In the general context of finances, few hospitals or health systems compare to the Cleveland Clinic.
As of Dec. 31, 2012, Cleveland Clinic had more than $10.2 billion in total assets. In fiscal year 2012, the academic medical center posted an operating profit of $228.3 million on more than $6.2 billion of unrestricted revenue, good for a 3.7 percent operating margin.
However, Cleveland Clinic CFO Steve Glass looks beyond the numbers. Mr. Glass has been CFO of the organization since 2005 and joined the system in 2002 as controller and chief accounting officer. He says Cleveland Clinic is successful today not because it focuses on the bottom line, but because it focuses on how to rearrange care delivery to make things better for patients. The finances will take care of themselves if a hospital is doing the right things.
Here, Mr. Glass explains why U.S. healthcare has become so expensive today, what hospital leaders need to do to change that paradigm, how data can be utilized correctly and why environmental sustainability and international relations are key cogs to Cleveland Clinic's growing success.
Question: There have been a ton of stories in the media as of late — from Steven Brill's piece in TIME to the recent New York Times series — talking about the U.S. healthcare system and why it is so expensive. Cleveland Clinic is a $6 billion organization with several affiliated hospitals and some of the most renowned academic physicians and research in the world. As the financial head of the organization, can you give your analysis of these stories? Why do you think U.S. health expenditures have spiraled so far out of control?
Steve Glass: I don't know if I can fully answer why, but I can give my perspective and what we're focused on at the Clinic. First, we need to do a better job of coordinating care. There are a lot of independent pieces, and patients move through a series of disconnected models. We are developing a system, a healthcare delivery model, that truly integrates care, and information passes along with that patient. Historically in healthcare, once you move from one setting to the next, it's disconnected, which is not like other industries. Individual practitioners, home health companies, hospitals — all of these are different companies with different incentives. We have to design and integrate better care delivery models, so patients know that they are going to receive connected care that follows a plan and that is evidence-based, as well.
The other part is we don't have clearly defined incentives. Today, incentives lie in treating illness, not treating wellness. That also extends to the patient. The patient needs more responsibility around care, as well. There are a number of patients that have chronic diseases and comorbidities, which creates a complexity that didn't exist 25 years ago. And all that comes with an associated cost. We don't have a good model in the U.S. to correlate that to patient responsibility. A little bit of that has to do with the culture in the U.S. of wanting a quick fix.
Here at Cleveland Clinic, with our caregivers, we are designing wellness programs that engage them and tie that to the cost of premiums. It's a way to incentivize people. OK, if you don't want to exercise or eat right, that will result in higher healthcare premiums. Within the context of healthcare, there are certainly things that aren't within everyone's control, but we focus on those that are.
Other [causes of high healthcare costs] include that things tend to cost more here in the U.S. Drugs and medical devices cost more here than other countries, and that's part of the problem as well. That's one of the variables that gets plugged into treatment costs.
Q: You mentioned that the healthcare system needs to change incentives, both financial and clinical, to reach better results. How would you reform the U.S. payment system to curb these high costs while also improving patient health? How do Medicare, Medicaid and commercial payers fit in?
SG: Number one is this whole idea of integrated care, and that's something we spend a lot of time around at Cleveland Clinic. We are a physician practice that operates a health system. The entire care delivery model is organized around that integration. Many hospitals have caregivers who are independent practitioners, and the incentives aren't aligned. You must have good, strong clinical integration. And even within our model to achieve that integration, we leverage evidence-based care.
Even with a model like ours, you could have variability from one physician to another. The big step around that is developing integration around technology so every patient gets treated the same way for the same diagnosis. Physicians are trained as individual practitioners, but we have to leverage technology and data to drive out variability of that care. It's about using more evidence-based protocols. That's one of the things we've done working with [Cleveland Clinic's spinoff health data analytics firm] Explorys. We ask doctors, "How do we drive costs down but drive more efficiencies in healthcare delivery?"
With Medicare and Medicaid, we certainly work with many constituents in D.C. to show them how we operate our model here. We have great relationships at the state and federal level, but it's a major challenge to try and reform Medicare and Medicaid. Not all hospitals are the same. Medicare is trying to figure out how hospitals put quality reporting in place across 5,000-plus hospitals, but all hospitals aren't same. A small acute-care hospital might see different patients than those who appear here at Cleveland Clinic, who are highly acute patients. We do work with commercial carriers to identify ways to move into value-based care models. We also want to take advantage of bundling and manage care around an episode.
