RWJBarnabas Health CFO: Pandemic Financial Update and M&A Expectations

John William Doll, CPA, CFO of RWJBarnabas Health, detailed where the health system stands financially, why it hasn’t yet reached a ‘new normal,’ and how it will navigate a changing industry.

For RWJBarnabas Health, the 11-hospital system based in West Orange, New Jersey, emerging from the pandemic is complicated.

At the end of April, there were only 350 patients infected with COVID-19 across the organization’s facilities and well below expectations, according to John William Doll, CPA, CFO of RWJBarnabas.

Doll said that the provider organization utilized predictive modeling in anticipation of a difficult Q1 and “prepared for the worst.” However, RWJBarnabas has benefited from a greater understanding of how to treat the virus, advancements in-home monitoring care, and a robust nationwide vaccination effort.

“We were able to treat if you want to call the ‘second wave’ of the pandemic in New Jersey much more efficiently than we were a year ago,” Doll said. “So, we’ve had a similar number of patients, but a lot less ventilator utilization and a lot [fewer] patients in the hospital.”

Still, RWJBarnabas, like other health systems across the country, has endured more than a year of clinical, financial, and operational challenges related to the pandemic. Doll pointed to staffing up for acute care and the ICU, which resulted in the organization relying on expensive agency resources that exacerbated financial strains.

“For the first quarter, all in, we're just about to break even from operations, which is well below our historical performance,” Doll said. “However, we think it’s pretty good given the continued slowdown of recovery efforts and after investment in the infrastructure necessary to deal with that second wave and a host of other factors.”

In a recent conversation with HealthLeaders, Doll detailed where the health system stands financially, why it hasn’t yet reached a ‘new normal,’ and how it will navigate a changing industry.

Balancing long-term and short-term priorities

When looking at the organization’s strategy going forward, Doll stressed that there is “no crystal ball.”

In the short-term, RWJBarnabas has committed to maintaining staffing levels without large-scale reductions, Doll said, noting that the organization doesn’t know when volumes will return to normal and that the clinical team was reliable during the pandemic.

Doll said one of the most insightful discoveries is that from July 2020 to the end of the year, RWJBarnabas saw progressive improvements in activity, trending back to historical levels. However, he acknowledged declines from November through January as COVID-19 cases spiked nationwide, followed by a rebound in February.

Doll said that leadership is trying to understand the patterns associated with the coronavirus, noting that there is variability by facility and not a clear stabilization of historical activities.

“What we have deduced is that we haven't yet reached ‘a new normal;’ there's still a lot of volatility and we need to be flexible in response to that,” Doll said. “Long-term, I would say it's probably not until the end of this year before we get a real sense of what ‘normal’ looks like.”

Doll outlined several indicators across the enterprise that RWJBarnabas executives are following to determine when trends normalize.

In acute care, there’s a greater focus on total surgical activity, he said, as well as visit volumes in key areas such as oncology, radiation therapy, infusion treatment, cardiac catheterization procedures, and the “key drivers” of the in-person hospital business.

Doll mentioned that he is analyzing the system’s free-standing imaging volumes and trying to correlate that to routine physician office visits. He added that RWJBarnabas is monitoring its telehealth offerings, noting that virtual care usage has stabilized to about 30% of the organization’s activity.

What will drive M&A?

While many anticipate that COVID-19 will accelerate provider consolidation, Doll said believes that what makes transactions successful is cultural and strategic alignment. Even if health systems of a similar size pursue a mega-merger, Doll said the transaction can ultimately fail due to a lack of complementary cultures.

Coming out of the pandemic, Doll acknowledged that having a scale as an organization will be important, adding that he thinks smaller providers will look to larger systems for support.

Doll also referenced a Kaufman Hall report released last month that found there were fewer healthcare M&A transactions in Q1 2021 compared to Q1 2020 but the size of the deals was larger.

He said it was “remarkable” to see the trends of diminished ER volumes and varied recovery by service line across the industry, reiterating the need for scale to overcome these obstacles while emphasizing the importance of cultural alignment.

When asked what impact increased provider consolidation could mean for the industry overall, Doll highlighted the local nature of healthcare and the challenges facing small hospitals that fold into a larger system. However, he also said that being affiliated with a system could make sense for rural hospitals that need to provide the right support to advanced care in ways that the organization couldn't do on its own.

Looking at the New Jersey market, Doll said that most smaller healthcare acquisitions have “come and gone,” leaving competition mainly among the systems. He added that beyond provider-provider mergers, health systems have an incentive to scale up and partner with companies that can enhance the opportunities to leverage big data in care delivery.

“I think larger-scale organizations thinking about [the] delivery of service is ultimately part of the solution,” Doll said. “In terms of access, availability of high-end specialists, and rationalization of those things, you need a coordinated approach. That typically is better addressed by a larger provider covering a larger region."

"Now, it's hard to say, ‘Does that increase in scale have the same impact as a couple of small providers coming together,’ when you look at multi-state organizations that are pushing together across state lines," Doll said. "I think time will tell.”

"My opinion is if you think about health insurers, they've rolled up nationally and a provider network that's complementary of that could make a lot of sense.”

Advice for peers

Beyond the ongoing efforts to ramp up vaccinations and curb the spread of COVID-19, Doll said that his CFO peers should remain focused on the reemergence of trends that were taking place prior to the pandemic, such as cost and access issues.

He pointed to the effect of the price transparency rule that currently applies to providers and will affect payers at the start of 2022, as well as the “unsustainable” nature of the cost curve in healthcare.

“I think as the nation and world moves to recovery, we're going need to address the ultimate cost of care and that's something that I think will continue to be on the forefront,” Doll said. “We've lost focus on it for a little while, appropriately so as we dealt with a crisis, but I think we’re getting back into the real need to change that as an industry.”

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.