Accountable care organizations and population health management are lofty goals for hospitals to improve community health. But how do the financial experts at hospitals and health systems feel about the change?
"ACOs want us to do population management to reduce the cost to them and shift the cost and risk to us," said Mark Anderson, CFO at Lane Regional Medical Center. "We have to make ACOs break even or profitable. At our hospital, we are first attacking staffing and management. Our managers and directors initially didn't have the data to manage systems at our hospital and would see the overtime rate once per month. We moved that to reporting on eight hour shifts."
Mr. Anderson, along with CFO of South Nassau Communities Hospital Mark Bogen; Managing Director at Lancaster Pollard Steven W. Kennedy; and Managing Director, Healthcare, Public Finance at Wells Fargo Melissa Bastan participated in a panel at the Becker's Hospital Review 6th Annual Meeting titled "The Capital Markets and Finance Strategy for Hospitals." Becker's Hospital Review's Akanksha Jayanthi moderated the panel.
Additional tactics Mr. Anderson mentioned to reduce costs include:
1. Flexed off staff members when possible.
2. Went back to the GPO market for new bids to save money.
3. Standardized material use for a better price.
4. Conducted benefit management of medical costs and pension plans.
5. Found places where it would make more sense to have a third party manage and bring overhead down.
"There is a significant amount of dollars that are inappropriately spent or wasted as a result of the way many clinicians still practice medicine," said Mr. Bogen. "You get consultations and a battery of tests. Physicians are afraid to make decisions until all the data is in, and that's the most difficult cost to squeeze out. You are trying to challenge the medical staff."
Improving quality can also make a huge impact on costs. Reducing hospital-acquired infections are low-hanging fruit; it can cost up to three times the amount to treat a patient with HAI than patients without HAI. Using evidence-based medicine across the hospital and reducing the HAI can make a difference.
"We are no longer able to manage for the once-every-few-years occurrence," said Mr. Bogen. "The system won't allow that. We are working with our quality team a lot."
Solutions to the big issues for hospital operations vary depending on the type of hospital and market. There has been significant consolidation over the past few years, but there are still community hospitals that remain. Large academic medical centers are very different, and the urban setting brings out separate challenges than the rural setting.
"The common denominator is lowering cost and economies of scale, whether that's through supply chain or negotiating contracts," said Mr. Kennedy. "There are hospitals doing fine that don't need economic affiliation. They have more leeway with their strategy going forward. But with investment-grade margins being so tight, a lot of community hospitals are almost forced into that decision of affiliation. Hospitals that have one player in their market theoretically can be a challenge from a negotiating perspective."
Many physicians are also scrambling to affiliate with hospitals and join referral networks.
"We are seeing a lot of hospitals merging at the physician-level," said Ms. Bastan. "They are merging to gain access to surgeons in that region. It's not all about cost; it's also about system growth. We are seeing more of a focus for hospitals into ambulatory care and gaining referrals from relationships with physicians. Larger market position will help gain ground on growth strategy."
Here are a few key trends the panelists noted:
1. There are providers who still don't report quality data and by not recording outcomes, they are missing the opportunity to show their quality and potentially receive financial incentives.
2. Most care is given to people who are 65 years and older, and there are larger dynamics moving toward more healthcare spending as the 65 years and older population increases.
3. As the federal and state governments continue to pressure providers to reduce spending on healthcare, there is a movement toward managing the continuum of care and patient health.
4. There is a focus on taxable debt for large health systems, which gives the system flexibility across the physician network.
5. Financing professionals recognize there aren't a lot of tangible assets, so providers can leverage financial strength since IT investments are running 15 percent to 20 percent of the annual capital budget.