Budgeting is a lot like dieting—no one likes to do either, but most of us know there is value in taking action when we've gone astray. What makes dieting hard is know what to cut and what not to cut and the same is true when it comes to lasering in on where the fat is coming from in your own hospital budget.
Think of your budget a bit like the food groups, labor is the protein; while it has some fat, ultimately you need it for your body's overall health. Then there's technology, which are your carbohydrates—they fuel other initiatives and give the organization a quick boost of energy. Not unlike how carbs are in our own bodies, if you get too many you just get fat. Fruits and vegetables are your supplies—you really can't live without them, but they are costly at the store, so you need to pick and chose which ones you really need.
Then there's the dairy—who doesn't love cheese and ice cream—these are your non-tech capital projects. Your organization needs them, but not too much or too often. Lastly are your oils, fats, and sweets—these are your special purchases, conferences, travel budgets, etc.—they have their purpose, but they should be used sparingly and monitored rigorously.
Unfortunately, like our own diets, we often get fat on the areas that we think are keeping us fit and sometimes the areas we thought were making us fat, like labor costs, aren't necessarily the ones that should be trimmed. Last year, 215-bed Floyd Memorial Hospital in New Albany, IN, went on a diet. They implemented a non-salary cost reduction and clinical quality value analysis initiative that helped it save nearly $3 million in 18 months. Now that's a great budgetary weight loss plan—slow and methodical.
Along with their teams, Ted Miller, CFO and vice president at Floyd Memorial, and Dee Donatelli, Vice President at VHA Inc., an Irving, TX-based cooperative that works with 1,400 not-for-profit hospitals and 24,000+ non-acute care facilities, reviewed best practices and examples from other organizations, and utilized their existing technology tools and gathered analytics to identify the additional $3 million in cost-savings.
"When we began doing financial forecasting one of the things that drove it was benchmarking. You start to look at where your opportunities are in labor and supplies," says Miller. "We worked with VHA to do a global spend analysis to see if there was an opportunity to launch clinical quality analysis and reduce supply expenses."
Rather than slice staff to reduce labor costs, Miller and Donatelli looked at process improvement and supply chain. Donatelli says the CQVA was designed to establish a process that works with the hospital's culture to teach staff how to shave costs in the supply chain operations process without affecting quality. They also look at benchmarking and productivity measures to bring down labor costs.
"Every place I've ever been says they do a value analysis. My challenge to get them to realize who's responsible for supply chain management—it's everybody's job," says Donatelli. "You have to engage the staff at all levels, because ideas can come from anyone from the physician to the housekeepers. Hospitals are still very wasteful."
It's staff and stuff that make up the cost for a hospitals, so Donatelli says if your staff becomes better stewards of your stuff then you won't have to cut staff to keep costs down. At Floyd Memorial the process engaged physicians to align their goals with the hospital's—an area that many experts believe will be the key to the successful implementation of any alternative payment structures, such as bundled payments. Floyd Memorial also focused at the executive level on identifying opportunities to improve the hospital's position in a very competitive market (consider that exercise for the occasional overindulgence) to ensure success.
"We used a Thomson [Reuters] system in order to do labor productivity monitoring on both the organizational and departmental levels and used a tool to compare by department how productive we are against our peers," added Miller. "In terms of savings, we have reduced our expenses, but we have also reset them—so there may be some areas you want more resources or key service lines we want to focus on and this helps us put our resources are where we want them to be."
Donatelli says that the goal is to get the hospital to use the most economical process and then work with the doctors to ensure they are being good stewards in standardizing. VHA encourages hospitals to focus on their cost centers and then take them all and group them onto about six teams (e.g., ambulatory surgery and various labs may be under perioperative). "By doing this we can calculate exactly how much the team spends on the total supply pie," she says.
A few other keys to success at Floyd Memorial, Donatelli says, are their:
Ability to gather the data necessary to make decisions quickly.
Creation of a consistent documentation process to help support decisions.
Consistency and support from executive leadership of the program.
Enthusiastic management of the program, including visual reminders such as posters that included their guiding principles, for the rest of the staff to see.
Healthy competition; by having each team report out their supply stats and encouraging them to do better than their peers.
"You gotta keep it fun and interactive and look for creative ways to keep your staff engaged. After all, they are really not there to save the hospital money; they're there to save lives," she says.
As with all diets, once you've lost the weight your battle isn't over. Generally you must look for ways to tone up and maintain your loss—which is why Floyd Memorial's people don't intend to rest on their laurels. Miller says they are continuing to look at other non-salary cost reduction opportunities, including those around purchased services and physician preference items to drive long-term, sustained results. Now that's an approach that should keep their facility lean for many years to come.
Note: You can sign up to receive HealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
In a move that would signify the largest initial public offering (IPO) since Visa's 2008 offering, the Nashville-based hospital chain HCA, Inc. is allegedly preparing to raise at least $3 billion through an IPO. The move would help HCA pay off debt, according to Bloomberg news, which quoted two unnamed sources with knowledge of the matter.
So, HCA first added to their debt by going from public to private with their landmark sale four years ago; now, it looks like they may be looking to help shrink their debts (which include that sale) by going from private to public—interesting approach.
Did they have this in mind all along? It's possible. In 2007, our former Senior Finance Editor, and current Senior Leadership Editor, Phil Betbeze spoke to experts who pondered whether a shift from private to public would be in the near future. Low and behold, just a few years later it may become a reality.
Betbeze wrote that HCA has "a record of taking private what they see as an undervalued company and redeploying it to the public markets after reshaping it." HCA went private once before, in 1989, when HCA teamed up with financier Richard Rainwater for a $5.1 billion leveraged buy out at a time when the hospital was concerned about a hostile takeover.
Interestingly, the 2006 merger of private equity investors Bain Capital, Kohlberg, Kravis Roberts & Co. and Merrill Lynch Global Private Equity with HCA, Inc. cost investors $33 billion. In fact, the deal actually put the health system into debt—earning them a debt load seven times the cash flow to execute. Nonetheless, the move made HCA, Inc. the largest hospital chain in the U.S. with 163 hospitals and 105 outpatient-surgery clinics in 20 states and England.