Q: When it comes to bundled payments, Cleveland Clinic is one of the early adopters to work with big employers, such as Wal-Mart. Can you talk about the organization's efforts with employer bundling?
SG: Yes. We are working directly with employers because many large businesses are really engaged on how they can get involved and manage the growing costs of healthcare and providing healthcare benefits for employees. Organizations like Boeing, Lowe's and Wal-Mart have gotten very sophisticated in this. Most of our focus is on higher acuity services. These services are a tremendous cost to employers, but they are examples of where if you deliver the absolute right care in the right place, you can have an impact in the overall cost in treating the disease of a patient. The employers [we've worked with] offer benefit packages to travel to Cleveland Clinic for high-end cardiac care. What Lowe's said to us was very interesting. They said, "What if we just get patients to the right place the first time?" We would eliminate the costs that don't necessarily deliver the best outcome.
Q: What should other academic medical centers do right now to improve their financial strategies and the healthcare delivery system at large?
SG: It's not much different than some of the items we've talked about. How can you deliver a clear delivery model? In large systems like Cleveland Clinic and other academics, we have complex patients with multiple comorbidities, and we need an integrated system where information flows along with the patients. Patients need a very clear, evidence-based medicine treatment plan as they progress through the care delivery model. For the academic medical centers, we do a good job of leveraging that and building that out so we can take out the variability in those complex cases.
Q: How do you see President Obama's healthcare reform law panning out over the next several years? What provisions of it do you see as promising? Which ones need tinkering?
SG: Like everybody else, we are sitting back and watching this unfold. There is a tremendous amount of uncertainty on how this is going to work. The [health insurance] exchanges start enrollment Oct. 1, and we are still waiting to hear how all of this is going to work — signing patients up, getting information on types of plans that will be participating in exchanges, types of coverage in those plans, how those patients will enroll.
We obviously like the idea within Obamacare of having coverage for everyone. With all the uninsured out there, the burden falls on hospitals and health systems to provide that care for no reimbursement. Programs within Medicare and Medicaid help pay for that, but charity care is part of the burden the healthcare system needs to carry. We really like the idea of having coverage out here — but where's patient responsibility? Engaging wellness is an example. We don't think accountable care organizations are some kind of panacea, but the thinking is, within accountable care, [patient responsibility] could be a driver toward managing overall care. Those are very good components of Obamacare, but we need to make sure we still have that patient accountability in there.
Q: Cleveland Clinic has been a leader in environmental stewardship. Do you believe this strategy also has long-term financial benefits?
SG: Yes. [President and CEO of Cleveland Clinic] Dr. Toby Cosgrove is a big believer in this. Part of it is creating a culture of sustainability in an organization and being very mindful that resources are not abundant. They are not unlimited. We have a responsibility, and it's really about stewarding those resources.
Speaking as CFO, if done right, [sustainability efforts] could have good financial results for an organization. There are many examples out there. We make sure we are mindful of the environment and utilizing resources that could reduce waste, our footprint and costs. Sometimes it requires investments. For example, we changed out our lighting systems and HVAC systems, but those have also allowed us to continue to reduce our energy consumption. If you have a good sustainability program, you can translate that into good, sustainable financial results.
Q: Cleveland Clinic has branched out internationally, most notably with its facility in Abu Dhabi. What are your organization's main goals with these global health initiatives?
SG: It's important first to recognize that this isn't new. The Clinic has long trained physicians from all over world, and we've also developed strong relationships in other countries for physicians to practice medicine there. For the past decade, we've been getting out on the international front and educating other countries. It facilitates your international business.
When we were approached by the government in the United Arab Emirates, specifically Abu Dhabi, their objective was to make an investment to advance the delivery of healthcare in their country. They liked this physician practice model of medicine with physician leaders at the top. They said we'd love if Cleveland Clinic could develop that model. We are well into this project. We will complete construction in a little under a year and are looking forward to that. When we do something like this, we do it very seriously and according to [the right] standards, so we are very excited as this comes closer to going live.
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