Half Blame Feds for Healthcare Industry Mess

This article appears in the February 2012 issue of HealthLeaders magazine.

Almost half of healthcare finance leaders (42%) feel the healthcare industry as a whole is on the wrong track, and more than a third (34%) are undecided as to whether healthcare is on the right or wrong track, according to the HealthLeaders Media Industry Survey 2012.

As finance leaders prepare for Medicare and Medicaid reimbursement cuts and the demanding transition year leading to the 2013 full implementation of meaningful use, ICD-10, and other healthcare initiatives, the daunting nature of the big picture may be influencing their collective opinion of 2012.

"CFOs will feel less positive in 2012 because there's so much unknown. It doesn't seem like we'll know where we're going until much later in the year. With everything else we have to deal with, we are going to be faced with sequestration and the elections. These are also going to have a significant impact on our futures," says Ann Pumpian, senior vice president and CFO at Sharp HealthCare, a not-for-profit integrated regional healthcare delivery system based in San Diego.

Where do finance leaders place the blame for the uncertainty they feel and the overall healthcare industry mess? According to the survey, the government (48%) and health plans (21%) are to blame. Finance leaders are more likely to point the finger at the government than the 40% of respondents in the Overall Cross-Sector Report.

"There's no other answer than the government is to blame for where we are today," says Pumpian, whose system includes four acute care hospitals, three specialty hospitals, two affiliated medical groups, and a health plan.

"The government is always politically prudent, but that doesn't always bring about the most cost-effective or efficient results. Look at the accountable care regulations; healthcare providers had to push hard just to make it so the patients would be aware that they would be participating in one of these models. Or look at the paper reduction act, which tripled our paperwork," she adds.

Interestingly, while healthcare leaders point to the government and health plans as getting the industry to its current state, most survey respondents feel certain it won't be either who ultimately correct the industry's problems. Twenty-two percent of all respondents and 24% of finance leaders believe it will be the hospitals that save healthcare.

"Hospitals have the deepest pockets and those are the ones that have the ability to effect change," says Pumpian. "Now that a lot of hospitals are hiring physicians and the delivery networks are being significantly streamlined … institutions will have to become all things to all people."

Though the larger healthcare picture is causing concern for all healthcare leaders, when it comes to the state of their individual organization, finance leaders are optimistic. Nearly 60% feel their organization is on the right track, according to the survey.

This may be due to the renewed organizational financial strength hospitals and health systems are finding after several years of cost cutting, says Pumpian. Thirty-five percent of survey respondents say the organization's current cash on hand is 31–90 days, and 36% have reached 91–189 days. Moreover, half (50%) of finance leaders say they have accounts receivable days at 36–50 days, and 27% report it at 51–75 days. Additionally, 58% of finance leaders report a 2011 EBIDA/EBITDA margin of between 0%–3.5% and nearly a third (32%) report it at or above 3.6%. 

"There's a lot at stake with investment returns now, so CFO responses may vary with this answer depending on whether these are having a strong financial performance and/or if they are seeing greater operational performance," says Pumpian.

However, she notes, 2012 does offer finance leaders some certainties that 2013 lacks, which may explain why 58% of finance leaders feel positive or strongly positive about their organization's financial forecast.

"We kind of know what we're facing in 2012; that's not where the significant changes will occur. It's what's happening in 2013 and beyond that we aren't as confident about. In 2012 it's all about sharpening our focus for better operational returns."

To achieve that end and to continue to strengthen the financials overall, one area finance leaders will likely concentrate on in 2012 is growth, according to the survey. Fifty-five percent of finance leaders surveyed say their organization will be part of an accountable care organization within the next three to five years, with half expecting to be part of the Medicare Shared Savings program and only 16% planning to participate in a commercial ACO.

Adding or expanding service lines may also be on the agenda for hospital and health system finance leaders, with the survey showing the most likely areas for growth to be: geriatrics (66%), cancer centers (66%), orthopedics (64%), primary care (63%), and emergency medicine (62%). This year may also see finance leaders investing more in capital projects, such as service line expansion and technology; nearly 20% expect to significantly increase the organization's capital spending and another 36% say a slight increase over last year is planned.

Pumpian believes the majority of capital dollars will go toward technology, as hospitals and health systems strive to meet the ICD-10 and meaningful use deadlines. However, some funds could go toward long-delayed equipment and facility upgrades or physician practice acquisitions.

Pumpian says with Medicare and Medicaid reimbursement cuts and initiatives like value-based purchasing hitting in 2012, it's not surprising that finance leaders rank their top three priorities as:

• Patient experience/satisfaction (58%)
• Cost reduction, process improvement (49%)
• Payment reform, reimbursement (VBP, accountable care) (39%)

HCAHPS is the reason patient experience is at 58%, Pumpian says. "It's a major component of value-based purchasing and that's a key area for finance leaders. Plus you have to consider market share: How can you move market share from one facility to another? A lot of it comes from word of mouth from satisfied patients," she says.

Cost-cutting remains a priority for finance leaders, with 49% placing it in their top three priorities. Thirty-nine percent of survey respondents report the best opportunity for squeezing cost out of the operation will come from the labor line item. Just under half (44%) of finance leaders report they may cut labor costs by reducing employee benefits, while 38% may also implement a hiring freeze or a pay freeze (23%). 

"As a CFO, I don't think any of us see the economy bouncing back soon. We are now in the third year of high unemployment and what we are noticing is that there are fewer procedures being done by choice," says Pumpian. "People are afraid to access care now because they don't have the resources to pay for it. If [CFOs] are seeing a reduction in volume over three years, they may do permanent layoffs because they don't expect the volumes to return. Hiring freezes are one tool we use; we have to use our resources effectively."

This article appears in the February 2012 issue of HealthLeaders magazine.