Moreover, the IPO move is one which many financial experts say could entice new investors to invest in the hospital industry, which is now amped up with the anticipation that the recently passed health reform act may provide them with the financial shot in the arm they've been awaiting.
Why? IPOs are among the most closely followed events in the stock market, though they lost some of their shine after the frenzy of the late 1990s when sales of internet start-ups became the norm to raise millions of dollars. IPOs mark the transition of a company from a privately held to publicly held firm and if you're an investor looking to get into healthcare, the HCA IPO would be a great opportunity.
Further, the timing couldn't be better for HCA and investors, as healthcare reform will likely lower charity care and uncollectible bill losses, according to comments made by Barclays Capital analyst Adam Feinstein in a note to investors late last month. HCA plans to interview banks to underwrite the sale in the coming weeks and the sale is expected to take place later this year, according to the Bloomberg article.
So what does a sale like this mean to healthcare overall? Many financial experts are hesitant to comment on the, as yet, unannounced IPO offering. Nevertheless, you can bet your bottom dollar that if an offering like this does successfully take place, it will likely spark other facilities in similar positions to consider it as a way out of their dire straights.
Note: You can sign up to receiveHealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
Hospitals nationwide spend billions to treat patients who are too poor to afford care or medicines. They spend even more trying to find ways to recoup some of the financial losses they sustain from this treatment, including drug expenses—often working diligently to enroll these patients in a variety of programs that will help pay for their care.
Healthcare reform legislation should help many of the folks who can't afford care, however the Medicare pharmaceutical reimbursement levels may still not adequately help. Regardless, hospital financial leaders charged with the task of finding ways to save money now, and not later when the law takes affect, need to take action to find savings for every line item in the budget.
Hospitals spend thousands to put databases into place and train staff for their patient assistance programs to try to recoup some of the uncompensated care losses, so wouldn't it be helpful if you didn't have to spend a dime to address this problem but got a return on your non-investment?
That's right; like the patients, hospitals can also get something for nothing.
Your pharmacy and patient advocates can work with your patients to potentially save you millions—that's money that stays on your bottom line—through bulk purchasing and better patient assistance. It's not a new idea, though it is free. I'll explain. The non-profit group NeedyMeds, based in Gloucester, MA, is a free service that works with hospitals and patients to assist them in finding the applicable healthcare programs to help with the cost of prescriptions and disease-related expenses through bulk purchasing.
Based in Richmond, VA, 779-bed Virginia Commonwealth University Health System (VCUHS) spends nearly $28 million for outpatient drugs annually, and they are always interested in ways to save in this area. Donald Price, business manager of pharmacy services at VCUHS, explains that his predecessor started the savings search when he connected the facility with a specific drug manufacturer and later Needy Meds. Through the use of both programs, they have saved nearly $2.5 million annually. Hardly a paltry sum when you consider that they didn't need to invest any money to reap the benefits.
Price explains that in 2000, the former pharmacy director began working with the biopharmaceutical company AstraZeneca to get a bulk replacement program. The negotiations included an agreement that the drug manufacturer would accept the hospital's screening process for eligible patients. The hospital and manufacturer collaborated with the University of Virginia to create guidelines for indigent patient services at the hospital.
"When a patient comes in and requests financial aid for one of the state programs, they sign a form that authorizes us to use their information to get bulk drug replacement services," says Price. "But for a successful patient assistance program you have to have financial consulting people on board, and IT and financial technology to verify Medicaid coverage."
While the arrangement with AstraZeneca was paying off in savings, VCUHS needed more than one good bulk program to garner larger savings. That's when they began working with Rich Sagall, MD, and president of NeedyMeds.
"Through NeedyMeds we deal with 11 manufacturers for bulk replacements," explains Price. "We dispense drugs for $4 through the program and [the manufacturers] replace them one-for-one."
The NeedyMeds Web site can be used as a connection point for both the Patient Assistance Programs at the hospital, but hospitals can also encourage their patients to use the database to search for reduced- or no-cost prescriptions. The database tracks 2,200 pharmaceutical programs and 11,000 low-cost, sliding scale clinics.
"Hospitals can enter the demographics, the medication, and the physician and then print an application for the medication which is submitted to the pharmaceutical manufacturer," says Sagall. "The hospitals patient assistance program helps the patient apply to get the replacement drug and that can save millions of dollars for the hospital. The program can also help determine which drugs are covered and which aren't."
Though the pharmaceutical replacement programs have been around for years, ferreting out which company will pay for which drug is time consuming and ever changing. In the past to recoup the cost of these drugs, patient assistance representatives would need to go through each manufacturers criteria and application process. However, with the NeedyMeds program that information is compiled on one Web site and all the criteria are at the hospital representative or patients fingertips. By using a database such as NeedyMeds, hospitals can recoup some of their losses while ensuring their patients get the drugs they need.
"More hospitals are using this, and it just makes sense from the point of view of good medical care, as well as financially. Ultimately, the biggest benefit is that the patient won't likely be coming back into the emergency room," notes Sagall.
The big question isn't whether you want to save money in your pharmacy line item or whether you want to be sure your patients are getting the best care they deserve. In recent years, these programs have given away as much as $6 billion in pharmaceuticals to patients and hospitals, so the big question is how much of that pie should you be getting for your facility, and are you getting all that you are entitled to?
Note: You can sign up to receiveHealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
Occasionally, I offer my opinions on healthcare finance, though I much prefer to offer financial leaders ideas on how to fix what ails the hospital rather than pour salt into already well-swollen wounds. Healthcare reform is one topic I have bypassed in my columns, and there is a reason—I generally prefer not to comment on something until it has come to pass, and there were more than a few moments in the last year that it seemed the healthcare reform bill might not do so.
But here we are, as of March 23, President Obama signed the Healthcare Reform Bill into law and now financial leaders are left to deal with the ramifications of that legislation in the years to come.
Now, there are oodles of areas of concern that I have with this new law. A few of them are:
1.) Tax-exempt status. An estimated 23 million Americans will remain without insurance coverage. Spread that out among hospitals nationwide, and assuming they all need care at some point, and hospitals will see a large portion of their uncompensated care losses disappear.
Seems like a reason to celebrate, but what affect is this bill going to have on not-for-profit hospitals' non-exempt tax status? One of our guest writers tackles this topic in some depth this week, and it offers some insights on what you may see in the coming years.
