On a regular basis, Kevin Brennan — executive vice president of finance and CFO of Danville, Pa.-based Geisinger Health System — monitors his system's margin, EBITDA, capital structure, liquidity, average age of plant and credit ratings, along with metrics related to operations, community benefit and strategy. "Certainly, as a financial officer, the financial matters are uppermost in my mind," he says.
However, Mr. Brennan also monitors quality metrics, such as health outcomes linked to reimbursement. "Quality is really something that doesn't determine the majority of our current payment stream…but more and more of our dollars are shifting to the outcome-based, whether it's Medicare value-based purchasing or whether it's our own health plan," he says.
The arenas of quality and cost are becoming increasingly linked as the healthcare industry transitions from paying providers based on volume to linking reimbursement levels to value. For instance, during the first year of the Medicare Hospital Readmissions Reduction Program — which was established by the Patient Protection and Affordable Care Act and took effect in fiscal year 2013 — CMS cut Medicare reimbursement by up to 1 percent for 2,213 hospitals with high readmission rates for heart attack, heart failure and pneumonia. The second round of penalties started Oct. 1, 2013, and CMS cut reimbursements for 2,225 hospitals in 49 states by up to 2 percent. In fiscal year 2015, hospitals could see cuts as big as 3 percent, and chronic obstructive pulmonary disorder and total hip and knee replacement will become part of the program.
As Medicare and private payers continue to link pay to performance through readmission penalties, bundled payment programs and accountable care organizations, the set of metrics CFOs focus on is expanding as well to encompass not only core financial numbers but also quality indicators.
"If the hospital is becoming an ACO, it's going to be equally important to meet quality improvement metrics as it is to meet cost containment metrics," says Lisa Schneider, CFA, managing director of nonprofits and healthcare systems at Russell Investments, a global asset management firm. "Outcomes are going to be very important."
The most important metrics
Many hospital and health system CFOs monitor numerous metrics regularly to assess their organizations' performance, and the most important indicators differ depending on various factors, such as whether their health system also runs a health plan. However, there are several broad categories that CFOs across the board seem to view as crucial.
For instance, Bob Glenning, CFO of Hackensack (N.J.) University Medical Center, says trends in inpatient and outpatient volume will always be important, despite the transformation from fee-for-service to value-based payments. "It's the leading economic indicator," he says. "If I know my volumes are strong, then it's likely that my revenue will be strong."
Similarly, Don Trippel, CFO of Hugh Chatham Memorial Hospital in Elkin, N.C., says he pays attention to surgeries and the census on a daily basis: "The volume-driven functions are obviously a big part of it."
Cash also comes up frequently as a focal point. Mr. Glenning says he spends considerable time monitoring days cash on hand, collections and overall cash trends, in addition to determining "what I think is going to move cash to the organization and away from the organization."
In addition to a balance score card of metrics tracked monthly, Fred Savelsbergh, CFO of Dallas-based Baylor Scott & White Health, says he also focuses on cash production, in addition to revenue. "We have a target and a goal for cash production and revenue that shows up on my dashboard daily," he says.
The growing prominence of quality on the CFO dashboard
Mark Bogen, CFO and senior vice president of finance of South Nassau Communities Hospital in Oceanside, N.Y., also reviews reports on cash (including daily deposits), revenue and indicators of inpatient volume. He also ventures outside of the territory of the expected indicators of profitability and fiscal health.
"I feel that everything that goes on in the hospital impacts finance," he says. "I've become extremely sensitive to the clinical quality indicators."
Like Mr. Bogen and Mr. Brennan of Geisinger, many hospital and health system CFOs seem to have a quality element in their dashboards, especially if their organizations have launched value-based initiatives and population health management efforts. Dennis Dahlen, CFO of Phoenix-based Banner Health (which is participating in Medicare's Pioneer ACO model), tracks the performance of his system's population health management enterprise. Banner sorts patients into different cohorts, depending on whether they're part of a full-risk or shared savings model. He looks at how much business Banner has per cohort, premium revenue and administrative costs, among other measures. "We break it down similar to the way an insurance company would," he says.
Figuring out the CFO focus going forward
Mr. Bogen says he's still trying to determine what his ultimate CFO dashboard will look like in an era of population health management and value-based payments. Still, he predicts he and his colleagues overseeing health system and hospital finances across the country will need to tweak the indicators they look at or identify entirely new ones.
"I think the biggest thing is CFOs…they're going to have to continue to get out of their comfort zone with the traditional financial indicators that predict revenue, that predict cash flow, and be more aware of where we're headed, how many lives are we covering and the utilization and the outcomes attached to the clinical pathways that we're allowing access to," he says. "I know that's a tough thing to get used to, but quality and outcomes are where it's at, so you've got to be in that loop."
Some of the key metrics identified by the CFOs
Admissions and readmissions
Community benefit information for tax exemption preservation for nonprofits
Covered lives, premium revenue and cost per member (if the organization runs a health plan)
Daily cash balance and cash collections
Daily census
Daily emergency department activity
Gross revenue and payer mix of revenue
HCAHPs
Healthcare complexity codes
Length of stay by service line
Maximum debt service coverage ratio
Observation stays
Occupancy by service line
Operating margin
Outpatient registrations
Patient experience
Patient populations that drive costs the most
Productivity and operational efficiency
Staff overtime
Surgeries
Unrestricted days cash on hand
Variance between actual and budgeted FTEs
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