5 Issues Hospital CFOs Must Focus on in 2013

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Dan Moncher, CFO of Firelands Regional Medical Center in Sandusky, Ohio, has seen a lot of change in the hospital world since the 1990s — capitation, early-era physician practice acquisitions, the overall privatization of healthcare. Overall, he has more than 25 years of healthcare financial experience at various hospital organizations, small and large.

As CFO of the 400-bed Firelands Regional, an academic medical center, Mr. Moncher oversees the finances of a leading regional hospital — and an organization that is inherently vital to its surrounding community.

Here, Mr. Moncher shares his thoughts on five areas where hospitals and health systems of all sizes must focus on this year to stay solvent. Many of the outlined issues are staples of any hospital's annual strategic and financial plan, but they also have evolved like never before.

1. Medicare and Medicaid management. It does not matter if an organization is a 10-bed critical access hospital or a multibillion-dollar health system spanning several states: Medicare and Medicaid matter, a lot. Medicare is typically the largest payor for most hospitals, and for safety-net organizations, Medicaid is of utmost importance. Together, Medicare and Medicaid represent 49 cents of every dollar received by hospitals.

Medicare and Medicaid are also political hot potatoes. Over the past several years, Medicare has been a prime target for large-scale domestic funding cuts. In the first two weeks of 2013, Medicare reimbursements to hospitals have already been scaled back under Congress' fiscal cliff deal. In order to avert Medicare cuts to physicians and salvage some rural Medicare programs, hospitals footed most of the bill to the tune of $11 billion in clawed-back Medicare documentation and coding adjustments. Medicaid hospital reimbursements, meanwhile, have been systematically cut in a handful of states over the past couple years, including California, Louisiana, Florida, Illinois, Alabama, New Hampshire and several others.

Mr. Moncher says no payment is sacred in healthcare. Medicare funding to hospitals has declined in the past decade, according to the Medicare Payment Advisory Commission. Since 2003, hospitals have posted negative Medicare margins every year, collectively, and as indicated, hospitals are at the forefront of Medicaid cuts.

So what can hospital and health system CFOs do? The only thing they can: Budget conservatively and study the financial metrics of top hospitals. Hospital executives must understand that reimbursements from government payors are not likely to increase to healthy amounts anytime in the near future — and one-time provisions such as meaningful use funds are not long-term saviors — so budgets must account for this trend.

DanMoncher"We budget very conservatively when it comes to projected [Medicare] reimbursements," Mr. Moncher says. "We try to make sure our budget reflects the operating margin of a high-performing hospital — that's our goal. But that means we have to take a good, hard look at costs, staffing levels that are appropriate and maintaining the highest quality of care with [appropriate] staffing levels."

2. Quality of care indicators. In the past, a hospital's quality was the primary focus of only clinicians and the select medical-based C-suite executives. However, after realizing this mindset failed patients, quality of care is now at the forefront for everyone involved within a hospital organization.

CMS' Value-Based Purchasing Program has also spurred a renewed focus on quality of care indicators across the hospital. This past October, 1,557 hospitals received higher Medicare payments due to high quality ratings as part of VBP, while Medicare payments were reduced to 1,427 hospitals. In total, $1 billion in hospital Medicare payments were tied to the VBP Program for fiscal year 2013, meaning that for the first time, federal funds were tied to hospital quality.

For Firelands Regional, Medicare is more than 50 percent of its business. Under the VBP Program, the medical center performed well, gaining 0.25 percent in Medicare reimbursement due to high quality scores. Mr. Moncher says for hospitals to be successful this year and into the future, quality of care must be emphasized.

For example, he says his hospital holds four to five employee meetings per year to help all departments comprehend both the clinical and financial ramifications quality scores hold in hospitals today.

"Patient quality and satisfaction is not just impacted by the caregiver at bedside," Mr. Moncher says. "It's impacted by housekeeping, maintenance, billing, medical records. It's about getting [everyone] educated and teaching about the implications of what they do each day."

3. Relationships with managed care payors. While Medicare and Medicaid usually combine to form the largest chunk of hospital reimbursement, commercial, managed care payors are where hospitals earn their money. This has been true for several decades now, and Mr. Moncher says astute CFOs will continue to build a sound rapport with those private payors, especially if the two parties are nearing the end of a contract.

"We have good working relationships with the managed care partners we have," Mr. Moncher says. "We want to maintain those relationships going forward. Some of those agreements expire at the end of 2013, so we need to make sure we work through negotiations to keep those contracts in place. We'll try to solidify our managed care partnerships for three to five years."

In addition to traditional contract negotiations, hospitals and health systems must continue to research and employ evolving payor models. For example, earlier this month, Phoenix-based Banner Health and health insurer Humana signed an agreement to enhance care coordination for Humana's Medicare Advantage members. In December, Ft. Lauderdale, Fla.-based Holy Cross Hospital announced it was collaborating with Florida Blue, which is Florida's Blue Cross and Blue Shield company, on a new accountable care organization structure.

4. Growing market share. When hospitals are encouraged to grow their market share, it usually means one of two things: build a new service line, or merge with a competing organization. However, Mr. Moncher says those two options are not the only ways to gain a foothold in a market and improve patient care.

For example, Firelands Regional is part of an Ohio-based cooperative called the Community Care 5, which also includes Magruder Hospital in Port Clinton, The Bellevue Hospital in Bellevue, Fisher-Titus Medical Center in Norwalk and Memorial Hospital in Fremont. Mr. Moncher says the five hospitals work together to invest in technology and grow service lines in order to protect healthcare access in the region.

Mr. Moncher clarifies that this venture is merely a collection of loose collaborations and affiliations. The organizations are working together to keep cases and referrals from heading west into the larger, metropolitan Toledo market, and this type of cooperative is "just purely our communities that would like to have independent hospitals."

"We want to keep care closer to home for patients," Mr. Moncher says. "We don't want to be all things to all people, but there are also a lot of things like cardiac, orthopedics, rehab and psychiatry where it's a shorter drive [for patients] to come here [instead of Toledo]."

Forward-thinking CFOs know that merely standing pat and trying to get ahead without help from nearby providers may not be feasible in 2013. At the very least, Mr. Moncher says hospitals should try to be "good neighbors" by keeping healthcare local whenever possible in order to reduce costs for local patients.

5. Transparency. Now, more than ever, the public is demanding transparency within the healthcare system. Quality ratings, prices and other pertinent information must become an important part of a hospital's mission, especially for non-profits that require more extensive disclosure.

Mr. Moncher recommends hospital executives engage their employees through effective communication to help with transparency efforts. Hospital employees are healthcare consumers, too — perhaps the best-equipped, considering their jobs. They should have a large role in helping the hospital become a well-understood organization.

"We are asking every department to create a metric board where they'll have four to six metrics that will be monitored on a monthly basis," Mr. Moncher says. "We will put these metric boards where the public will have access, and we will let the public know how we will be performing. We want to be more transparent and make it easier for our patients to see [our outcomes]."

For example, hospitals could choose to focus on readmission rates, patient satisfaction ratings and other data that is already publicly available — but the point is to make the data easier to find, on the hospital's website or elsewhere, for the community.

"The target we're trying to get to is to generate conversation and a positive momentum," Mr. Moncher adds. "This is all tied into the importance of providing quality care."

More Articles on Hospital CFO Issues:

4 Drivers of Healthcare Capital Financing — And How They Affect CFOs
Finding Value in Your Organization: Q&A With Baylor Health CFO Fred Savelsbergh
7 Projects Hospital CFOs Should Focus on in the Final Months of 2012

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