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CFO Outlook for 2013 Grim

 |  By kminich-pourshadi@healthleadersmedia.com  
   December 27, 2012

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

The coming year portends to be financially uncertain for hospitals and health systems and represents the foundational linchpin for meeting 2014 deadlines for mandates such as health insurance exchanges and ICD-10. Chief financial officers will be juggling more initiatives than ever before. Last year, when we asked several financial leaders for their predictions for healthcare in 2012, the common response was an expectation that organizations would have to continue to slog uphill through national economic strife and unsteady state reimbursements and patient volume declines.
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The picture remains equally intense for CFOs in 2013. Financial leaders must contend with the same the challenges from 2012 while ramping up to meet more deadlines. As healthcare organizations put the 2013 strategic plans into action, four hospital CFOs offer their insights and forecasts.

Mark Bogen
Senior Vice President and CFO
South Nassau Communities Hospital
Oceanside, N.Y.
Total number of licensed beds: 435

What are the key areas you'll be watching in 2013?

Forecast challenges. There's no question we're under attack from the federal and state governments as well as the commercial payers; with denials management, we're having to justify every single case—big or small—that gets admitted to the hospital. The amount of resources and time it takes is staggering. Even if we're successful, the delays in the cash flow and the situation with Medicare hurts us. From a resource and cash flow standpoint it also makes our ability to determine what our revenue will be challenging; it makes budgeting for 2013 that much more difficult. If you couple that with some of the healthcare reform deadlines coming up and the volume changes from inpatient to outpatient … and the federal budget issues with sequestration, then 2013 is going to be the single most challenging year for budgeting. I've never seen it as much of a moving target.

The quality agenda. We need to make whatever investment is needed to get our quality scores to where they need to be and wherever is appropriate as that has an impact on value-based reimbursements as well as public perception and physician and clinician recruitment. Still, we're limited in our ability to fund every initiative ... so as we budget for 2013 we have to balance the quality agenda against affordability and we must set clear measurements and use benchmarks and ensure we're getting the outcomes from those investments.

Technology investment. We went live with our computerized physician order entry system in June and we're trying to get our Stage 1 Meaningful Use dollars. In the past few years we've made critical investments in IT and in our EMR, but every day it seems we're on virgin territory. Just when we think we've got all the technology and people in place, we find that something else significant needs to be added. Our EMR is still only partially done and our ambulatory component is being pushed back as well as clinical documentation until we see our EMR up and running. So IT is a day-to-day expense and we keep making the investment in the hopes the returns present themselves.

Which strategic undertakings from 2012 do you feel could greatly influence the organization in 2013?

Maintaining independence. It's continuing to have the ability to operate as a community hospital long-term. We have a partnership with Winthrop South Nassau University Health System, but for the most part we've spent the past 16 years working substantially as an independent hospital with some convergent strategies. We've been talking about getting together in a more meaningful way and looking at enacting strategies on a larger scale. But when you have strategies that are for your organization as a standalone facility and then divergent strategies, it can make the organization feel disjointed.

Denials management. Also, for our denials management we hired a consultant to add to our overall case management program. We started it in August by looking at Medicare and Medicaid and we're hoping to move it into managed care. We've put a lot of emphasis on this program because for the first time ever our retrospective denials surpassed 1% of our operating revenue and cost us $5 million in lost revenue. Revenue is difficult to come by these days, so this is an area I'm wedded to seeing successful this year.

Healthcare reform is driving a lot of changes in the model of care; how are these changes influencing your physician recruitment effort or compensation structures for 2013?

Like many smaller hospitals we built physician compensation plans that are salary plus bonus, and the bonus was usually based on collections. Over the past couple of years we've moved to RVU-based compensation and our new community practices are part of those deals. But what gets difficult is most doctors are already feeling pinched financially or have lost dollars from their historic compensation.