2.) Credit rating. You've been working on getting your hospital's credit ratings back in order; alas this legislation won't make that process easier. In the March 22 "Moody's Weekly Credit Outlook," the investor service says "most for-profit and not-for-profit hospitals should be able to navigate the implications of healthcare reform relatively unscathed." However, that's just through 2014 when the effects of the legislation really kick in.
Then the Moody's predictions change a bit: "Long term, we believe healthcare reform will be neutral to modestly positive for for-profit health systems, mildly credit-negative for pharmaceuticals and medical device manufacturers and negative for not-for-profit hospitals." Moody's says the reason is that stricter government auditing will force hospitals toward greater operational efficiency. Which begs the questions, how operationally efficient is your facility, and will this legislation affect your credit rating?
3.) U.S. economy. What does this bill mean for the almighty dollar? We're not out of the woods economically, folks. It's been surmised the healthcare reform bill means an additional expenditure of $940 billion that will be spent over the course of a few years. Some experts say with the already enormous deficit the government will have to print more money, there by devaluing the dollar, or borrow more. As any CFO will tell you, more debt means great default risk and this could put the country at greater risk for losing its AAA credit rating. That's not good for anyone. But other factors will play a role in that rating such as unemployment, which brings me to the other area on which you should be focused.
4.) Small business. This bill has a lot in it that might help small businesses weighed down by the burden of offering health insurance to their employees. Then again, it depends on what you consider to be a "small business." Beginning in 2014, employers with 50 or more workers could face federal fines for not providing insurance coverage. Several of the other changes would take effect much sooner. Assuming the economy turns around by 2014, this might be something these employers could financially handle; on the other hand businesses that are teetering into troubled waters may not. Not to be a pessimist, but that could lead to layoffs or business closures. If that happens, financial leaders may need to ask, how do we insolate our hospital against losses in charitable donations and the like?
All of these concerns are good food for thought; but my questions are just the tip of the iceberg when it comes to the possible challenges financial leaders will face due to the healthcare reform law. I know many healthcare leaders are filled with mixed emotions as well as questions about this new law. Now is your opportunity to sound off about this law—good or bad.
Tell me how you anticipate healthcare reform affecting your hospitals, and I'll see if the experts think your concerns are justified.
Post your comments and questions below or email me directly. In future columns, I'll try to address as many of your questions as possible. Let me talk to the experts for you and you can save the cost of hiring an expert.
Note: You can sign up to receiveHealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
Remember the economic heydays of the Reagan years? Then, you may recall a footnote in history about the former First Lady Nancy Reagan trip to her psychic. Back then people laughed at the notion of seeing a soothsayer to know your future, but then again it was an economic boom time (well, most of it was anyway).
Of course, these days, most CFOs would probably love to have someone look at their collective palms and tell them where to trim the budget next or where to grow their facilities. Not to worry, I'm not suggesting you find a local swammy to guide your budget process, but you may want to invest in predictive modeling.
This technology has come a long way from data trending and is now being used to actually help not only predict areas of business ripe for growth, or rife with loss, it can also help with patient care. Just ask Kathy Jardone, COO, RN, CRRN, at Community Health Partners in Naples, FL. She and the team of nurses at this physician hospital organization, which serves patients in Collier and Southern Lee counties, are using predictive modeling that they say can help save lives and money.
In early 2009, Jardone says Community Health Partners began working with First Service Administrators, Inc. (FSAI) and a technology called D2Explorer, which is a Web-native, Application Service Provider product that leverages data to identify, manage, and minimize financial and clinical risk related to a population. The technology also offered them identification, financial trending and reporting, utilization and clinical care gaps, and a comparison against normative benchmarks. These are just a few of the capabilities of some predictive modeling programs.
"With this, we've already been able to detect two patients with breast cancer early on and get them into the system for treatment—we estimate that's about a half a million in savings right there," explains Jardone. "We want to stay solvent and save money, but outcomes are the most important thing to us."
Prior to adding the new technology to their system, nurses were often cross referencing data in multiple systems, Jardone says, and they were unable to see key indicators that might help them catch patient problems early on, such as if a patient had failed to renew their diabetes prescription or if they hadn't come in for their annual physical but they have a history of high blood pressure.
By adding this technology, the staff was able to pull all the available data sources into one view screen, Jardone explains, and then nurses could readily identify specific areas where interventions would have the biggest clinical and financial impact.
Now, when a patient presents, Jardone says, the nurses are "proactive rather than reactive." While it's still early for Jardone to present return on investment in dollars, she says they are already seeing it in the quality of care the nurses can provide. However, they anticipate that the money they save will likely end up on unnecessary emergency room visits. In the meantime, Jardone says they are tracking both the soft and hard return on investments for this predictive modeling technology.
How it works
Each predictive modeling product approaches the process differently however; this is how the vendor that Community Health Partners chose tackles it. FSAI, which is based in Lakeland, Fl, is a risk management company. They work with a Waltham, MA-based company, Verisk Health, Inc., to leverage the data so facilities can understand their medical and financial risks and thereby manage costs and clinical outcomes more effectively.
It works like this: Community Health Partners provides FSAI with the hospital's insurance claims data every 30 days. They then forward it to Verisk for the data to be scrubbed and statistics to be pulled from these materials. It is then sent back to FSAI where they analyze and interpret the data.
Doug Berman, senior vice president of strategic partnerships for Verisk Health, explains the data is aggregated in one place and sorted, and they work with FSAI to understand where the current spend of the facility is in terms of cost and network metrics by provider and disease.
"This gives the hospital a look back on what is driving their costs, what the trends are, and what the current situation is," he says. "The second component of this is it offers a look forward, and that's how you mitigate risk. This allows for proactive planning and medical management of the clients."
This predictive modeling insight can help determine which care management program is best for clients, which may need to grow, and the location of possible cost savings.
Once FSAI has all this information, they take it a step further; they interpret the results by identifying, analyzing, and predicting the healthcare risks. But what makes this interchange so important isn't just the data they capture, it's the predictive modeling that follows; this can offer CFOs insights on where to attack costs next or, more importantly, where to grow.
