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Analysis

UI Health Care CFO on Analyzing Expense Control Measures During COVID-19

By Jack O'Brien  
   July 16, 2020

Cutting costs has always been an important part of the financial equation for provider organizations but, now, in the face of severe bottom line pressures and an uncertain future, it might be more critical than ever.

Editor's note: This conversation is a transcript from an episode of the HealthLeaders Finance Podcast. Audio of the interview can be found here.

While a major concern during the COVID-19 pandemic has been the cancellation of elective surgeries and the search for other reliable revenue generators, hospital and health system executives have also been faced with the challenge of instituting effective expense control measures.

Cutting costs has always been an important part of the financial equation for provider organizations but, now, in the face of severe bottom line pressures and an uncertain future, it might be more critical than ever.

Listen: LCMC Health CFO Reexamines Financial Standing at the 2020 Mid-point

In an interview with HealthLeadersBradley Haws, MBA, CFO of UI Health Care in Iowa City, Iowa, expounds on the importance of cost containment during the coronavirus pandemic and preserving capital in anticipation of a potential second wave. 

This transcript has been lightly edited for brevity and clarity.

HealthLeaders: Brad, what have been the most effective expense control measures that your organization has put into place in response to COVID-19?

Haws: We get to lead off with a tough question. In our organization, it has been a balance. Our organization, similar to just about every other healthcare organization is heavy in labor expense, so we immediately started conversations amid declining volumes about can we reduce our staffing component; whether that is just fewer people here, or as many organizations have considered and have implemented, do we need to do pay reductions or furloughs? The balance, which was especially difficult in the early days, was that while volumes were down because of the cancellation of surgeries, we were all prepping for a potential surge.

Luckily, in our environment, we didn't have a surge. In the early weeks of the crisis, we were worried about doing furloughs or layoffs because we're the only academic tertiary quaternary provider in our state, so we would be the epicenter and need to be able to have staff present for us. We ended up taking people that had capacity, so to speak, because their normal jobs were not as necessary, and we redirected them into activities or areas where we were needing increased staff. As an example, we created designated clinics for intake of suspected COVID patients and testing.

Later in the cycle [compared to] many places, we have implemented a combination of salary reductions, unpaid time away from work, or the voluntary donations of accrued vacation time. Part of the reason for the delay was that there are two collective bargaining units here in our organization and working through the logistics about what contractually we could do and couldn't do took us a little bit more time than we had with others. Obviously, in our situation, we're all part of one tax ID number, so the faculty are participants in our financials, but working through those same kinds of adjustments like pay reductions, time away, or vacation givebacks are subject to the university policies and the regents system within the state of Iowa.

We've considered all of those [ideas], implemented many, and a couple that we considered that we have not implemented would be reductions or suspension in retirement contributions because we're part of a state system. Then, we're obviously taking a hard look at our other management tools; we have put hiring freezes in place, we have taken hard looks at other expenditures that wouldn't be considered crucial and implemented those in our plans. 

HL: How has the outbreak affected your long-term plans at UI Health Care, and how do you plan to keep certain projects or capital expenditures on track while also balancing the need to make cuts or reductions in the short term?

Haws: There are two or three key points I would offer in response. The first one, which is easy: we have put a pause on major capital. The funding becomes more difficult, but even the messaging is a consideration. How do you ask for reductions that impact people's personal lives and, at the same time, say, "But we're going to be spending a couple hundred million dollars on an expansion project that's over here to the side?" [Additionally], we still aren't certain about the extent, or the duration, of the crisis.

Having said that, we feel strongly coming out of the crisis that we don't want to come out in a situation where we're still struggling to survive and unable to capitalize on potential strategic opportunities or implement a strategy that ensures our success going forward. We think that there may be new partnership opportunities with physicians or other hospitals that, unfortunately, may be pushed into a different situation by the pandemic where people say, "The operational response would have been better if we had more partnerships."

HL: How has the thinking around expense control strategies been altered by the pandemic? Are there any principles that have remained consistent, in your opinion?

