Loma Linda CFO Leads Through Provider Consolidation, Rising Costs

Angela Lalas, CPA, has assumed the role of system CFO for Loma Linda University Health, a nonprofit health system she has been with since 2006.  

After 12-and-a-half years working her way up the ladder at Loma Linda University Health, Angela Lalas, CPA, was named the CFO of the entire system in May. 

In addition to her new role after a steady rise at her organization, Lalas has been recognized in recent years as a rising star within the healthcare finance community. 

The journey to her new position was marked by significant professional growth, Lalas told HealthLeaders, spurred on by the encouragement of a variety of long-serving leaders at the system, who she called "exemplary mentors." 

Lalas added that the insights of fellow leaders within the system influenced her perspective on how to pursue financial and cultural success while remaining committed to the institution's sense of mission. 

The following transcript has been lightly edited.

HL: What are the most pressing challenges facing Loma Linda University Health, and what strategies are you using to meet those challenges?

Lalas: We all know that the healthcare industry has been rapidly evolving, and that the old ways of doing business are no longer sustainable. One of the primary challenges for our organization is sustaining our competitive advantage as well as our mission. I think being an academic medical center makes it even harder for us to adapt because you have to both adapt in terms of technology and innovation. Also the whole care delivery system, where before it used to deliver care at a low cost with enough to regenerate margin, now it's an imperative to deliver care at the lowest possible cost if we are to stay relevant and compete. To offset that challenge, as an academic medical center, we have a competitive advantage that we need to leverage because we know that we provide top quality care.

Related: Keck CFO on New Care Strategies: 'We're Going to Have to Break Those Chains'

HL: How do you meet the challenges presented in the California provider market that is both growing and consolidating?

Lalas: I view it as both a challenge and an opportunity. It's a challenge, because that's not how we've done business as an organization and the market dynamics are almost imposing [consolidation] on us and forcing us to get there. The challenge is how do we choose which partners to work with, and in the current environment, it's almost essential for growth to affiliate and expand our network. We also need to be able to [consolidate] and partner with the right organizations without compromising our mission.

HL: Most CFOs emphasize the importance of culture at their organizations. Is there a specific mission that differentiates Loma Linda from other health systems?

Lalas: Providing the best quality care to our patients and sustaining our margins in order to sustain the mission are important, but what's most important for Loma Linda is fulfilling our teaching and healing mission. As an academic medical center, we need to not lose sight of that tripartite mission: teaching, healing, and research. When we partner [with other systems], we evaluate those opportunities in light of those three elements of our mission.

HL: Are there any cost containment or revenue growth strategies that you've enacted in your previous roles within the organization that you will expand upon in this new position?

Lalas: In 2014, under new leadership, we embarked on a performance improvement journey that was specifically geared at improving financial performance. The plan had elements of revenue enhancements, labor, and non-labor initiatives to get us to our targeted bottom line performance. In the last three years, we've been able to achieve those targets. Now, we're building a major campus transformation project consisting of two new towers to comply with the seismic requirements of California, and that has put a lot of strain on our financial position.

It's a continuous performance improvement journey. We're targeting to improve our financial performance, whether it's enhancement revenue or cost reduction of at least 2.5% over the next three years while we're in the construction period. And as we prepare for the transition into the new hospitals, we know we're going to incur additional costs before we generate additional revenue.

During these years, we need to be even more fiscally conservative and disciplined so that we're able to fund our debt service requirements and continue meeting our targets, and ultimately, sustain operations. We built those performance improvement targets into our fiscal year 2019 budget and our longer-term projections. We've done a lot of expense reductions over the last few years, and where we see the opportunity is in growing our tertiary quaternary services.

HL: A recent Moody's report said the two most effective areas for cost cutting at nonprofits has been in capping labor and capital expenditures. Can you elaborate on specific areas that you've addressed?

Lalas: For Loma Linda, over the last several years, we haven't been capping labor [pay] because in the years prior to 2014, that was the strategy. We kept labor at lower pay, increasing at a lower pace than markets. We've gotten far behind markets, which ultimately hurt us in terms of retention, turnover, and recruitment. It ended up hurting the bottom line even more, because we had to rely on contract labor and premium paid.

Over the last four years, we've made an intentional plan to get as close to market as we can in order for us to recruit and retain the best talent. Every year we've invested in our talents by benchmarking to market, and last year was when we got as close as the market as we had in years. Now, we remain committed to making sure that we treat our employees fairly through competitive pay. We're not going to pay at the top level of market, and our philosophy is that we pay, as a nonprofit, in the 50th percentile benchmark.

In terms of capital, as a nonprofit, our funding for capital is from EBITDA margins and philanthropy. That's where we've been able to manage capital on two levels: we have a capital-spend philosophy where it's limited to 50% of our EBITDA less debt service, and we've even had to reduce that level given trades on our cash due to our construction project. The positive with that though, is as we improve our EBITDA, we get more resources to further invest in capital.