Hospital CFOs' top concerns for 2015

From the transition to ICD-10 to mergers and acquisitions, hospital and health system CFOs are certainly going to be faced with a myriad of challenges in 2015. Although it's hard to say what the biggest issue in front of financial leaders is, there are some common top concerns on CFOs' radars going into next year.

According to a poll conducted by Becker's Hospital Review, the following are some of most widely cited CFO concerns.

Changing reimbursement levels
About 3,400 acute-care hospitals and 435 long-term care hospitals receive payments under CMS' Inpatient Prospective Payment System, through which they agree to pre-determined rates to serve Medicare patients. The 2015 IPPS final rule promotes quality of care by enacting a 1 percent reimbursement cut for hospitals with the poorest performance (in the lowest quartile) in reducing hospital-acquired conditions. The initiative, called the Hospital-Acquired Condition Reduction Program, is mandated by the PPACA.

The 2015 final rule also updates the Hospital Value-Based Purchasing Program, another PPACA initiative, which adjusts IPPS payments based on quality of care. In 2014, CMS took back 1.25 percent of Medicare payments to hospitals through the IPPS, and for 2015, the final rule increases the applicable percent reduction to 1.5 percent.

The 2015 final rule cuts overall Medicare disproportionate share hospital payments by 1.3 percent in fiscal year 2015, compared to 2014. In addition, under the PPACA, Medicare DSH payments will be reduced by 75 percent by 2019, or $49.9 billion.

Along with changes in Medicare reimbursement, changes in PPO and HMO reimbursement levels have hospital CFOs concerned. If PPO and HMO reimbursement continues in the direction of Medicare-like rates, some CFOs fear hospitals' last line of business with some level of reasonable margins will be eliminated.

Uncertainty of PPACA payment reform models
The passage of the PPACA remains highly politicized, and with a number of challenges to the health reform law's provisions along with the possibility of a Republican president in 2016, some CFOs wonder if payment initiatives such as bundled payments will even be on the table in the future.

Traditionally, government healthcare programs and private payers made separate payments to healthcare providers for each service they performed during a single course of treatment. However, the bundled payments approach –a PPACA payment reform model – has gained popularity.

Under the bundled payment approach, hospitals, physicians and other providers involved in patient care share a fixed payment that covers the average cost of a "bundle" of services. With the aim of lowering healthcare costs, bundled payments encourage collaboration between all types of care providers, including primary care physicians and specialists. The approach also provides more price transparency.

The transition to ICD-10
When the official ICD-10 transition date was pushed back a year to Oct. 1, 2015, it gave hospital financial leaders more time to assess the costs associated with the transition.

According to a report funded by the American Medical Association, the estimated cost of the ICD-10 transition varies widely based on practice size. For small practices, estimates range from $56,639 to $226,105. For medium-sized practices the cost range is $213,264 to $824,735, and for large practices the range is roughly $2 million to more than $8 million.

Although the actual cost of the transition is a major concern for CFOs, some financial leaders are concerned about indirect costs of the ICD-10 transition as well. Michael J. Koziol, CPA, senior vice president and CFO of MaineGeneral Health in Augusta, says "We have a number of physician practices, and I am concerned about the productivity loss that will occur with the change."

Consolidation in healthcare
With the shifting healthcare environment, mergers and acquisitions are certainly on the top of CFOs' minds. Hospital and health system CFOs have to examine potential deals to determine if they make sense from strategic and financial perspectives.

The pressure to enter into these transactions is especially great for CFOs of independent hospitals. With the technology investments hospitals and health systems are required to make and the quality of care they must provide to survive in the new healthcare environment, many independent hospitals are evaluating whether they need a merger partner.

The changing CFO role
With hospitals more focused on improving quality of care while lowering healthcare costs, hospital CFOs must understand the costs that drive value and quality.

In addition, the hospital CFO role is also becoming more strategic, with hospital financial leaders more focused on business decisions and strategy than ever before. By working with physicians, CFOs are pushing for efficient care to help ensure the financial stability of their hospital or health system, which causes some CFOs concern, as they are branching out into unfamiliar territory.

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