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Q&A: New Adventist CFO Expects Cost-Cutting, Expansion Deals

News  |  By Christopher Cheney  
   January 18, 2018

Adventist Health's new CFO discusses the challenges and opportunities facing the health system, including cost-cutting, expansion deals, and cuts to the 340B prescription drug program.

The new CFO of Adventist Health views cost-cutting in areas such as labor and supplies as the most daunting challenge facing the health system, with mergers and partnerships viewed as the most attractive opportunities.

Adventist has promoted Joe Reppert, CPA, MBA, to CFO of the Roseville, CA-based health system, which features 20 acute-care hospitals on the West Coast and in Hawaii. Reppert is succeeding Jack Wagner, who is retiring.

Reppert previously served as CFO of Adventist's Northern California region, where the health system operates seven hospitals. His experience also includes working as CFO of Tupelo, MS-based North Mississippi Health Services.

HealthLeaders recently spoke with Reppert, who officially begins his new role Feb. 1. Following is a lightly edited transcript of that conversation.

HLM: How will your system CFO role be different than the Northern California CFO role?

Regional roles are closer to operations and the daily challenges that come with managing hospitals and ambulatory businesses. You are closer to patient care…as opposed system roles in a corporate office. That is why rounding is so critical.

The move to system CFO will bring a new set of challenges. I will never step too far from operations, but I enjoy the strategic elements of healthcare finance such as balance sheet management, developing partnerships, and longer-term planning.

HLM: What was the most important lesson you learned from your experience as CFO of Adventist's Northern California region?

Reppert: In Northern California, Adventist Health is in the process of cementing business relationships with other healthcare partners. Most significantly is the acquisition of Rideout Health in Marysville, Calif., which will likely be effective this March.

Rideout is a … health system with revenues of $400 million. Its addition to Adventist will strengthen our geographic presence north of Sacramento. The addition of Rideout Health will enable more effective coordination of certain services and specialty care among our hospitals in that geography. That circles right back to better care for our patients. As a result of this new affiliation, other partnerships are developing for further expansion of services, locations, and covered lives.

Relationships with other providers, payers and outside resources should be repeatable in other markets.

HLM: In 2018, what are the primary financial challenges for Adventist?

Reppert: Some of our health system executives and I recently attended a national healthcare conference to hear presentations from several prominent health systems. A consistent theme among most was the imperative for cost reductions.

We will be going methodically through expense line items. Typically, the larger opportunities lay with labor and supplies. Those are the expense categories where we have the greatest influence. Wherever there are opportunities for efficiencies or labor management, we will be turning those rocks over.

We will push for more effective management tools and relentless accountability throughout every operating unit and department, which is critically important to achieve the panacea of low-cost/high-value.

We work with Premier on the [group purchasing organization] side, and we have several opportunities and projects under way right now to not only reduce our supply cost per unit, but also to reduce utilization by working with our medical staff on physician-preference items.

Every hospital has some rent costs and lease costs, which are recurring expenses. If you have the time, you can turn that rock over to see whether the expense is necessary and whether it is something you can possibly eliminate.

Everyone in this business also knows the regulatory-related challenges that affect hospitals. The 340B reductions alone will cost Adventist Health $5 million, which is a negative annuity that needs to be made up elsewhere. This specific change relates to a 22.5% reduction in payments to hospitals for pharmaceuticals. 

HLM: That covers expense reduction, but what will Adventist do to grow the revenue side this year?

Reppert: Adventist Health will grow in scale.  One example is with our newly expanded business relationship with Cerner to quicken the EMR optimization cycle and revenue cycle performance. There is accountability to deliver results leading to increased yield and cash acceleration. Reducing the billing cycle and further improving clean-claim rates are opportunities within our grasp.

Additional affiliations with other acute and post-acute care providers will likely continue into the future.

HLM: What are the key financial metrics for you and your team?

Reppert: The fundamental financial metric is [earnings before interest, taxes, and amortization] performance. Our EBITA percentage is fundamental and we stay very focused on it.

Underlying that overall metric are certain expense metrics, such as labor metrics and supply costs. We look at worked hours per unit of service and we look at supply costs as a percentage of net operating revenue.

The health system's metrics are not just financial. We also have a balanced scorecard. Our managers are accountable for patient satisfaction, quality indicators, and employee engagement.

HLM: Adventist has post-acute care facilities, including hospice. What are the primary challenges of integrating acute care and post-acute care facilities?

Reppert: As we transition into capitation, the financial incentives align appropriately. Adventist Health currently manages nearly 200,000 capitated lives. Most of our acute-care operations are across a wide geography, so aligning all post-acute care services is a challenge but worthy of cementing further. 

This is partially addressed through program development within our hospitals, home health agencies and physician practices. In some markets, we affiliated with partners that have distinct experience and expertise in programs for seniors. The result has been the development of senior communities, some of which are adjacent to our hospital campuses. Those communities offer housing for seniors as well as a complement of services that add to the continuum of care such as home health, rehabilitation, and memory care.

Christopher Cheney is the CMO editor at HealthLeaders.

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