New York State Health Commissioner Richard F. Daines, MD, has appointed Val S. Gray as CEO of Helen Hayes Hospital in West Haverstraw, N.Y. Gray has directed the Department of Health's Bureau of Health Facilities Management since 2005. Gray succeeds Magdalena Ramirez, who retired after nearly 20 years as Helen Hayes' CEO.
Money-losing Boca Raton Community Hospital has ousted its second CEO in less than one year and announced other changes in senior administrative leadership. Jerry Fedele, a managing director at FTI Healthcare, replaces Rick Van Lith, who replaced Gary Strack at CEO in January. BRCH reported losses of $110 million in the fiscal year ending June 30.
Jack O. Bovender, Jr., chairman and CEO of HCA Inc., will retire as CEO of the nation's largest for-profit hospital company at the end of this year and remain as executive chairman and a member of the board of directors until December of 2009. Richard M. Bracken, HCA's president and chief operating officer, will remain as president and take the helm as CEO on Jan. 1, 2009, in accordance with the company's existing succession plan.
The current economic downturn has caught many businesses in an unanticipated margin squeeze. Healthcare organizations are no exception, with the impact being felt from the declining value of investment portfolios, reduced access to capital, increasing supply costs, and a rising proportion of uninsured patients. News reports are filled with reports of quarter-over-quarter increases in hospital charity care as employers reduce head count or restrict healthcare benefits. Recent inflationary pressures may exacerbate the current situation. So what can your organization do to ensure that it is generating the margin necessary to fund future operations and investments? A margin improvement audit may be the solution.
Determine your margin requirement
Your target margin should be an operating margin that is sufficient to meet your board's financial performance expectations and fund future capital requirements, particularly now that rating agencies are reviewing hospitals with greater scrutiny.
In addition to operating margin (net revenues less operating expenses), be sure to consider operating cash flow, existing debt service, and other sources and uses of cash. If net cash flow is negative, your margin improvement target will be the additional operating income necessary to fund your desired level of capital expenditures. Even if net cash flow is positive, opportunities may still exist to improve operating performance.
Identify specific improvement opportunities
Margin improvement opportunities are a function of two management actions: reducing operating expenses and increasing operating revenues. As simple as that sounds, it is not always easy to find those areas where more costs can be cut or revenues boosted. Most of us have been through this exercise before. But approaching the challenge systematically may elicit new or innovative opportunities that may have been hidden thus far.
In addressing operating expenses, first consider labor, supply, and overhead costs. The hidden costs inherent in "how we have always done things" need to be explored. Do a deeper dive into how the work is organized and performed.
Labor
While we want to protect our work force from unnecessary staff reductions, particularly among direct caregivers, these areas typically offer opportunities for labor savings. Analyze and assess your use of premium-priced labor, such as agency staff, overtime, and skill-mix. Developing an in-house pool can be a better quality and lower cost option than hiring external agency personnel. Over the past few years, many hospitals have completely eliminated outside agency use and reduced overtime by developing more flexible staffing options for their employees.
A productivity assessment, particularly using comparisons to independent benchmarks, can illuminate underperforming departments or functions where restructuring, redesign, or process innovation may be appropriate. Probe deeply and identify the reasons behind the numbers to derive additional savings opportunities. Critically evaluating your management and organizational structure can also pinpoint opportunities for efficiency improvement. Changing how you are organized in terms of management layers and span of control may dramatically improve operating results. Particularly among larger, complex organizations, there frequently exist numerous orphan cost centers or dispersed management functions that could be consolidated or reorganized to be more lean and effective. Consider organizing around processes; that's one powerful way to ensure focus on critical business needs.