Haws: Culturally, I've been proud of our organization because our organizational structure is unique in that the hospital, the practice plan, and the [Roy J. and Lucille A. Carver College of Medicine] are all one legal entity. From the beginning, we led out with, "We're in this together." Our expectation was that everybody would participate in expense reductions or schedule modifications. With few exceptions, people said, "Regardless of the funding source, we realized that we're in this together."

Related: University of Iowa Hospital Staffers Reject Proposal to Cut Pay, Eliminate Raises

Where [this crisis] is leading us to is that we need to be a little more consistent in making sure that everybody has compensation or risk for reasonable performance, and that performance would adjust with the financial times, so to speak. If we have a second spike in COVID or we have some other kind of emergency like this down the road, we're able to be a little more nimble and agile than we were able to be in this round.

The other thing that I think we've put in place, which is a positive for staff and faculty, is to create a win-win environment. Our organization has been good at bringing back volumes quickly and our financials show that. What we have committed to our employees, whether they be staff or faculty, is that when the finances improve, we will share that back so that we don't ask for reductions or staff to take time off and then just simply keep that in the corporate structure. I think that has created some goodwill and some transparency that has been helpful in our processes.

HL: What advice would you give to your fellow health system CFOs who are in tight financial binds and are considering various approaches to expense control?

Haws: I can't remember ever using the word 'unprecedented' more often than during this, but where that leads me to is the second phrase: using the crisis to create organizational change is maybe an unexpected gift. Rolling things out or making changes in compensation structures, standing up telehealth services, considering different partnerships, or new locations for services, those have been things that sometimes our organization would get stuck spinning our wheels in the mud.

Whether it's because [COVID-19] is so widespread and everybody understands the issue, there's been a lot less reticence to make changes. Our IT teams have been standing ready to change the screen flow in our medical records and our coding teams are constantly looking at the coding advice and the changes being required out of the payers for telehealth. We have a lot of compensation changes that would have taken years, but we have been able to implement those things in weeks or months. You hate to say, "Don't waste a crisis," but that's kind of where we are.

HL: Forward looking, what are your expectations for UI Health Care's financial standing by the end of 2020?

Haws: I think we're going to be at budget for the month of June, without stimulus funding. Now, that's not back on the pace we were in February, because we were humming along at a place far in excess of our budget, but to be back at budget in June is something even in April I would have thought, "I'm not sure we're going to get back there." We've kind of suspended our budget; we're doing three-month rolling projections and the big unknowns obviously are two things: volumes and payer mix.

[There's] a number of folks that have either had changes of employment, more furloughs coming later in the fall when [employers] who took stimulus money will have the opportunity to reduce their payrolls, and we're worried about the payer mix significantly. We're planning for those risks; our budgeted margin in the next fiscal year is probably running at about half of what we budgeted pre-pandemic, but still positive.

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One of the things that's a little harder for us to predict, and I think this is what's happening across the country with the recent surge in positive test results, it that's starting to impact our staff. Before, we didn't see hardly any COVID impact in our workforce, [but] we're now seeing that. We've had a couple of our units where we've had to reduce the bed capacity, primarily, because some of our staff have been around somebody in the community that's [COVID-19] positive or suspected to be positive.

We're trying to send a message in our community, and amongst our employees, to say, "The precautions you're taking at work to protect the patients, those are important out in the community as well. As you re-enter the community in terms of restaurants or social engagements, don't forget [social distancing guidelines] because it not only impacts your family, but it impacts your ability to be here at work." That's a third variable that we're just starting to see and it's a little bit harder to plan for. 

The HealthLeaders Exchange is an executive community for sharing ideas, solutions, and insights. Please join the community at our LinkedIn page.

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Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.

Photo credit: Bradley Haws, MBA, CFO of UI Health Care, delivers a presentation during a HealthLeaders CFO Exchange gathering in New Orleans, Louisiana. (HealthLeaders/Spencer Selvidge)


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