Finding Financial Control: Q&A With Robert Wood Johnson University Hospital CFO Paul D. Storiale
Before joining RWJUH — one of the 50 highest grossing hospitals in the United States — Mr. Storiale was CFO of Saint Raphael Healthcare System in New Haven, Conn., and CFO of Gaylord Hospital in Wallingford, Conn., a 109-bed long-term acute-care hospital. Acute-care hospitals, LTAC hospitals, academic medical centers, private banking, public accounting — Mr. Storiale has experienced several depths of the financial healthcare universe. Although each sector is different, all have the ability to reach fiscal success, but that success is only reached through the give and take of control.
Here, Mr. Storiale gives his take on how he and his hospital are handling Medicare and Medicaid changes, how Lean and Six Sigma processes are flushing out healthcare waste and what other hospital CFOs can do to control what can be controlled, such as supply and operating costs.
Question: It seems like hospital CFOs' duties are split up into two main categories right now: items they can control and items they cannot control. Let's start with the latter, specifically government reimbursement. How are you and RWJUH responding to the fluctuations in Medicare and Medicaid reimbursements?
Paul Storiale: It's really a two-pronged approach. We are planning primarily to work on other forms of revenue generation, chiefly in our broad ambulatory strategy, and we are using Lean techniques to squeeze out waste from the processes we have in the organization. [Reductions in government reimbursement are] making it very difficult to do any long-range planning, and it's almost as difficult to do any short-range planning. We just recently modeled the 2013 effects of value-based purchasing and readmissions. On top of a slight inpatient update that is being proposed for October 1, it's putting us into a challenging position for the next year, and that's disappointing to see.
RWJUH is an organization that was very highly focused on the inpatient side. We had the lowest percentage of outpatient revenue to overall revenue of any hospital in the state of New Jersey. We are looking to take advantage of the shift to outpatient venues from inpatient venues in key patient service lines. This includes acquiring physician practices and building big box ambulatory centers. The interesting thing is most of what we're doing on the ambulatory side has been on a joint venture basis so far. We have joint ventures in imaging, ASCs, our home care and our health and wellness facilities. We're finding the experts that know how to run those businesses, and we are lending our clinical expertise.
Q: To continue on the government-aided side of healthcare, a lot of different healthcare organizations plan to move forward with different aspects of the Patient Protection and Affordable Care Act regardless if the Supreme Court strikes it down as unconstitutional. What are your views on that?
PS: Regardless of what happens in the Supreme Court, clinical integration models are already under way. Health information exchanges are already under way. The things that were promoted by the PPACA will be happening anyway. It will change the reimbursement and access to insurance for the uninsured population, but in terms of clinical delivery models, I don't think the Supreme Court's decision will change anything.
Q: Let's shift to things that can be controlled. Labor costs comprise the largest portion of most hospitals' operating budgets. What is the best way to manage labor expenses both fairly and efficiently?
PS: That's the point of the Lean process. Lean and Six Sigma are designed to take processes and find waste, and that addresses everything on the labor side. It's pretty successful here in the short time we've implemented it, although our program is not nearly as mature as some others like Virginia Mason [in Seattle] or Virtua [in Marlton, N.J.].
We've created something called the "waste wall." We're looking to bubble up suggestions from the front line and post their suggestions on this intranet-based waste wall. Their suggestions lead to Lean projects, and it works beautifully for us. Our thought was, let's find a vehicle where folks who work in these processes can offer their input. The waste wall is the genesis of most of the Lean projects we start.
Q: What about supply costs? What are some of the innovative ways RWJUH tries to save on supplies, implants, etc.?
PS: A couple of years ago, our COO looked at our supply costs closely and worked with physician groups to come up with some standardization and educated physicians to understand the costs for us in terms of supplies. They have been very engaged to drive down the costs of supplies. Ninety-five percent of what we purchase is under group purchasing organizations, and we also employ a much more sophisticated and contemporary IT system for materials management.
Q: How is RWJUH handling rising energy expenses, especially as summer approaches, which usually means higher electricity costs?
PS: We've upgraded our HVAC systems for more efficiency, including installing new chillers that are more energy-efficient. Like other organizations, we've replaced our boilers. It's usually a repair-and-replace order. Anything we build or lease has an energy efficient component. This year and last year, we've actually had a reduction in energy costs over prior years. Some has to do with the weather, but some has to do with our initiatives. Even putting new roofs on older facilities has had an impact.
Q: As summer begins, what suggestions do you have for other hospital CFOs to have a successful upcoming quarter?
PS: In the last quarter of our fiscal year, we really look at the capital budgets for the following year and see if we can find significant savings from vendors who are looking to improve their last quarter numbers. It is pretty common for us in the last quarter of the fiscal year to buy some large-ticket purchases that we would have done in the subsequent year because we have gotten such deep discounts from organizations trying to fulfill sales quotas at their year end. We've done that with a lot of high-tech equipment like monitors, infusion pumps and robotic surgical devices.
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