Supply and drug costs
Supply and drug costs are typically the second-largest driver of operating expenses in most healthcare organizations. Even with the consolidation of national group purchasing organizations and increasing competition among medical suppliers, there is still room for improvement in supply and drug costs. Challenging contract pricing for discounts is the first step in identifying these opportunities. By analyzing contracts for your A-list vendors—the top 10 by annual spend—you might achieve up to a 10% discount without too much negotiation; your B-list vendors—the next 10 by annual spend—might elicit a 5% discount. Consolidating purchases among fewer vendors may also be a way to leverage vendors to achieve some savings. Our experience suggests that there is ample opportunity for long-term savings in challenging of drug expenses as a function of clinical utilization patterns, however, the degree of difficulty and time necessary for physician practice changes to occur means this is not a near-term solution to a margin problem.
Overhead
Overhead costs represent the third category addressed by the margin improvement audit. Most hospitals will find ample savings in assessing and evaluating their purchased service contracts, including physician agreements and medical director contracts. Many hospitals will be surprised at the number of separate contracts for similar services, such as biomedical engineering, office equipment repair, and maintenance services. By consolidating and renegotiating these contracts, savings of up to 10% of the contract amount can be achieved. For multi-entity organizations, consider consolidating duplicate contracts under a single vendor for the enterprise. Physician contracts should be reviewed to ensure that they contain performance expectations and are relevant to the current organizational strategy; medical director contracts should explicitly state the services and time commitment expected to be delivered and provide for accountability in job performance, such as monthly time logs.
Operating revenues
Operating revenues are somewhat more difficult to influence in the short term, requiring a strategic approach. Since most payer contracts can not be reopened at will, there is usually only a once-a-year opportunity to renegotiate commercial or managed care prices. However, this effort can yield significant new revenue, particularly if your payer contracts are underperforming compared to Medicare or national benchmarks. Also consider re-evaluating case-rates and carve-outs that may result in an effective overall rate increase. Certain revenue codes, implants and devices, DRGs, and drugs are appropriate for case-rate or carve-out provisions.
In the near term, improving revenue capture can be a fruitful opportunity for most hospitals. Three tactics can provide significant benefit: point-of-service cash collections; improved clinical documentation and charge capture; and a reformed denials management program. On the front end, cash collections requirements for patient co-pays should be instituted in the emergency department and selected ancillary departments with high outpatient volumes. Our experience suggests that collecting up to 40% of "eligible" co-pays is a reasonable target for most hospitals, depending on market and payer mix. On the back end, routine documentation audits and educational and training efforts for physicians can result in an improved case-mix index through more accurate and complete documentation and coding. With the advent of payers reducing or eliminating payment for the occurrence of "never events," which CMS defines as "serious and costly errors in the provision of healthcare services that should never have happened," the capture of clinical documentation is more important than ever before. A related effort at analyzing denials and hard-wiring the appeal process can also increase revenue capture and reduce underpayments.
Launch the margin improvement initiative
The margin improvement audit outlined thus far will undoubtedly result in a portfolio of improvement opportunities for your organization. To ensure that these opportunities are acted on and the identified savings achieved we advise the use of two tools: a management action plan in which each initiative is assigned to an executive sponsor; and a project management framework to monitor the implementation of each opportunity and to track the results against expectations.
I wrote in my column last week that when given a choice, employees are largely not opting for the high-deductible health plan option as their health plan due to a variety of factors. But the truth is, many employees aren't getting that choice. In fact, I heard from a lot of you last week after the column ran, including some hospital and health system CFOs who keep close tabs on local employers, and you're saying that high-deductible health plans are becoming the only alternative to no insurance at all for employees at many of these companies. The fact that health savings accounts aren't being funded at nearly the rate they should is immaterial, you've said. The plans are being forced on employees as a fait accompli.
So what does that mean for hospitals and health systems—or any other entity in the business of providing healthcare services? It means you have to compete on price and quality—but especially on price.
According to my friends at Alegent Health, who have seen this transformation coming for a few years now, hospitals have to get better at being able to tell patients what they can expect to pay out of pocket for services rendered. For anyone contemplating the stars that have to align to provide this information, this is a daunting task. There are thousands of variables involved in calculating a price for a simple surgical procedure. Patients incur complications. Reimbursements change. Dozens of payers with dizzying arrays of plans that contain rules and exceptions further complicate the process.
