As we know, Steward, established over a decade ago through a partnership between a private equity firm and a CEO with a mission to revitalize struggling Boston-based hospitals, grew to 33 community hospitals spanning eight states.
However, the health system, facing challenges since late last year, found itself in a financial crisis.
Seeking restructuring advisors in January has sparked rumors of a potential bankruptcy filing.
As media coverage continues to intensify on Steward's struggles in Massachusetts, the health system's ability to overcome these obstacles and maintain its strong position in the healthcare industry remains uncertain, but as stated, Steward says it has a plan.
OK, back to the plan. Steward says it is implementing a six-point action plan to emerge as a sustainable business. Let’s take a look at what Steward has in store.
Funding and Financial Stability
According to the press release, Steward has recently finalized a robust financing agreement that will provide a $150 million cash infusion to provide additional liquidity as the company marches towards the sale of its highly desired asset physician group Stewardship Health.
This would allow Steward to reset its operations and address vendor obligations.
“Included in these agreements, the lenders have provided an additional ‘vote of confidence’ in this plan. They have not only decided to increase their financial commitment to Steward through the bridge loan, but they have also agreed to extend their forbearance agreement through April 30, 2024, to give the Company time to execute this plan,” the release says.
Employee Retention and Continuity
To maintain staffing and levels of care, Steward has successfully negotiated new labor agreements with the MNA and SEIU and secured and maintained its pension plan for employees, according to the press release.
It is continuing to incentivize its employees to ensure that medical centers and physician’s offices are open and continuing to serve patients and the broader community.
Steward says it has instituted a plan to attract nursing employees to work at its busiest hospitals and has offered “referral” fees to current employees of up to $40,000 per hired employee.
Steward is in process and working proactively to immediately sell non-essential assets, including Steward-owned aviation and downsizing its non-patient footprint through back-office consolidations.
In addition, Steward is continuing to actively seek strategic opportunities to divest non-core assets with a focus on improving the system’s liquidity position, the press release says.
Steward has retained Alix Partners to advise on a restructuring of Steward to better support their hospitals.
“Steward has tried to be transparent, compliant, and cooperative over the years in providing a significant amount of detailed and relevant financial documentation to various state agencies and regulatory bodies and moving forward it commits to do even better,” the press release says.
Senior Steward representatives intend to meet with public officials in the Commonwealth to discuss the go forward plan for ensuring continued first-class care to its patient population.
What’s in store for the future?
While a solid plan of action is a step in the right direction, Steward's financial crisis could be far from over.
There's even worry of a potential ripple effect causing problems for hospitals all over the country. In fact, Federal officials say the uncertainty surrounding the future of Steward's hospitals could result in tougher regulations of for-profit health care.
This situation should serve as a cautionary tale for other hospital and health system CFOs. It highlights the importance of closely monitoring financial health, diversifying revenue streams, and being prepared for unexpected challenges.
CommonSpirit Health's latest earnings report shows a significant improvement in financial performance compared to the prior year, driven by higher volume levels, efficiency initiatives, and a reduction in length-of-stay.
Here is a snapshot of what CommonSpirit reported for the second quarter of its fiscal year 2024.
CFOs are seeing more resource-intensive services that do not reimburse well, or at all.
There are a multitude of challenges that have pushed health system margins to the breaking point, but one is the unprecedented rise in the cost of services coupled with low reimbursement for those services from payers.
But what can CFOs do? Solutions may fall back to some tried and true strategies: play hard with payers and take risks on new revenue streams.
How to attack these hard decisions requires some careful planning, and some advice. We asked the members of the HealthLeaders CFO Exchange for the top issues they are facing, and low reimbursement rates—especially for those more resource-intensive services—are top of mind.
As this will be one of the many challenges addressed at our upcoming HealthLeaders CFO Exchange in May, HealthLeaders met up with CFO Exchange member, Bill Pack, CFO at Conway Regional Health System, to give us a preview of how this challenge—and his solutions—affect his health system.
According to Pack, there are three main resource-intensive services that the health system sees that are not reimbursed well, or at all are, he says.
First are chronic disease management programs. According to Pack, these services require continuous monitoring, follow-up, and coordination among caregivers and providers, but are not adequately reimbursed by most payers at his organization.