Predictive modeling is the type of tool that can offer financial leaders some peace of mind in making hard decisions as to where to concentrate your spending on—especially in an uncertain economy.
"By using this type of tool, [financial leaders] can look at opportunities for improvement, overall costs, and you can even stratify the information by subgroup," explains Kathleen Sullivan, R.D., FSAI executive vice president of business solutions.
"They can pull out the most at-risk patients and, with 30% accuracy; they can pick out the folks that will be back in the hospital within next six months. So you can go in and grab those people for clinical outreach," she says.
Catching patients in the early stages, helps reduce trips to the ER—always a big money saver for hospitals, but more importantly it's a lifesaver for patients. Predictive modeling is the proverbial crystal ball on what ailments to anticipate in your patient base in the future. It can't quite pinpoint which patients will fall pray to illness in the next year with 100% accuracy, but it can catch some early warning patterns early on. That allows your staff to get those patients the treatment they need before an illness becomes a costly visit to the ER.
It doesn't take a fortune teller to tell you the future has arrived and predictive modeling has a multitude of positive financial and patient-related applications.
Note: You can sign up to receive HealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
The hospital and third-party payer relationship is an intensely inharmonious union between two entities that have two common goals—to make patients well and to get paid well in the process. For years hospitals would send in reimbursement claims and insurance companies would approve some and reject others for a variety of reasons.
The denials would then become a ping-pong match of requests for additional documentation and explanation. Denied claims could take months, and occasionally years, to fully resolve, leaving both parties dissatisfied, and money-sapped, by the whole process (though some might say the process was originally designed to be intentionally inefficient, that's another story).
After years of this back and forth, it was high time for one of these two players to say "Enough! Let's work toward achieving our common goals together by solving these unnecessary denials." As they say, there's genius in simplicity, and what I'm about to share with you is almost Einstein-esque.
A Light Bulb Moment
Just as thousands of hospitals spent the last couple of years analyzing their costs and looking for innovative ways to reduce them, insurance companies like Blue Shield of California were looking for innovative ways to reduce their costs. They look at their claims process and recognize that it is notoriously difficult, and is plagued by complex contracts and inefficient systems to process claims data. Furthermore, human error often slows the process and leads to frustration and cost overruns. Then, it hits them, "What if we collaborate with a hospital to try to reduce the number of unnecessary claims missteps before they occur?"
It wasn't long after this light bulb over the head moment occurred that Blue Shield of California created their Partnership in Operational Excellence and Transparency program. POET entails Blue Shield of California partnering with nearly 100 hospitals around the state to offer transparency around claims data in an effort to reduce waste in the system.
POET is designed to help hospitals to see the claims process more clearly through a web-based dashboard which displays reports on claims performance, including details on cycle time, submission types, denial percentages, and appeals. The result: the hospital and the health plan can make informed, data-driven decisions and better manage revenue cycles by speeding up reimbursement decisions.
"I initially heard about this program at the conference. I was impressed by Blue Shield of California's willingness to say we have a problem and we can lower costs on both sides. Then they put forth a streamlined denial resolution process and a better information sharing process to deal with these types of claims," says Richard Igram, vice president for contracting at St. Joseph Health System in Orange, CA.
"There seems to be a mistrust of the insurer. Our job is to get what we believe is owed under the contract and historically we've viewed theirs as looking for ways to hold on to the money. But this is counterproductive. Each side knows it needs to have a relationship with the other," explains Igram. "So when they say we are laying ourselves open to you to hopefully improve the claims payment processing cycle; you pay attention."
St. Joseph Health System, which includes 14 facilities and generates $3.69 billion annually in net revenue, began working with the POET program just more than a year ago. Igram connected with Juan Davila, senior vice president for network management for Blue Shield of California, whom he had worked with during numerous contract negotiations over the years.
Blue Shield of California acknowledges that in the past insurers and the hospitals haven't had a symbiotic relationship. "There's a trust level there you need to build and you do that by having a sincere dialog," explains Davila.
St. Joseph's and Blue Shield created a team to work together on claims that encountered problems. The goal was to ferret out issues that occur frequently that can be readily addressed on either side. For instance, the hospital expressed concern over why the insurer's claims examiners would request an entire patient file be sent to them when what was really needed was one page of documentation.
In some instances a patient file could be are hundreds of pages long and having to send them that type of excessive and unnecessary documentation was time consuming on both sides—for the hospital to photocopy and for the insurers when the examiner needed to wade through so much material to find the appropriate piece of information. Now when Blue Shield asks for this type of documentation, the hospital takes a photo of the size of the file and sends it to them with a request for them to narrow down what it is that they need for additional documentation.
Blue Shield of California wasn't the only one who needed to refine its processes; St. Joseph's also recognized that they weren't doing everything they could, too. For instance they weren't submitting their Electronic Data Interchange (EDI) with all the necessary information in all the right places, and that was causing delays on their side. "We both have to work to figure this out. My team has been very receptive to this program and it's helped us identify and improve other areas to improve such as coding," says Igram.
Davila says that by discussing this process with both sides they were able to look at the denial and appeals patterns and see different process patterns emerge, and then work to correct them.
"This is the first time in my 20 years of doing this that we are all problem-solving together and not finger-pointing," he says.
So far, the collaboration is paying off. Davila says that Blue Shield of California has seen St. Joseph Health System claims denials shift from 20.5% in 2008 to 12.2% in 2009, and their EDI cycle improved from 15.8 days in 2008 to 13.9 days in 2009.
Currently, Davila says Blue Shield of California is the only third-party payer to provide this type of collaborative approach to claims processing, however, his team recently presented this program as a best practice at a national insurance conference. Whether it takes off nationwide or not, Blue Shield of California plans to roll the program out to all 350 facilities enrolled in their network with the hope that everyone can begin to realize greater savings in this process.
Note: You can sign up to receiveHealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
I was in Mexico recently on vacation. As my husband and I rode the public bus into Cancun city, we heard a sad tale.
A man from Cozumel stood at the front of the bus and told us about his daughter who was gravely ill, suffering from hydrocephalus or "water on the brain." The equipment needed to help treat the ailment and keep the 13-year-old alive was only available at one hospital in this part of Mexico, a naval base in Cancun.
