How Hospital Forecasting Just Got Tougher

Healthcare CFOs may not realize it, but they've been promoted to CEO—Chief Everything Officer. With all that's happening in healthcare and so much riding on making the correct strategic financial decisions, CFOs now need to know everything not only about the bottom line but the patient front lines as well. There are no longer any initiatives that don't tie back to an organization's coffers, which makes one thing certain: the CFO has the most challenging job at the organization.

Take the recent Supreme Court ruling on the Patient Protection and Affordable Care Act. Financial leaders need to understand the intricacies of this decision in order to calculate its impact on the revenues and reimbursements of their individual organizations. However, even the U.S. Congressional Budget Office is finding this task challenging.

This past week, the CBO released a revised estimate of the impact the PPACA will have on the government budget in light of the U.S. Supreme Court's ruling. The upshot is a reduced cost of an estimated $84 billion over 11 years, the majority of which will come from states that opt out of participating in the Medicaid expansion.

Interestingly, since Medicaid is funded by both federal and state government programs, the states that opt out of participating in the expansion will also receive less federal Medicaid money. The CBO projects that approximately 6 million fewer people will be covered by Medicaid because of opt-outs.

The opt-out wrinkle makes financial projections essentially guesstimates. The CBO analysts ran different scenarios and settled on numbers "in the middle of the distribution of possible outcomes."

Others are trying to figure out the CBO's breakdown. "We're doing our analysis of the CBO report," says Paul Keckley, PhD, executive director at the Deloitte Center for Health Solutions. "Six states have announced they aren't going to participate in the expansion and there's another 12 states run by 'red state' governors that could opt-out. So, I don't think anyone can predict what's going to happen."

Overall, the CBO and the Congressional Joint Tax Committee now estimate that "fewer people will be covered by the Medicaid program, more people will obtain health insurance through the newly established Exchanges, and more people will be uninsured," the CBO wrote.

What does this mean? As Keckley notes: "Ten percent of employers dropped health insurance coverage in the last decade for no other reason than the cost, and another 10% are expected to drop it in the next 10 years. So regardless of what takes place with the Affordable Care Act, the healthcare system will be turned upside down."

Deloitte's recently released 2012 Survey of U.S. Employers, which polled employers with 50 or more workers about the healthcare system, found that most employers do not intend to drop health benefits coverage. However, 9% of companies representing 3% of the workforce anticipate dropping coverage in the next 1-3 years. Still another 10% of companies, representing 13% of the workforce, are unsure about their coverage. The report cites prohibitive cost as the driver that may lead employers to consider dropping healthcare coverage.

The state insurance exchanges pose another conundrum for finance leaders, who won't know how many of their employees may move on to these plans or what the payment rates will be. Insurance exchanges essentially will bring together private health insurance companies, along with a government health insurance option, which will compete for business among individuals and small businesses.

Keckley says Deloitte is forecasting that insurance exchange reimbursements could be at or below the commercial payment rate, but probably lower. "We think the exchanges will pay providers between 90% to 120% of Medicare rates, most likely 90% [of the Medicare rate]. So there will be a lot of focus on the erosion of bottom line," he says.

This means financial leaders need to have a handle on their local and national political scenes and must make educated guesses on how the PPACA ruling will be interpreted by their state, as well as how it could impact reimbursements and patient volumes. In other words, they need to know everything.

All of this should make budget forecasting increasingly difficult for CFOs at a time when hospitals and health systems need more financial certainty than ever to pursue plans for growth, improve patient care, and make required technology upgrades. Being the Chief Everything Officer won't be easy.