Pictured: Bill Pack attends the 2023 CFO Exchange in Napa Valley, CA. Photo courtesy of HealthLeaders.
Mental health services are also on the list for the health system.
“Mental health treatment often requires extended ER wait times, specialized staff that is not always readily available, and challenges with appropriate patient placement,” Pack says. “The reimbursement rarely covers the cost of psychiatric patients presenting in the ED.”
Another culprit for the health system? Complex surgical procedures with longer recovery times.
Some surgical procedures, especially those involving complex cases or patients with multiple comorbidities, usually require longer hospital stays and more intensive post-operative care along with higher resource utilization with nominal additional reimbursement, Pack says.
So how does Pack—and how can other CFOs—address these challenges? There are four main strategies that Pack has deployed:
“We work to streamline operations (such as ED throughput, bed turnaround times, post-acute patient placement), and ensure contract compliance for supplies, and optimize resource allocation (right patient, right place, right time) to reduce expenses without compromising patient care and quality,” Pack says.
Comprehensive Payer Strategy
“Negotiating with payers for fair and equitable reimbursement for services that are resource-intensive, partnering with payers for care coordination and improving quality metrics, and providing evidence of the cost-effectiveness and positive patient outcomes have all been key in our payer strategy for proper reimbursement,” he says.
Diversification of Services
“We are also expanding and adding services that include higher-reimbursed procedures or specialties to offset the lower margins of resource-intensive services,” Pack says.
Utilization Management and Efficiency Improvements
“We are implementing utilization management processes to ensure that resources are used efficiently,” Pack says. “We are also identifying areas for improvement in care delivery, which lowers costs and improves patient care.”
Are you a CFO interested in attending our event and hearing more from Pack and other attendees? To inquire about attending the HealthLeaders Exchange event, email us at firstname.lastname@example.org.
The HealthLeaders Exchange is an executive community for sharing ideas, solutions, and insights. Please join the community at our LinkedIn page.
Pictured: CFOs from across the US met at the 2023 CFO Exchange in Napa Valley, CA. Photo courtesy of HealthLeaders.
The not-for-profit recently reported its financial results for the second quarter of its fiscal year 2024, and there are several reasons CFOs should care.
CommonSpirit Health’s latest earnings report shows a significant improvement in financial performance compared to the prior year, driven by higher volume levels, efficiency initiatives, and a reduction in length-of-stay.
However, the health system continues to face challenges such as salary and supply cost inflation outpacing payer reimbursement rates and an increasing rate of denials from some payers.
So how did these improvements and challenges affect CommonSpirit’s overall performance and why should CFOs take note? Let’s take a look.
The health system reported operating revenues of $9.35 billion and operating expenses of $9.44 billion for the quarter ended Dec. 31, 2023, compared to $8.19 billion in revenues and $8.63 billion in expenses for the same period last year.
The operating loss was $87 million, with EBITDA of $484 million, resulting in an operating margin of -0.9% and an EBITDA margin of 5.2%, both normalized for the California provider fee program.
This marks a significant improvement from the prior year, where the EBITDA margin was only 0.6%.
One key driver of the improved financial performance was an increase in volumes, with adjusted admissions rising by 6.9% and outpatient visits increasing by 3.3% in the second quarter. Additionally, efforts to reduce the average length of stay from 4.98 days to 4.77 days have contributed to the financial improvement.
Despite these positive trends, CommonSpirit continues to face challenges, particularly in managing the impact of inflation on costs and dealing with an increasing rate of denials from certain payers.
According to the report, the health system is working closely with health plans to reduce prior authorization denials and speed up reimbursement processes.
Additionally, CommonSpirit is expanding its ambulatory footprint, enhancing workforce retention programs, and identifying programs to further establish its essentiality in the communities it serves.
CFO Dan Morissette acknowledged the progress made in improving financial performance but emphasized that there is still work to be done.
In the earnings report, he highlighted the health system's focus on exploring growth opportunities, implementing a sound investment strategy, and containing costs to further improve financial performance.
Morissette also emphasized the importance of providing essential care and services to the communities served by CommonSpirit.
Why should other CFOs care?
There are several key strategies from CommonSpirit's earnings report that can help CFOs boost their own performance.