Those who are looking to be employed are looking for income guarantees at current or historic levels, and that may be greater than the amount the office is producing. The RVU model has only been in place the past two to three years, and we're at least comfortable with it and understand it, plus we have the ability to capture the data and measure it. So for us in the short-term we'll stay with RVU-based comp, but we'll need to work on how it will fit with bundled payments or sharing jointly of revenue ... Understanding what compensation model to adopt that fits the new system of care is something were still behind on.

Steve Frantz
United Division CFO
LifePoint Hospitals Brentwood, Tenn.
Number of beds and hospitals: Over 6,000 and 56
LifePoint is a publicly-traded, for-profit company.


What are the key areas you'll be watching in 2013?

Reimbursement pressures. All hospitals are faced with reimbursement pressures and payment reforms impacting Medicare and Medicaid reimbursement. These pressures have led us to explore ways that we can operate more efficiently and enhance our ability to focus our resources on the delivery of high-quality patient care. For example, LifePoint has adopted a shared services approach for certain nonclinical business functions.

Physician collaboration and integration. We are looking for more effective ways to engage our primary care base and significantly improve how we interact with this group of physicians. Creating a service line approach and bringing these physicians to the table is very necessary to support our mutual success. Also, as more of these physicians operate in an "outpatient only" environment, we must find ways to keep them engaged with the hospital and our hospitalist programs. Be it through employment relationships or some other means, supporting our primary care physician base will be increasingly important moving forward. 

LifePoint HEN. We are very proud to be one of 26 organizations across the country—and the only for-profit organization—chosen by the Department of Health and Human Services to serve as a Hospital Engagement Network in its patient safety initiative. The HEN will continue to enhance our focus on quality and patient safety and bring key stakeholders to the table around quality initiatives.

New acquisitions and performance of recent acquisitions. We have an aggressive but disciplined strategy to grow through acquisitions, adding new hospitals to our company's footprint and new services within existing markets. We expect this strategy to have a significant positive impact on financial performance.

Which strategic undertakings from 2012 do you feel could greatly influence the organization in 2013?

Clinical documentation improvement, as one method of further enhancing patient safety and quality of care, is a key strategy for 2013. In addition, as our healthcare system moves closer to universal adoption of EMR, better documentation will allow patients and all caregivers greater transparency into existing conditions and previous or ongoing treatments. This should allow patients to become better educated about their health and more engaged in their treatments. 

Healthcare reform is driving a lot of changes in the model of care; how are these changes influencing your physician recruitment effort or compensation structures for 2013?

We expect to employ a higher percentage of primary care physicians in our markets in 2013. Employment of physicians is an important strategy to direct care back to our facilities and specialists who support our local facilities. This strategy should allow more patients to receive care close to home and also promote standardization and coordination of care in our communities.

Nick Vitale
Executive Vice President and CFO
Beaumont Health System
Royal Oaks, Mich.
Number of beds: 1,714


What are the key areas you'll be watching in 2013?

Preparing for healthcare reform. Near the top of my list is preparing for healthcare reform and actually figuring out what healthcare reform will mean, postelection, to the healthcare community in terms of payments and our relationships with physicians.

Mergers and acquisitions. We'll be watching to see what the elections mean in terms of consolidation and contraction to the healthcare industry. Our area is over-bedded and we expect to see more consolidation and contraction, especially as we see more reimbursement changes.

Clinical integration strategy. Beaumont predominantly uses a private practice model but we do have a high number of employed physicians, and we're employing more primary care physicians. We're looking to work more closely with our private doctors on clinical integration. We'll be working with the Federal Trade Commission to get our partnerships recognized as clinical integration entities and look to our managed care to help us efficiently manage. We are finding more physicians want to be employed and provided with back-office services. We're building a toolbox solution to work with our doctors to help them address their needs.

Which strategic undertakings from 2012 do you feel could greatly influence the organization in 2013?

Physician alignment and integration. Clinical integration is challenging. We've been working with two nonhospital-employed but hospital-affiliated physician organizations to bring these organizations together and improve their relationship. But we're also looking at physician alignment in terms of cost control and transitions of care. We want groups to try different things to reduce readmission rates. We also want to work with our physicians and groups on population management. We believe payers, in the future, won't be interested in paying by episode but will want to pay by population, and they'll reward systems that can demonstrate more value and quality.

