an organizational decision that, regardless of what happens with the election, we're going to keep moving forward. So the work we've been doing developing our network, and becoming a Medicare Shared Savings Program participant is on track, and we have no intention of varying what we were doing. Also, our project for rolling our EMR out throughout CHP wasn't dependent upon the election results, so we'll keep that moving forward too.

Debbie Bloomfield

[In terms of financial gains or losses] some of that is still yet to be determined. However, we do recognize that no matter what, the cost for healthcare is a problem for everyone. That's why we knew we had to move forward with the [strategic] initiatives we'd already planned. However, we realize there's a [federal] budget to be balanced, and that'll require [political] give and take. That's where we're skeptical as to whether it will be positive for providers from a financial standpoint.

Rick Hinds: Regardless of who won the election, it was going to be a rough few years for the healthcare industry, and we'll just need to work through it. President Obama isn't going to have to worry about getting elected a third time, so he doesn't have to worry about pushing his agenda. What's really going to matter is the alignment between the House and the Senate to be able to push any of their agenda items. But at least we know where we're heading with Obama's re-election, and I think that will help all of us move forward in terms of healthcare reform. But the election hasn't changed our plans; we're still moving along full force on all of our initiatives.

Rick Hinds

On the cost side, we'll continue our cost reduction strategies and partnering to make sure we have the breadth of services that we need. We're also dipping into the risk side of the business in terms of contracting with the payers, particularly on the commercial side, and the work that we need to do around pay-for-performance initiatives that the government's rolled out. Lastly, we're looking at some patient populations that we might want to do some Medicare waiver projects on—again, so we can get into the risk-sharing side of the business. [Financially] the most immediate thing for us is the "fiscal cliff"—sequestration—that may happen next year. We've budgeted for that.

HealthLeaders: How are the $600 billion fiscal cliff and the threat of sequestration influencing your plans for 2013?

Johnson: I'm concerned with the balance of power in the House and Senate... are we going to be able to enact polices that are going to move the country forward and solve the fiscal cliff problem? I'm also worried, though, about how the elections will impact the country's ability to stimulate jobs and grow the economy. How will we get back into a growth mode and decrease unemployment?

Bloomfield: I'm a little on the pessimistic side about this. When you hear about what some of the Republicans are saying now in the House, I'm worried that [the politicians] won't be able to come to an agreement by year–end and that some of the automatic provisions will kick in. I'm trying to stay optimistically hopeful, but we're less than two months away from that point. We've gone ahead, in our financial plan for next year, anticipating [sequestration] would impact us, and we've planned accordingly. We took out the revenue, which meant we had to look at our own expenses again. We've had many things in place around cost-reducing initiatives in traditional areas, but from this summer through the fall our group looked into how we could increase the efficiency in our organization. We looked at how we could increase standardization utilization of vendors—not just supplies but purchased services across the board, and how we approach utilities management—to help offset those anticipated reductions in reimbursement.

Hinds: [The political configurations in the House and Senate] are going to make it harder to reach an agreement balancing the budget. I'm assuming we're going to have sequestration because I don't think we'll be able to reach an agreement by December. Sequestration is going to hit us hard just like everyone else [in healthcare]. But if something happens beyond a vanilla sequestration, it could be a plus or a minus for us, depending on which specific components the government cuts. For example, we're an academic medical center, so if they decide to cut GME and IME [graduate medical education and indirect medical education] reimbursements, that could hit us worse. We assume that it's going to be an across-the-board cut, but something might happen the last two months of the year that could change it.

HealthLeaders: For those healthcare organizations that may not have embraced healthcare reform over the last four years, how quickly can they catch up?

Johnson: IT is the key, and if an organization hasn't achieved Stage 1 of meaningful use by now, they are truly behind. You should be talking about Stage 2 by now; you need to know how you'll work with an Exchange, how you'll communicate [patient] information within the community and through a patient portal. All of these are important parts of the future of healthcare. For those that aren't too far along, they'll really need to accelerate their pace of change greatly. Also, it takes a significant [capital] investment into infrastructure in order to succeed with these [healthcare reform] strategies. They'll need to be ready for it.

Bloomfield:When I look back at our journey, I realize just how long it takes to prepare for this transformation. It will be interesting to see how fast [those that haven't made strides toward reform] can increase their pace if they haven't started before now. There's a lot of work that goes into evolving an organization in this new direction. I'm grateful we made our decisions independent of what might happen politically with the election.

Hinds:What I think we'll see [in the industry] is a lot more risk-sharing [payer contracts], which [healthcare leaders] have been holding back on. We in healthcare, especially on the provider side of the industry, haven't had a lot of experience in risk-sharing. It's a new concept for us and it's not where we have a lot of depth and experience. It's an area that all of us have been worried about getting into, but we'll have to get in there and figure it out. Reform was always going to happen in our industry anyway—it was only a matter of timing.