How a VA CFO Cut Through the Red Tape

These days one can hardly attend a financial conference, listen to a webcast, or, in my case, conduct an interview without hearing a CFO bemoan how challenging it is to meet the demands of healthcare regulations while trying to reduce organizational costs. I'm sympathetic, but if you think it's challenging to work around the government, just imagine operating within the belly of the beast, so to speak. Reducing costs and improving quality while answering to the Congress and taxpayers is what your counterparts at the VA do all the time.

To inspire frustrated CFOs dealing with so many mandates, I asked Michael Finegan, the network director for Veterans Integrated Service Network 11 (VISN 11) to share his secrets on making cost reductions and quality improvements in a bureaucracy.

Finegan, who received the John D. Chase Award for Executive Excellence at the 117th annual meeting of the Association of Military Surgeons of the United States last month, oversees eight VA medical centers and 27 outpatient clinics covering more than 90,000 square miles in Illinois, Indiana, Michigan, and Ohio. With an annual budget of exactly $1,978,893,258 to manage, he is accountable for every taxpayer penny.

He received the Chase Award, in part, for his efforts to improve the financial performance of his region—he was able to garner a 15% increase in third-party payer collections. Moreover, Finegan's region has been able to keep the cost per patient nearly flat for the last three years ($6,504 in FY09, $6,685 in FY10 and $6,939 in FY11), no small task as healthcare costs continue to increase nationwide.

Here are Finegan's thoughts on cutting cuts, improving quality, and adhering to budget while entwined in red tape.

HLM: The next era of healthcare will require a lot of innovation to achieve all the goals set forth by the government. With so much red tape, is innovation possible inside the government?

Finnegan: When I joined the VA in 1990, it didn't take long for the mission of the organization to grab me. Not only are we providing care to a very deserving group … but I feel privileged to be a part of what I consider to be a truly cutting-edge organization. We are branded as 'government' but when you go behind that [label] and look at what we are doing here, we are so much more.

There is this idea of the government worker, but we're extremely hard-working people. You have to be creative, too, because the deck is stacked against you. But I think the fun comes from finding the innovative creative types who consider it a challenge to see what can be accomplished in a restrictive, red-tape environment—because you can accomplish great things if you go into it with the right mindset.

HLM: How do you generate financial plans when political changes can affect the direction of the organization as often as every two years?

Finegan: Our planning horizon is different. We plan on a one- to two-year cycle and we receive advance appropriations for those two years. It gives us the ability to look out 24 months—but that's an election cycle, so our planning cycle has to be much shorter.

We have the ability to spend time on our global budget, and it gets us focused on where the pressure points are that we need to work on in the hospitals and which cost centers are increasing without regard to where our next payroll will come from. That's a distraction that can get in the way of taking a longer view of quality improvement issues, and why some quality initiatives can to get pushed to the back burner by those in private sector.

We have gotten better at longer-term and mission-focused planning. We focus on quality improvement, getting data in the hands of the provider and investing in safety—because nobody [in politics] is going to argue against those. We have a capital-rich organization, particularly in the last six to seven years, but that ebbs and flows. When budgets are tight and we hear political discussions, we know our margins will be tighter.

Right now we are focusing on increasing our outpatient presence and community clinics. We've also put a lot of money into telehealth and telehealth clinics recently because we can't be everywhere for every veteran, but we want to try to make contact.

HLM: How was your region able to improve payer collections by 15%?

Finegan: At the end of the day a lot of focus still goes into the fundamentals. You look for economies of scale and quality improvements; we find those investments make a return to the bottom line. But if you're not spending at least half your time on patient safety and quality, then you're leaving money on the table.

We also squeezed the lemon on our [vendor] contracts, but we're getting less savings juice from that now. Cost reduction is an opportunity to put in some Lean process improvement in place. We applied it to improve our flow management and also to our revenue cycle. We are rapidly moving through value stream mapping on other areas, so we're making more progress with Lean.

For our charge capture, we looked at our documentation—was it solid? And we did coding audits. There was really no magic to finding cost savings, but it did take a lot of discipline and focus. You have to get the low-hanging fruit but you also want to be sure you'll get sustainable performance.

[VISN 11] also has a decreasing number of veterans with third-party insurance. Since we don't score charity care, uncompensated care, and bad debt the way it can be done in the private sector, we need to compensate for that. For us it's part of our mission to help these vets, so if our [insurance earnings] are decreasing, we have to maximize what we get from the basic insurance.

When we get a budget increase, we need to show how we used that. Did we see more veterans? Then we need to show how many more veterans the system was accessible to. How did we improve our quality and patient satisfaction, and how many more new programs did we create? We measure the outcomes at the back end of our scorecard to see how much further we are stretching our dollars. We measure our margin not in margins … but look at the real value equation of access to care and quality versus cost.

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Although the VA has a unique set of circumstances surrounding funding, the fundamental challenges that VA facilities face are the same as in the private sector, Finegan says. "We have physician relation issues, access to capital, and getting the data," he says. "And our leadership is also looking to improve patient flow, quality, and safety while seeing some standard, good ol' fashioned savings. Healthcare is, in my mind, the ultimate unsolvable problem, and it will keep explorers like me in challenges for our entire career. But that's what makes it truly exciting."