As any parent would do, the adolescent's father—a bus driver himself—moved from Cozumel to Cancun to get treatment for his daughter. Upon arriving, he learned that it would cost him $2,800 per week for the treatment, not including surgery.
Now, my husband speculates that this gentleman may have inflated the number to add "umph" to the story, but as there was no way for me to verify it, I will go with it. Even if the number is inflated, in a country where the peso to U.S. dollar is approximately 12:1 and the average worker earns 57 peso per day with no health insurance, a price tag like that is devastating.
The tale got me thinking about how hospitals in the U.S. share costs with their patients—or don't share until after the fact, which is more often the case. And that's interesting, when you really ponder it.
I speak to a lot of financial leaders as well as their bosses, and they are all concerned about the rising numbers they see in uncompensated care and self-pay patients coming into their facility. The latter are perhaps of bigger concern because they are the unknown—many of them have the potential to become a loss on their bottom line.
It's the self-pay patients that actually remind me of this Mexican father. Today in America so many of our friends and colleagues are out of work and those who are fortunate enough to have jobs have higher deductible health insurance plans. Two-income families are now single-income and everyone's wallets are feeling the crunch. Folks are trying to be prudent with their dollars—sticking to budgets and weighing the costs of everything from a pack of gum to getting their car serviced.
Yet, if a family member gets sick, they have no idea how much care will cost. How much is a primary care visit? How much is treatment for a sprained ankle in the ER? It seems few hospitals are able to say, or even approximate.
It's annoying to the patients, but to me it seems contrary to one of the key goals facilities are striving for: to be more patient friendly.
Patients have been calling for bill transparency for years, yet most U.S. facilities don't answer the call. Moreover, many facilities opt to bill patients after treatment and don't offer patients so much as an estimate of what their services will cost.
It makes little sense why in this technological age, every single U.S. hospital cannot print out an estimate of cost on, at the very least, their most frequently used services. Certainly, after years of doing business, facilities have an idea of how much it costs to have a gallbladder operation or to set a cast.
With a tentative diagnosis, a hospital billing department should be able to offer some general billing information to the patient in advance. Perhaps even two estimates—a best and worst case scenario set of bills. It seems preposterous to me that I can get an estimate from my veterinarian for my dog's surgery, but not one from the hospital up the street for my own.
As a healthcare writer, I know more than the average patient and yet I'm frequently left dumbfounded by these seemingly simple actions that could be taken to make patients' lives easier and invariably give hospitals a better upfront chance to recoup payment for treatment.
I have consistently found that it is the hospitals that immediately offer me an excuse as to why they cannot provide an estimated bill for a patient that are also often the ones who are financially struggling. They immediately point to the cost and manpower required to provide such a bill and then throw their hands in the air and say, "We can't do it; it wouldn't be accurate. We don't have the money to set this up and our technology isn't there yet."
Well perhaps if you can't come up with the money, or innovation, to get it done, then your patients shouldn't have to come up with the money either. Which is what is already happening—the patients aren't coming up with the money and your uncompensated care costs are rising.
Estimates are by their nature educated guesses and with a bit of effort a series of spreadsheets can provide enough data to make these estimates a reality. If a naval hospital in Mexico can estimate a hospital bill, certainly all of the hospitals in the United States can do the same.
We are in a serious recession and even when this cloud passes, the climate will never be the same for any industry, including healthcare. Some say it is the lack of innovation and our sense of entitlement that got us into this recession in the first place. I agree. Solutions don't have to be expensive and the latest technology may be the best answer, but it isn't the only one. It's time to innovate.
Note: You can sign up to receiveHealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
There are more than a few ways to create a financial forecast, and more than a few hospital CFOs who opt not to do it. Why? I suspect it's because you're afraid to see a lousy future. I liken the rationale to that of someone running on the treadmill. I often see people at the gym with a towel draped over the little picture of the digital track on the treadmill. If you ask any of these folks why they cover that up, they'll tell you that it makes it feel easier to them. After all, when your head is down and you're running, you don't really want to know what's up ahead—especially if it's a big hill.
I suspect that those folks who "throw over the towel" are the same financial leaders who don't do financial forecasting. They are so focused on today and the coming year that they don't want to see the whole picture—it might be too scary. Now, I for one want to know exactly how much further I have to go to reach my goals—no matter how painful. Yes, I want to know if there are any hills ahead and furthermore, I want to know if there is another better piece of equipment coming to the gym that can do more for me and get me off that godforsaken treadmill.
The last couple of weeks I've been telling you about some of the results from our HealthLeaders 2010 survey. Interestingly, what CFOs are most worried about is the future. What will happen with reform? What will happen with Medicare reimbursements? It seems to me that uncertainty is what people fear most, yet the tool that could help CFOs feel at least a little more certain about these financial times is the one tool in which many of them fail to invest—a financial forecast.
Fear can be paralyzing to a business, but when it comes to finance it can bring ruin. The only defense is to prepare and plan ahead--far ahead--try five to 10 years ahead, not one year. To provide a little perspective on this notion, I spoke with Mark Bogen, vice president of finance at South Nassau Communities Hospital in Oceanside, NY. A 435-bed facility located in Nassau County, South Nassau is just 19 miles east of New York City and has a population of 32,733.
After 30 years in healthcare finance, Bogen, who prior to joining South Nassau was a director at a nationally recognized healthcare financial consulting firm and also worked for 10 years with two national CPA firms, believes in the power of the financial forecast. With over half of his facility's payer mix coming from the government (Medicare and Medicaid), a private insured and a growing uninsured population, there have been few years that he hasn't had to be concerned about the future of reimbursement.
"With the economic downturn across the country and here locally on Long Island, and with people's COBRA benefits running out we are paying even attention to the growing uninsured and underinsured population. Historically our collections have been good, but we made an additional provision in our 2009 budget for this [more uninsured], so we could be prepared," he explains.
Financial forecasting for South Nassau begins with a traditional annual budget cycle in July. They review previous year's revenues and expenses as well as short-term and long-term capital needs for the future. They look to their physician leaders to help them determine what the patient volume may be in the coming years, and to key clinical staff to determine how volume increases will be assigned.
