With revenues from commercial and federal payers precipitously dropping, and mandates for reporting and quality dramatically climbing, what is the thoughtful hospital CFO to do?
How much should be invested in ICD-10 technology, which is mandated by the government to take effect in two years, if productivity and revenue may drop as a result?
How much emphasis should be placed on value-based purchasing and accountable care–style alignment with physicians? And at what point can a CFO determine whether to expect these initiatives to pay off, or advise his or her fellow executives to just move on?
And overall, how can hospitals and health systems take on the tough task of reducing costs – by 10% or 20% over the next five years – while maintaining high quality of care in the best interests of patients?
Those were among the questions weighing on 28 healthcare CFOs, as they gathered at HealthLeaders Media’s inaugural CFO Exchange event Thursday at the Lodge at Torrey Pines in La Jolla, CA.
Concerns Over Care Coordination
Crystallizing the comments of many attendees, Jerry Arndt, senior vice president of business services at Gundersen Lutheran in La Crosse, WI, described a recent dilemma:
"We have a care coordination program that we use for 1-2% percent of the sickest patients that we take care of," he said. "We spend about $3 million on nurses to run that care coordination program, helping people with medication management and getting their periodic treatments in a timely fashion...to save the government $18 million of what would have otherwise been revenue coming into our place because those patients are kept out of the hospital."
Gundersen Lutheran, he continued, is doing the right thing for patients in the belief that over the long haul, those types of programs "will fit well into the way healthcare is delivered and the way we finally deal with this cost crisis we've got."
But from a strictly financial standpoint, he continued, healthcare CFOs everywhere are asking, "Is that a safe investment?"
Last month, Arndt continued, Donald Berwick, MD, head of the Centers for Medicare & Medicaid Services, visited La Crosse to get examples of ways hospitals are reducing costs to benefit CMS, the kinds of programs hospitals would be doing more of if "there weren't perverse disincentives," Arndt said.
Arndt described the care coordination program and asked Berwick, "How much more of this can we afford to do before it becomes really financially stupid?"
Arndt said Berwick thanked him for the $18 million. "And I said, you know, if you would just make it financially neutral for us to do more of [these kinds of programs], there's more of those $18 millions" that would accrue to CMS, Arndt added.
Hospital and healthcare system CFOs convened in small groups at the CFO Exchange to discuss the importance of investing in value-based purchasing improvements, in order to take advantage of financial incentives that CMS will reward to hospitals providing higher-quality care.
One hurdle for value-based purchasing is getting nursing staff and other employees to understand its importance. "They're not concerned about what we get paid," said Charlie Hall, executive vice president and CFO of Piedmont Healthcare in Atlanta. Senior management can try to influence behavior with bonuses and other incentives, but "money is not an issue with nurses. They're concerned about care, appropriately so," he said.
Ann Pumpian, senior vice president & CFO with Sharp Healthcare in San Diego, and James J. Moylan, vice president of finance & CFO of Griffin Hospital in Derby, CT, said that while value-based purchasing is important – since the public will be able to see and compare hospitals’ scores – CFOs can only do so much.
And after that, Pumpian said, "you move on to the next fire, because there are plenty of fires to go to."
ICD-10 a High-Ticket Item
Another urgent matter for healthcare CFOs is the cost of purchasing, implementing, and training on ICD-10 software. This is the next generation of coding technology, which adds two decimal points of detail, and tens of thousands more complex options, to how hospitals will have to submit claims.
The most recent HealthLeaders Media Industry Survey found that 60% of leaders surveyed expect short-term cash flow to be negatively impacted both in terms of project resources and lost revenue.
Karen Testman, senior vice president of financial operations for MemorialCare Health System in Fountain Valley, CA, said her hospital system is looking at an expenditure of $8 million to upgrade its coding system for ICD-10.
A major problem is training enough personnel to understand the new system and code properly for care services, she said. So MemorialCare plans to partner with several community colleges to tailor programs that train new coders, and help current transcriptionists with a career transition after electronic health record conversion eliminates the need for their services.
Many financial officers at the CFO Exchange said they believe actual ICD-10 costs will be far higher than what has been estimated, especially after their employers launch trial runs.
"It's kind of freaked out our project manager when we said ICD-10 had to be part of our EPIC [software] system. She wasn't prepared," said Michael Burke, senior vice president, vice dean, and corporate CFO for NYU Langone Medical Center in New York City. "So it's going to cost more. The amount of training is higher than we thought in our estimates."
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