5 Observations and Concerns From Hospital and Health System CFOs

It's not an easy time to be in charge of finances at a nonprofit hospital or health system. Healthcare leaders across the country are facing declining inpatient volumes, the shift from fee-for-service reimbursement to value-based payment models and the call to cut costs while improving quality.

"We're seeing these pressures hit everybody across the board," said Kevin Holloran, director of Standard & Poor's Ratings Service's nonprofit healthcare group. "There's no rhyme or reason in terms of size or shape."

Mr. Holloran discussed those pressures along with three CFOs — Gary Weiss of Evanston, Ill.-based NorthShore University HealthSystem, Harry Reese of Ochsner Medical Center in New Orleans, and Michael Schaefer of Dallas-based Methodist Health System — during an April 23 webinar moderated by Scott Becker, JD, publisher of Becker's Hospital Review, and Becker's Senior Editor Bob Herman. Here are five key observations and concerns the CFOs shared during the discussion.

1. Changing reimbursement models are a top concern. When asked to identify the biggest challenges, Mr. Weiss said one of NorthShore's main concerns is the transition to new reimbursement models such as shared savings arrangements. "We're moving fairly deliberately into new models," he said. "That's not easy in the changing environment. That keeps me up at night."

Similarly, Mr. Reese said moving to value-based payments is a priority at Ochsner. "I'd say the first challenge is maximizing our revenue in a mixed model reimbursement world," he said.

Mr. Holloran said providers sticking with fee-for-service seem to be faring well for the time being. However, they will "have to eventually move into that other boat."

"We're ultimately going to get to the place where everyone's going to say, 'We're going to go more at-risk,'" he said. "You're going to have to learn how to embrace that." 

2. Investing in IT is necessary to prepare for the future. All three CFOs said they have been making significant investments into IT recently. Mr. Reese said Ochsner has implemented a full rollout of Epic software during the past three years and currently spends 4 to 5 percent of its budget on IT. "We will likely be increasing that over the next couple of years," he said. "We need to put in the time to maximize the return on the Epic investment."

Mr. Schaefer said Methodist devotes about 2.5 percent of its budget to IT operations and another 2 percent annually on replacement IT capital. "Our biggest question is do we have the IT platform we need for the future?" he said.

Similarly, Mr. Weiss said NorthShore spends 4 to 4.5 percent on electronic medical records, and perhaps another 5 percent on one form or another of IT spending. "It's great technology to have, but once you have it, it takes a lot of care and feeding, year-in and year-out," he said.

Still, that care and feeding will likely pay off in the end, according to Mr. Holloran. "When everyone's connected…and we can share all these great, massive quantities of data, we can turn it into really useful information," he said. "Folks who are not doing that right now will ultimately wish they had." 

3. Defined benefit pension plans are a thing of the past. All three CFOs reported their organizations were moving or have already moved from defined benefit pension plans to defined contribution plans. Mr. Weiss said NorthShore made the decision last year to freeze their plan and moved all participants going forward to a new defined contribution plan.

Mr. Schaefer said Methodist made the transition in the 1990s, and Mr. Reese said Ochsner did a soft freeze on its defined benefit plan about five or six years ago and plans on completely freezing it this year. Mr. Holloran of S&P confirmed the era of the defined benefit pension plan is "largely over by this time." 

4. The role of the CFO has become largely strategic. All of the CFOs said they aren't just the bearers of financial information for their organizations. At Methodist, Mr. Schaefer said his role is a lot more about strategy than relaying fiscal data. Likewise, Mr. Weiss said he is "largely focused on business decisions and strategy" at NorthShore.

"Not just the CFO, but the entire finance staff needs to help the business to make good decisions," he said. "That has somewhat changed with technology. The better our core business information is captured digitally, the easier it is for us to analyze it and work with our counterparts to make better decisions."

Mr. Reese said Ochsner restructured and redistributed more basic duties several years ago to allow the CFO to be more operationally focused. "I spend most of my time working with the COO of the hospital and the COO of our physician group, providing the financial perspective to the strategy and operational plan," he said. 

5. Despite current financial pressures, there's reason to be optimistic. Although they face some significant challenges, Mr. Reese, Mr. Schaefer and Mr. Weiss all expressed positive outlooks.

"I'm very optimistic that we've still taking the right steps at this point," Mr. Weiss said. "We will continue to grow, likely through acquisitions. I'm very confident despite the change all around."

Similarly, Ochsner is "highly confident" its physician-led model, Epic upgrade and work with population health will help the organization thrive, according to Mr. Reese. At Methodist, Mr. Schaefer said he also feels good about the system's ability to be successful long-term.

Looking at the sector overall, although S&P has issued a negative outlook, Mr. Holloran said the industry will still remain fairly stable. "I think overall this is a very resilient sector, and I'm optimistic as well," he said.

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