They establish goals for physicians and track their results to determine why they may not be hitting the numbers. They also look at the government's potential impact and try to project where rates may go up or reimbursements may go down. Once they unveil the budget in January they revisit it six months later and compare where they are to where they had projected to be. In short, they do what most other facilities do.
However, in 2008 when they began this process for 2009, the rapid changes that they were experiencing in the market coupled with some of the financial results they were seeing caused them to make some major course corrections.
"We had a significant portfolio which is unusual for any hospital in this day and age, because we made an investment decision to borrow 10 years earlier when we needed to make a significant capital investment in our hospital," he explains. "[In 2008] from an operational standpoint we slowed down the new hires we had budgeted for, and we ratcheted down capital spending plans. We brought capital spending down by 25-50% and we basically stopped our plans for another major modernization project. We reacted quickly as a result of looking at our own financial situation in a rapidly declining market."
Many other hospital financial leaders stopped at that point. They reigned in their costs and then covered their heads and sat tight. South Nassau looked at trends. Realizing that they still needed to grow market share in order to survive, they also needed to forecast. However, they also recognized that predicting market share based on historical and current admissions data wouldn't provide them with enough data to weather and overtake the storm.
"We said if this trend continues with our investments and the entire economy in decline, then governmental payment reductions may soon trip us up even more," Bogen says.
They didn't go high-tech to gather the trend data—I point that out for all the naysayers who claim that financial forecasting has to be expensive—instead they used their Excel spreadsheets and created monthly dashboards for areas they needed to track. They also turned to product line forecasting. They used overall assumptions and created budgets with P&L contributions on a margin basis for all the larger programs. They started using these tools to help them look at their programs on a quarterly basis so they could correct their course quickly.
"All our department managers have this information and we recognize by looking at trends that some of our product likes are physician-driven; others are inpatient driven, and even if we aren't numerically correct down to the dollar, the forecast helps us focus in on where we potentially are making money or not making money," Bogen explains.
"We're not proponents of updating our budget every month, you do these dashboards to help you compare actual results to the budget," he says. "If you don't take the combination of the budget and a forecast into consideration you'll run aground or miss opportunity. The forecast is another tool, but it's not an exact science."
South Nassau didn't save millions of dollars by forecasting, but they also didn't lose millions—that's the point. It isn't the largest facility in the United States, nor is South Nassau the busiest hospital, but that's what makes it such a great example. All facilities should be using financial forecasting to look much further down the road than the next year. If your facility can afford to purchase a high-tech program that offers you hundreds of best- and worst-case scenarios for your financial concerns, that's great. If not, it's important to recognize the value of good old-fashioned spreadsheets and getting the help of your entire hospital team, not just the finance division.
More than a few financial leaders remark to me that they are just too small or they don't have the funds or the staff to pursue financial forecasting. To them I say, that's just an excuse. Take the "towel" off your "treadmill" and embrace the future that lay ahead—better yet, plan for it.
Note: You can sign up to receiveHealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
With nearly 92% of CFOs rating the impact of uncompensated care as a drain on their revenue stream over the next three years and the majority of hospital financial leaders surveyed in the HealthLeaders Media Industry Survey 2010 expecting uncompensated care numbers to worsen in the next year, you might think that other areas such as patient experience might slip from importance—but you'd be wrong.
Interestingly, the HealthLeaders Media Survey results also indicate that healthcare leaders are placing a priority on patient experience and patient-centered care, which at first blush may seem to juxtapose the challenge hospital leaders face with uncompensated care. However, some hospitals and health systems are taking a proactive stance toward offsetting the current and future uncompensated care costs while improving their patient experience.
In part two of this two-part series, I asked CEOs how they and their teams are addressing uncompensated care in terms of patient experience at their facilities and how it's helping them survive and thrive.
UCLA Health System, Westwood and Santa Monica, CA David Feinberg, MD, MBA, CEO
Patient referrals in the 30% range would call to action most healthcare leaders, however when you are CEO of UCLA Health System, one of the largest health-science centers in the country, numbers that low called for immediate action.
Prior to becoming CEO for UCLA, Feinberg was a physician in the health system's psychiatric division. It was this experience, working in one of the older buildings in the system and with patients who were sometimes involuntarily admitted, that offered him a great education in patient experience.
"Here we had patients who may have been admitted involuntarily and yet we had found that 90% of these patients would refer to us." When he took over as CEO at UCLA, Feinberg was surprised to see how low the referral scores were for the hospital. Wanting to move the bar swiftly higher, Feinberg set out to change the culture of the hospital teams.
They started by listening to the patients. What did they need and want to make them feel more welcome? It was often simple things, such as hot meals or socks to keep their feet warm, but it was also time with the staff and the ability to contact them when needed.
"We have structured rounds here, so everyone makes patient rounds from the IT team to the CEO. We spend half of all our time meeting with patients and we give patients cards with our cell numbers," says Feinberg.
The new culture took about three years to fully set in, but once it did they saw their patient referral numbers steadily increase to 99% in some units. "That means our hospital is at full capacity and our payer mix has gotten better. Patient satisfaction is really driving our business and making a position margin allows us to keep our door open to everyone."
Western Wisconsin Division of Hospital Sisters Health System, Springfield, IL Steven Ronstrom, President and CEO
For the 13-plus hospitals that make up the Franciscan ministry of Hospital Sisters Health System, serving those in need of charity care is the core of their mission. But aside from helping those in need, they also want to be sure they are providing the best care to all, a feat they continue to accomplish. All 13 hospitals that make up the system have been recognized for excellence and among them is St. Joseph's Hospital in Chippewa Falls, which was awarded a 2009 Press Ganey Summit Award for achieving stellar inpatient satisfaction.
Ronstrom says the first thing you need when it comes to working those who need charity care is purity of intention and no preconceived ideas. "You need to understand from a health planning perspective who the poor are in your area of service and what exactly they need. Then it's critically important to go forward and partner with others in the community to help serve them," says Ronstrom.
Even with rising charity care numbers they are achieving that mission. From 2008 to 2009 charity care increased just more than 10% of total gross charges from $9.2 million (2008) to $10.4 million (2009).
"We've been working hard on this for years and we're hard-wired [toward patient satisfaction] now," says Ronstrom, who credits his staff with embracing the protocols and tenets of helping the patient in every way possible. "We live the mission here."