Managing change. I've been doing this for 32 years; there's always new and challenging stuff on the horizon, but it always seems like through hard work and a lot of research and analysis we've always figured out a way to address the issues and move forward in a positive way. I know there's a lot of handwringing about healthcare reform … but healthcare as an industry isn't going anywhere.

Healthcare reform is driving a lot of changes in the model of care; how are these changes influencing your physician recruitment effort or compensation structures for 2013?

We have changed how we compensate our physicians, starting back in 2009, but it has taken two years to get it fully implemented. It's structured around clinical, administrative, research, teaching, and strategic components and is mission-based compensation. For instance, the clinical component uses RVUs for metrics while our administrative component uses time value units.

It took a while to get the physicians to understand and buy into the new model, but it seems to be working well. For our private doctors we're looking at quality metrics and working with them to maintain quality, which will help them to do better financially with the payers.

Also, we've established an affiliation with a medical school—the Oakland University William Beaumont School of Medicine—and we had our first class of 50 students in 2012, but we had over 3,200 applicants. This year we have 75 students from a pool of 3,700 applicants. We are proud of the fact that the accreditation body came in and found no areas to issue citations. We think our affiliation will help us with recruiting physicians eventually.

Marlene Weatherwax
CPA, vice president and CFO
Columbus (Ind.) Regional Hospital
Total licensed beds: 325

Editor's note: Marlene Weatherwax also offered her 2012 outlook last year.  We asked her to tell us how this year panned out and how it compares to what she anticipates will happen in 2013.


What are the key areas you'll be watching in 2013?

Technology. This was on the top of my list last year and it is again. We implemented our new IT system in 2012 and we've now got a good start on meeting meaningful use and we're going to continue on a path to get to the highest level of meaningful use and get the incentive funds. For the most part that's going to be a positive, although implementing it has introduced a lot of change and that can be painful.

Healthcare reform. It's hard telling exactly what will really happen, but like most hospitals we're trying to come to terms with what we believe will help fix healthcare no matter what the federal government does to try to change the model of care. It's an impetus to get on with the work to change the model of care through better physician alignment and to realign incentives that work with the patient-centered medical home and to keep overutilization down and reduce unnecessary utilization.

ICD-10. It's getting closer, assuming they don't move the deadline again, and we need to start working toward that or it could really have more of an impact on us than we realize. I think trying to understand the outcomes reporting is going to be a challenge; it might have a negative impact on us before we realize the benefits. Last year I put value-based purchasing on my top-three list, but this year I'm not sure it's among them. We've got a lot of other areas to concentrate on.

Which strategic undertakings from 2012 do you feel could greatly influence the organization in 2013?

Without question it's the 2012 changeover in our IT and the implementation of an EHR and computerized physician order entry. We did a "big bang" approach and replaced 40 systems; we had some disappointments but we're gaining ground and it will be interesting to see where we go with it.

In 2013 we've got some upgrades to do and some more modules to add and we have to implement the full version of our EHR for our physicians, but we're done on the nursing documentation side.

The other area we are working on is physician alignment. We have to decide whether we're going to have clinical integration with a formal FTC opinion or do some sort of ACO or risk-based contracting, and that will go well beyond 2013. But next year I think the direction we'll head will gel for us.

Healthcare reform is driving a lot of changes in the model of care; how are these changes influencing your physician recruitment effort or compensation structures for 2013?

The whole clinical integration and risk-based contracting comes with the value proposition of figuring out how we reward the physicians for driving improvements. We've been looking at a few models and in 2013 we'll work those in as part of other care initiatives. The one compensation model we're looking at is more of a scorecard approach, and the funds are coming from gainsharing. So if we're able to drive costs down for payers and employers, it would create an incentive pool that could then be redistributed based on scorecards. We think our new IT system will help us get access to the data we'd need to do that successfully.

Reprint HLR1212-8


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

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Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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