First, it’s obvious that focusing on volume growth and efficiency initiatives can have a positive impact on financial performance. Keep prioritizing efforts to reduce length-of-stay and manage the continuum of care to help improve margins and operating results.
Second, CFOs should continue to be vigilant about managing costs in the face of inflationary pressures, even as numbers start to ease. Pay close attention to salary and supply cost inflation and work to contain costs where possible to prevent them from outpacing reimbursement rates.
Lastly, engage with payers to address denials and reimbursement delays. Collaborate with health plans to reduce prior authorization denials and streamline reimbursement processes to ensure timely payments for services provided.
CFOs are feeling optimistic about the financial outlook, but there are three large challenges that will need to be navigated.
A majority (79%) of healthcare CFOs expect a revenue increase this year, yet 78% cited profitability as an area of improvement, according to a healthcare CFO outlook survey conducted by BDO.
While CFOs remain optimistic, BDO warns that healthcare organizations may face challenges in achieving higher revenue and profitability due to three main reasons: regulatory pressures, clawbacks of COVID-19 funding, and challenging bond and loan covenant agreements.
A look at the numbers
The survey, which included responses from 100 CFOs, found that 11% of respondents reported their organizations had violated bond and/or loan covenants in the past year, and 30% expressed concern about violating them in the future.
Furthermore, only 35% of healthcare organizations represented in the survey had more than 60 days cash on hand. This highlights the need for more strategic conversations around economic resilience, as identified by 44% of CFOs.
What’s the solution?
In response to these challenges, CFOs are shifting their strategies.
The survey found that 39% of CFOs are adjusting revenue cycle management to improve liquidity, while 37% are engaging in strategic cost reductions, including staff. Another 34% are focusing on transforming operating models. These approaches reflect the need for cash flow optimization, cost optimization, and risk management to ensure the continuity of care for patient communities.
Efforts to optimize revenue cycles through roles and workflows, denials, and post-payment audits, as well as the implementation of AI and robotic process automation, are also expected to increase efficiency and financial performance, the survey noted.
Dealmaking is also a priority for healthcare CFOs this year, with nearly three-quarters of respondents including it on their to-do lists. However, challenges such as navigating due diligence, finding the right target or buyer, and addressing valuation gaps are still top concerns for healthcare finance leaders.
Almost half (47%) of surveyed CFOs expect to increase technology implementation spending this year, with 98% piloting generative AI and 46% building a proprietary generative AI platform.
These investments are focused on improving front- and back-office operations, including digital investments in patient-provider communications and remote patient care. Use cases for generative AI include treatment plan generation, clinician-to-patient communications, and diagnostics and medical imaging.
In addition to AI, CFOs are investing in predictive staffing, financial reporting software, and enterprise data analytics to enhance their organizations' performance and financial decision-making capabilities.
What does it all mean?
Overall, the survey highlights the cautious optimism of healthcare CFOs for the financial outlook of their organizations in 2024.
While there are challenges to be addressed, CFOs are taking a proactive approach by revisiting strategies and making investments in revenue cycle management, cost optimization, and technology. By focusing on cash flow, efficiency, and risk management, CFOs aim to ensure the continuity of care and resiliency of their operations.
Tenet beat Wall Street expectations by a hefty amount in the fourth quarter of 2023.
Tenet Healthcare recently reported impressive results for the quarter and year ended December 31, 2023, beating Wall Street expectations.
The company's net income in the fourth quarter of 2023 was $244 million, compared to $102 million in the same period of 2022. This significant increase in net income is attributed to strong same facility revenue growth and disciplined operating management.
But How Did Tenet Pull it Off?
Tenet's adjusted EBITDA, excluding grant income, for the fourth quarter of 2023 was $1.010 billion, compared to $857 million in the fourth quarter of 2022. This growth is driven by strong volume growth in the ambulatory care and hospital operations segments, favorable payer mix, and improved contract labor costs, the report said.
Additionally, the company recognized a $52 million aggregate favorable pre-tax impact associated with Medicaid supplemental revenue program adjustments in California and Texas.
It’s also worth noting Tenet’s COVID-related stimulus grant income. In the fourth quarter of 2023, Tenet received $2 million pre-tax ($2 million after-tax) in grant income, while in the same period of 2022, it received $40 million pre-tax ($30 million after-tax).