Living the mission is helping keep their patient satisfaction scores steadily in the top, ranking in the 99th percentile for 10 of 12 quarters, according to Press Ganey's database of patient satisfaction.
"When it comes to the health status of the poor the future is in prevention, wellness and chronic care management. People are very concerned about health expenses … and those in healthcare needs to be doing their fair share to help out," Ronstrom notes.
Montefiore Medical Center, New York, NY Steven M. Safyer, MD, President and CEO
"Uncompensated care and patient experience are two issues that tug at each other, because often better patient-centered care requires more resources," says Safyer.
With uncompensated care draining hospital coffers that may not leave facilities with a lot to spend toward a better experience. It starts, Safyer says, with working with the hospital team to ensure that everyone looks at the patients and simply smiles. Then they looked at their nursing and now they have doing rounds every hour and asking the patients if they need any help.
"Some patients will just press the call button to see if anyone will come. We want the patient to know that we are paying attention to their needs before they get to that point," he says.
With nearly 1,500 beds, Montefiore sits in the heart of the Bronx, a borough of nearly 1.5 million people. The community is currently struggling with a 15% unemployment rate and the hospital is seeing growing uncompensated care rates. As the University Hospital for the Albert Einstein College of Medicine, Montefiore recognizes the need to not only fulfill the hospitals' mission to serve the community, but Safyer says they also feel a responsibility to train future physicians on their role in providing care for those who cannot afford it.
To that end, Montefiore has embraced the idea of helping its patients through the continuum of care and much of this has been accomplished through the use of technology. Montefiore developed a clinical and management information system to manage patient information, and then they took it a step further. Harnessing their electronic medical records, Montefiore partnered with all major providers in the Bronx Regional Health Information Organization to help create the infrastructure for a Bronx-wide exchange of patient information.
Next the team used technology to embrace the concept of the medical home, in which patients with chronic illnesses such as congestive heart failure, diabetes and asthma benefit from innovative disease management programs, including technology that allows home monitoring.
"The medical home is the way to feel plugged in and connected," says Safyer. "This all pays off too when the patients do better."
St. Joseph Hospital, Kokomo, IN Kathy Young, CEO
At St. Joseph Hospital, a 167-bed acute care hospital in Kokomo, IN, high unemployment numbers from automotive manufacturer layoffs have driven up uncompensated care. The hospital estimates that 14,820 people received uncompensated care costing them more than $3.8 million annually. The rising cost and numbers of charity care didn't deter St. Joseph's from pursuing their course to provide the best patient experience in Central Indiana.
Young says they expect uncompensated care numbers to continue to increase by 6%-7% annually over the next few years. However, she adds that St. Joseph's is blessed with strong financial performance which has continued to allow them to concentrate on patient experience, safety and quality.
However, while they maintained financial stability, their patient referral rating was in the 60%-70% range. "We're really focusing on the human side of things and customizing the patients experience based on exactly what they need," she says.
Young explains that as part of their effort to improve the patient experience each member of their team is encouraged to use their own unique personality along with their medical skill set to help improve the patient's overall experience – be that their attention to detail or their sense of humor. "We wanted to create a culture where our associates are proud to work here and we're proud to have them," she says. It took four years to change the culture at St. Joseph's, but the culture change is paying off in employee and patient satisfaction, their patient referral scores are now consistently in the mid-80% range.
Henry Ford Health System, Detroit, MI Nancy Schlichting, CEO
In another recession-battered auto manufacturing city, record high unemployment has brought to hospitals new throngs of charity care cases.
"Quality, service and performance are the drivers for us and our people make that possible for us," says Schlichting.
Nonprofit Henry Ford admits 93,000 patients annually, recording $3.7 billion in revenues in 2008 and $8.5 million in net income that same year; all while providing more than $160 million in uncompensated medical care. Moreover, they can add to their list of accomplishments a 2008 National Health System Patient Safety Leadership Award.
"Patient experience starts with every interaction with the patient or family. It's understanding how to improve process for the patient and that extends to helping patients navigate through the complex continuum of care," adds Schlichting.
Schlichting explains that a patient may encounter up to 50 different hospital employees daily and coordinating the effort so the patient's experience is consistently positive and error-free is a tireless and challenging goal regardless of the patient's ability to pay.
She further clarifies that they have seven pillars of performance at Henry Ford, and the first is "people." That means taking care, not only of the patients, but of the employees by ensuring they have the resources they need to do their jobs well. That extends to making sure that the whole team has access to Schlichting if they need help resolving a problem. "Everyone knows my email address and they can contact me at any time if they're not getting their problems resolved. I respond to every single email. This creates a culture of openness and responsibility," she says.
Helping to keep the team at Henry Ford empowered to help others, creates a positive energy that trickles out to the patients encouraging a stellar customer experience.
As uncompensated care continues to rise, healthcare leaders need to look for unique ways to offset the financial losses that come from these circumstances. In the case of these five hospitals, by opting to pursue an improved patient experience they found that their facilities not only improved for the patients that could afford to pay for their services, but they also made providing charity care less of a financial drain on their facilities.
Note: You can sign up to receive HealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
Nearly 80% of hospital financial leaders surveyed in the HealthLeaders Media Industry Survey 2010 expect uncompensated care numbers to worsen in the next year. It's hardly a bad case of pessimism on their part. With the sharp rise in unemployment that accompanied the recession, uncompensated care and bad debt have indeed spiked at hospitals nationwide bringing another slew of challenges to the already financially beleaguered healthcare system.
Lay aside that it's illegal not to treat a patient due to their ability to pay when they arrive in the ER, the fact is that treating those in need is generally written right into the mission statements of most hospitals. Nevertheless, realistically facilities need to earn a profit to stay open.
So with no signs that healthcare reform legislation will pass anytime soon, what are financial leaders to do when they see their costs rise while their revenues decline? Moreover, how do you strive to improve your patient-centered care and customer services when you have fewer resources to use?
In part one of this two-part series I asked CEOs how they and their teams are addressing uncompensated care at their facility. In part two, these same healthcare leaders will offer their thoughts on how they remained patient centered in the midst of rising charity care and are still prospering.
