Education on hospital cost structure will be a valuable tool in 2023.
Healthcare organizations have been confronting a series of financial challenges that have forced some hospitals to shut their doors, while others have been able to weather the storm, thanks to strong leadership and innovative solutions.
Cheryl Sadro, the CFO for UC Davis Health—a California-based health system with 646 acute-care beds and an annual budget of roughly $1.7 billion—recently connected with HealthLeaders to discuss the financial issues hospitals and health systems have been dealing with over the course of the pandemic, improving relationships with payers, and some of the key areas organizations should be focusing their monetary resources. Sadro was joined by Tammy Trovatten, the director of government reimbursement at UC Davis Health.
HealthLeaders: How has COVID-19 impacted UC Davis Health?
Cheryl Sadro: COVID was good to us, I guess from a perspective of reimbursement and supplemental payments that we received. We made budget during COVID, which was not necessarily the case with a lot of health systems. As we begin to come out of the pandemic, several things have been tough—the stock market portfolio is certainly one big piece. A lot of folks are suffering with volume, and certainly, many organizations, not necessarily UC Davis, are suffering with staffing challenges. Our nursing staffing has been stable, so that's not been a big issue for us. We did have, as most people across the country did, some drop in OR cases.
HL: What major challenges do you see coming down the pike?
Sadro: From a payer perspective, we're about to see a year or so of tough negotiations. We're going to continue to see the payers be a little bit tougher. It'd be great if we could find a way to go to Medicare and Medicaid and have them take a little bit more of the costs. The other piece of the payer issue is the denying of claims and pushing cash flow out.
HL: What solutions exist to the challenges we've discussed and have you been utilizing them at UC Davis?
Sadro: We're a high-specialty, high-acuity organization. We've had to go outside the regular pool of anesthesiologists that are on faculty because it took a little bit longer to recruit them—that's just how it works in academic medicine. We have gone to some external parties temporarily, in terms of finding anesthesia coverage.
About a year ago, UC Davis developed a robust fund flow document and process that's meant to compensate the faculty and their departments without having to do a lot of one-off type of agreements. In academia, it's common for folks to go to either the health system or the CEO and ask for things as they occur. We have a fund flow document that we can develop that covers all kinds of things—physician compensation, projects, and a lot of different things that the department would be coming in asking for, on a case-by-case basis. So that puts a lot of predictability in your expense structure.
HL: How might the results of the mid-term elections impact health systems’ financial stability?
Sadro: One of the things we've been watching and will continue to watch through this process is where we go from here with 340B. We're the only level one trauma center in a multicounty area, and between 340B trauma and transplant, we've garnered a large portion of our bottom line. As we think about changes in policy and things of that nature, we are paying attention to policy and how it impacts us long term. 340B going away would not only be devastating for us but incredibly devastating to our patients because it does fund some other things that we can do in our organization to serve that indigent population.
Tammy Trovatten: It's been this ongoing saga for many years. CMS implemented a cut to 340B hospitals, which just recently got overturned, but we still are unsure how that's going to be reimbursed because it's trying to be made budget neutral. It doesn't matter who's in charge, this is just an overall problem that is concerning. All non-340B hospitals got an average wholesale cost plus 6%, where we were cut to an average wholesale price minus 22%. So, it was a weird thing that happened that got overturned, but we [are unsure] where we go in the future.
HL: What are some key areas that hospitals should be focusing their financial resources on as we head into 2023?
Sadro: We need to focus some resources on educating … about our cost structure. Somebody said to me recently, 'People were so excited about the healthcare system during COVID and what we did for them and now they've kind of forgotten about it because now we're back to conversations about how expensive we are.' There's no doubt that healthcare is expensive. But by the same token, the majority of the people that are providing healthcare are trying to do a good job at keeping costs down. So, I think educating the public about that, so it doesn't get out of hand is valuable.
We could also look into developing partnerships and affiliations and things of that nature that will help add to that traditional revenue stream and allow us to be a little bit more self-sufficient. So, maybe working with venture capitalists is an opportunity in some investment lines. That can shore us up and add revenue, where we might see REITs taking revenue away from us.
HL: What do you think the biggest challenge of 2023 will be?
Trovatten: We're still under the pandemic in the emergency waivers, but I don't think that's going to last long into the calendar year 2023. I know it's got until the end of April, but I can't see going past that. Right now, because of the pandemic, we're getting reimbursed for telemedicine visits, which makes it easier for patients to get that care where they needed it, and it is less expensive. But to get reimbursed for that is going to be a challenge after the waiver goes away. And there are some other cuts that will probably be coming in next year, reimbursement-wise that's going to make things a little tougher.
Amanda Schiavo is the Finance Editor for HealthLeaders.
UC Davis Health developed a way to put more predictability in its expense structure.
Looking to 2023, Sadro expects tougher negotiations between payers and providers.