But it has to be done if you're to compete in the new paradigm of consumer and patient engagement. People get the information they want for most other purchases, and they're going to expect it for their healthcare, too—because more than ever before, they're paying for it.
In Omaha, NE-based Alegent's case, it has been done. Leaders there started with the premise that the forces causing patients to demand prices prior to service are beyond the patient's control and beyond Alegent's control. Alegent couldn't fight the tide, so it decided to swim with it—wholeheartedly. Further, to compete in the era of consumers shopping around for their healthcare, Alegent needed this information as much as patients do—to see how the system stacks up against the competition, if for no other reason. Patients can now call in or navigate the health system's MyCost Web site and get a pretty accurate idea of what they're going to have to pay out of their own pocket for most services and what their health plan's going to pay for their care, if they have one.
It's not that Alegent doesn't have more work to do. It does. But its senior leaders feel they're off to a good competitive start. And the best part is, they're willing to share.
I don't do this very often, if ever, but I'm going to tout something we at HealthLeaders are selling to you because I believe in it so strongly. I'm hosting a Webcast Oct. 21 featuring the system's CFO, an individual hospital CFO, and the corporate chief marketing officer, and they'll share with participants their experiences setting up their system, hints about where they stumbled and where they succeeded, and where they're going with the program in the future. And speaking of cost, you can crowd as many people in your organization around one computer to watch and listen for one low price. I'm very excited about this Webcast, and I hope you'll consider tuning in to the event.
Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.Note: You can sign up to receive HealthLeaders Media Finance, a free weekly e-newsletter that reports on the top quality issues facing healthcare leaders.
A prominent Emory University psychiatrist received at least $2.8 million in consulting fees from companies whose drugs he was evaluating and failed to report a third of it, congressional investigators studying medical conflicts of interest announced. The allegations against Charles B. Nemeroff, MD, Phd, are the latest in a series of such charges. They are also likely to alter the cozy relationships between prominent academics and the drug industry.
Veteran Nashville healthcare executive and entrepreneur R. Clayton McWhorter says he's been around long enough to see little meaningful healthcare reform following election-year promises of presidential candidates. With this year's presidential contest approaching, McWhorter decided to set up a nonprofit group to give young people a voice and inspire them toward an ongoing role in finding potential solutions. SHOUTAmerica is now hosting 100 student government leaders from around the country in Nashville to discuss healthcare issues. With Nashville as a headquarters city to more than 300 healthcare companies, some say many decisions are made there that shape the industry's future.
A judge has ruled Urbana, IL-based Provena Covenant Medical Center owes more than $6 million in property taxes, the latest development in a five-year battle over the facility's tax-exempt status. Earlier this year, a court agreed with the state Department of Revenue and local tax authorities, who said Provena doesn't provide enough charity care to be tax exempt. Now Champaign County Judge Michael Jones denied a motion from Provena Covenant to reconsider the earlier ruling.
Columbus (IN) Regional Hospital plans to resume surgical and inpatient services on October 27, more than four months after the hospital was closed by flooding that caused more than $200 million in damage to the complex. The week of Oct. 27 will be a transition period before being ready to handle a full volume of surgeries and patients by Nov. 3, hospital CEO Jim Bickel. The June 7 flood heavily damaged the hospital's first floor and basement, which was filled by floodwaters, and forced its evacuation and closure. The emergency department reopened Aug. 1, but patients needing care that requires admission to a hospital have been sent to other hospitals.
With ethnic minorities and immigrants fast becoming the collective U.S. majority, there is a push in medical circles to be more sensitive to cultural nuances. Now hospitals nationwide are trying to come to grips with how to treat cancer patients who come from cultures that believe a cancer diagnosis should be kept secret.