Henry Ford Health System, Detroit, Michigan Nancy Schlichting, CEO
Though the healthcare industry took its share of knocks during the recession, the auto manufacturers took an outright beating over the last three years. When the automotive industry began laying off plant workers in record numbers, Detroit was one of the hardest hit. When the jobs dried up, so too did the healthcare benefits for many.
With more than 93,000 patients admitted annually, non-profit Henry Ford recorded $3.7 billion in revenues in 2008 while providing more than $160 million in uncompensated medical care. The health system recorded $8.5 million in net income in 2008.
Their uncompensated care numbers are growing dramatically, Schlichting says, going from 12% to 20% over the last two years. "We have a mission to serve our community. So [when it comes to the bottom line] we've got to be creative," she explains.
Schlichting chairs an uninsured task force with other stakeholders in Detroit, with the goal of seeking ways to improve access to care. Additionally Henry Ford established the Community Health and Social Services Clinic to provide primary care services to more than 3,500 uninsured Detroit residents every month. Henry Ford Health System physicians staff the two clinics, located in southwest Detroit and in the New Center Area. "It improves patient care and they are less likely to be admitted if they are getting preventative care," she notes.
To help improve access to specialists, the task force asked all the specialists in the area to agree to take on equal shares of the uncompensated care, "so none of these physicians are hit too hard and they are all able to help," she notes.
"We have a real partnership with all the area CEOs and CFOs to strive to improve the access to care and the coverage and to make sure that everyone that needs care gets it," she says.
St. Joseph Hospital, Kokomo, Indiana Kathy Young, CEO
Echoing similar sentiments as her Detroit counterpart, Young, the CEO of St. Joseph Hospital, a 167-bed acute care hospital in Kokomo, IN, knows all to well how unemployment can drive up uncompensated care. At one point in 2009 Kokomo, an area where the dominant employers include car manufacturers General Motors and Chrysler had the highest unemployment rate in the nation. The hospital estimated that 14,820 people received care that was uncompensated, costing them over $3.8 million. Nevertheless, with rising uncompensated care rates, St. Joseph's continued on a course to provide the best patient experience in Central Indiana.
"We've had a significant change in our economy and this town, so it's been a challenge," says Young. "We decided to look at ways to get preventive care to those people who would choose not to seek it to save money."
And so they did—launching more community outreach and community care to screen for high blood pressure, diabetes and the like. They also instituted a new charity care policy to review what the patients who don't have the means should actually be paying for. In addition to these efforts, St. Joseph's has been actively educating the community about when to seek the different levels of care.
"We've tried to educate them about the differences between the emergency room, urgent care and primary care so they don't just go to the emergency room because they don't have to pay up front," she says. So far, the number of trips to the ER by patients is down, however the program is still too fresh to gauge whether it will have a significant impact on their ER admissions or uncompensated care.
Montefiore Medical Center, New York, New York Steven M. Safyer, MD, President and CEO
Montefiore is an academic medical center working in conjunction with the Albert Einstein College of Medicine. "We do everything we can do to teach new techniques and new knowledge, and we do that while at the same time taking meaningful responsibility for a very poor community," says Safyer.
Montefiore rests in the heart of the Bronx, a borough of nearly 1.5 million people with an unemployment rate of approximately 15%. The health system has nearly three million ambulatory visits in four hospitals with 1,500 beds making it the 6th largest facility in the country. And if its growing uncompensated care rates weren't troubling enough, Safyer says Montefiore also has an 80% Medicaid payer mix. Still, the hospital has managed to maintain a 1.5% margin.
"Every penny counts for us. What we've been witnessing over the last two years is a 40% increase in bad debt and charity care," explains Safyer. "For our uncompensated care we employ a contingent of people that costs us about a million a year. They work to get everybody that's eligible onto insurance, and if they aren't eligible, then that's the residual that we submit to the state."
In addition to an all-out effort to qualify those patients for insurance, Montefiore, which has roughly 40% of the market share in the area, is also using outreach efforts such as the medical home and encouraging access to primary care for preventive treatment.
"You want to get the best outcomes and prevent the admission to the ER," he notes.
Western Wisconsin Division of Hospital Sisters Health System Steven Ronstrom, President and CEO
For the 13-plus hospitals that make up Hospital Sisters Health System, serving those in need of charity is as much a part of their mission statement as it is for the Franciscan ministry. "We have a special concern for the poor and we have to report to our board of directors how we are achieving that mission," explains Ronstrom.
With rising numbers of charity care they are achieving that mission. From 2008 to 2009 charity care increased just over 10% of total gross charges from $9.2 million (2008) to $10.4 million (2009). "It's still at a manageable level, but we're watching it," says Ronstrom.
Ronstrom says to offset the uncompensated care numbers Hospital Sisters Health System takes a strategic growth strategy approach, "For us to help we have to grow across the state, strengthen our volumes, and run efficiently."
But they also strongly believe that community outreach is key. The health system is concentrating efforts on a variety of community programs to help feed the poor as well as establishing free clinics in some of the hardest-hit areas—their free clinics have already seen a 30% increase in demand for services.
"We use the need assessments to figure out what the needs of the poor in the community are and then we work to accomplish those goals," he notes.
UCLA Health System, Westwood and Santa Monica, California David Feinberg, MD, MBA, CEO
In sunny California, the uncompensated care picture is no less gray than anywhere else in the country. UCLA Health System is one of the largest health-science centers in the country and encompasses nearly all of the university's patient care, clinical education and research programs and facilities.
"Our community has people who just don't have insurance now, but there's still no one more important than the next patient," says Feinberg.
At UCLA, Feinberg and his team have worked to make patient-centered care the driving force behind their organization's success—even when the levels of uncompensated care are on the rise.
"Right now you have people deciding between paying their COBRA or their mortgage, it's a whole different situation," he says. This shift in economic circumstances is just another reason that UCLA has decided to continue to emphasize their patient experience and they have seen their patient referral numbers rise from 30% to nearly 99% as a result of their diligence.
"We have figured out patient-centered care in a big way," he says.
To learn more about how UCLA Health System and all of these facilities tackled patient satisfaction while simultaneously addressing their uncompensated care, check out part two of my column next week.
Note: You can sign up to receive HealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.