The company's balance sheet and cash flows also showed positive trends.
Cash flows provided by operating activities for the year ended December 31, 2023, were $2.374 billion, compared to $1.083 billion in the previous year. Tenet produced free cash flow of $1.623 billion in 2023, compared to $321 million in 2022.
This increase in cash flows highlights the company's strong financial performance and ability to generate cash, something that a lot of CFOs have been battling so far in 2024.
Significant business transactions
Tenet also made noteworthy transactions recently.
It completed the sale of three hospitals and related operations in South Carolina to Novant Health for approximately $2.4 billion. Additionally, the company signed a definitive agreement to sell four hospitals and related operations in Orange County and Los Angeles County, California, to UCI Health for approximately $975 million.
These transactions are expected to result in pre-tax book gains, reducing the company's income tax expense in 2024 by approximately $190 million due to a reduction in interest expense limitations.
In terms of its business segments, Tenet's ambulatory care segment, which includes United Surgical Partners International, saw a 15.4% increase in net operating revenues in the fourth quarter of 2023 compared to the same period in 2022.
This growth is driven by strong same-facility net surgical case growth, acquisitions, opening of new facilities, service line growth, and improved pricing yield the earnings report says.
Tenet's hospital operations and services segment, primarily consisting of acute care and specialty hospitals, also reported positive results.
Net operating revenues increased by 6.0% in the fourth quarter of 2023 compared to the same period in 2022, mainly due to increased adjusted admissions, favorable payer mix, and improved pricing yield.
The segment's adjusted EBITDA, excluding grant income, was $546 million in the fourth quarter of 2023, compared to $450 million in the same period of 2022.
What it all means
Overall, Tenet's earnings report highlights its overall positive performance in 2023, driven by strong revenue growth and effective operational management.
CFOs understand the importance of disciplined operating management, prudent financial decisions, and strategic investments in technology and ambulatory care—and Tenet was a pretty good example of this in 2023.
A strong, collaborative relationship with payer partners is essential for one CFO.
At a time when providers can feel like they are at a crossroads with payers, Bridgett Feagin, CFO for Connecticut Children's—a level 1 pediatric trauma center with roughly $600 million in net patient revenue—says building a strong relationship with payers is the key to reducing administrative burdens and denials, and ensuring payment.
But how it is done? Leveraging its payer mix, putting pressure on its commercial payers, and keeping communication open has been key Feagin previously told HealthLeaders.
“It's a collaborative relationship, meaning that [payers] understand our needs and we also understand their business needs as well. So, if it costs $100 to take care of this patient, we at least need to cover our costs,” Feagin said.
Connecticut Children's is a payer mix with close to 60% of Medicaid, and Medicaid does not cover Connecticut Children's costs, Feagin says.
“So, we need our commercial payers to give us a little bit more than the costs. So, we can shift some of that liability over to our commercial payers. And that's just the way it works. They understand that but we are working with the state as well to increase our reimbursement to cover our costs,” Feagin says.
Feagin also explained that a good payer partnership also reduces administrative burdens, such as a denial. “When a payer denies a claim, it creates more administrative work for my team. On the front end, we're talking to payers about what we need to do, to make sure we don't get a denial in the first place.”
But how can you collaborate to ensure that a claim won't be denied?
Having monthly team meetings and keeping communication open with the payers helped ensure claims don’t get denied she says.
“One example would be with our NICU babies. Typically, we're supposed to notify our payers within 48 hours, that the baby is admitted to the hospital,” Feagin said. “However, those parents are not thinking about providing the information, because they have a critically ill child that's been admitted to the ICU.”
“We need to be compassionate and work with the family to get the information and find out who their insurance company is. Sometimes that takes over 48 hours. So, say if it goes to 72 hours, we'll contact the payer and say we'll have this information beyond the 48 hours,” Feagin says.
“Now they'll have it in their system, and they get the authorization done. So that's an example of working with the payer to make sure we don't get a denial on the back end.”
As CFOs fight against poor margins, a new study is showing that hospitals and health systems are increasingly pursuing M&A to stabilize their financial situation, which is partly driving more dealmaking.
But what exactly are the numbers saying? Check them out below and read the full story on the Kaufman Hall report here.