CFO Exchange: Embrace Change or Else

Healthcare providers need to act aggressively to address the multitude of challenges facing their organizations, say executives at this year's HealthLeaders Media CFO Exchange.

If you don't do it to yourself, someone else will do it to you.

Every time this witticism was uttered at the HealthLeaders Media CFO Exchange last week—I heard the quip or variations thereof many times—everyone within earshot nodded approvingly.

Among the four dozen healthcare provider finance leaders who attended the event, which was HealthLeaders’ fifth annual retreat for finance executives, outlooks on their organizations ranged from cautiously optimistic to nearly grim. There was certitude among the participants on a crucially important development for the entire healthcare industry: The transition from volume to value has taken hold and a wave of revolutionary change is inundating the vast majority of health systems and hospitals nationwide.

Dennis Dahlen, senior vice president of finance and CFO at Phoenix-based Banner Health, told his colleagues that boosting care coordination and population health management can require costly investments and unsettling changes. But he says the time has come to embrace change.

"Some of the work we're doing is counter-cultural and trying to keep people out of the hospital," he said of several population health initiatives underway at Banner Health. "We're piloting a lot of things that are scarily effective in keeping people out of the hospital."

Those initiatives include leveraging telemedicine capabilities across an ever broadening spectrum of the care continuum, including constant remote monitoring of ICU patients.

In addition to physicians, Banner has made several kinds of healthcare professionals accessible online to patients, including social workers, pharmacists, and "mobile teams" featuring home health nurses and health coaches. Even with the cost of technology figured in, Dahlen says telemedicine and other population health-oriented initiatives have generated significant benefits for Banner and the health system's patients, particularly among the 5% of the patient population with chronic conditions that drive the bulk of costs. Telemedicine "is successful in keeping people out of the hospital, and it's an attractor," he says. "Patients love it."

In 2014, Banner's care coordination and population health initiatives resulted in an estimated 1,890 lives saved, $109 million saved, and 45,861 fewer patient days in the health system's hospitals, Dahlen says.

John Grigson, senior vice president and CFO at Covenant Health, told CFO Exchange participants that the Lubbock, Texas-based health system is making progress in assuming more risk for cost of care.

Care coordination is a key factor in mitigating risk, particularly for the majority of patients who have moderate risk factors for disease, he says: "There is real money in keeping the risk group from moving into the 5% of high-risk patients."

As Covenant has taken on more risk for cost of care in payer contracting, the health system has been launching initiatives to limit exposure to risk, including creation of a narrow network of post-acute care providers. "The biggest cost overrun we were having was on post-acute care," Grigson says.

Covenant has also moved aggressively to encourage doctors to embrace population health-oriented contracting, he says: "We had to find a better way to influence our physicians."

Monthly and quarterly physician "report cards" have been an effective way to boost influence with the medical staff. "We show doctors the metrics and whether or not they are meeting the metrics," he said, adding that Covenant has begun to "unblind" physician data to show which doctors are delivering high quality at low cost. "The point is to get physicians to think about who they are referring patients to."

Although Covenant is in the early stages of assuming more risk for cost of care, so far gain-sharing contracts have generated about $5.2 million for the health system, Grigson says. "The good news is we saved $5.2 million. The bad news is that if we were at full-risk, we would have saved $10 million."

Several factors have driven the cost savings, including lower readmission rates and increases in diabetes patient compliance with care plans. "We're going to take the next step next year and move to full risk," he says.

Richard Rothberger, corporate executive vice president and CFO at Scripps Health, told peer participants that the San Diego-based health system is planning about $100 million annually in performance improvement initiatives to meet budget targets. "It takes a lot of work, and you have to pay attention to the details," he says.

Scripps is committed to meet performance improvement targets because nearly half of the health system's revenue is generated through serving Medicare patients, who are reimbursed at less than the full cost of care, and competitors are offering commercial services at lower cost through narrow networks. "The opportunity and imperative we have is lowering costs without lowering quality," he says.

Two of the most significant performance improvement initiatives at Scripps have been establishing a horizontal management structure and creating clinical care lines with physician co-management to standardize clinical processes in cardiology, oncology, orthopedics, and women's services, Rothberger says.

Over the past five years, Scripps' performance improvement initiatives have cut costs and generated revenue totaling $425 million. These efforts have enabled the health system to consistently post strong positive operating margins rather than posting low margins or just breaking even, Rothberger says. 

After the CFO Exchange concluded, Edward "Ted" Dudley, executive vice president and CFO at Manchester, NH-based Catholic Medical Center, reflected that the event was a unique opportunity for top healthcare financial leaders to share ideas that can be applied at organizations across the country. "It provided me with insights into what initiatives large health systems are launching," he told me.

Dudley says two kinds of initiatives were particularly striking during the roundtable discussions at the CFO Exchange, which was held at the Broadmoor resort in Colorado Springs, CO.

First, squeezing the volume of hospital-based services to lower costs of care is a reality that healthcare providers need to face, he says. "It's not just talk. People are doing it now."

Second, developing technology for the future is an essential element for success. "Technology is not only going to redefine how healthcare is delivered but also who is delivering healthcare," Dudley says. Technology is enabling non-physicians such as registered nurse practitioners to perform many frontline healthcare services that doctors have provided in the past.

Since adoption of the Patient Protection and Affordable Care Act in 2010, uncertainty has been a hallmark of the healthcare industry. As CFOs and other healthcare finance leaders look to the near future, one thing is certain: adaptation is a necessity, not an option.