7 Areas That Will Influence the Finances of Safety-Net Hospitals

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For Paul Goldberg, CFO of LibertyHealth, a good year is just breaking even. But the same could be said for almost every other safety-net hospital in today's economic climate.

Mr. Goldberg has been the CFO of LibertyHealth in Jersey City, N.J., for the past three years. LibertyHealth's main facility is Jersey City Medical Center, a 316-bed Magnet hospital. JCMC, a teaching affiliate of the Mount Sinai School of Medicine, is also a major safety-net provider in Hudson County. Last year, JCMC recorded more than $1.27 billion in gross charges, $300 million in net revenue and $3.35 million in net income — equaling a razor-thin margin of 1.1 percent, but positive nonetheless.

Safety-net hospitals have always had to survive on small margins, and Mr. Goldberg says that is especially true for his non-profit health system. Here, he shares seven areas that are going impact or are currently impacting the finances of safety-net facilities — for better or for worse.

1. Medicare reductions from readmissions.
JCMC will be one of the 278 hospitals set to absorb the maximum penalty from the Readmissions Reduction Program in the next federal fiscal year. This means the hospital will lose 1 percent of its base Medicare reimbursement. Mr. Goldberg says Medicare only comprises 20 percent of JCMC's cases, a relatively low figure, and he expects the readmissions penalty will cost the hospital between $600,000 and $700,000.

However, 23 hospitals in New Jersey, including JCMC, are facing the 1 percent penalty, many of which are hospitals that care for a higher percentage of poor patients. Mr. Goldberg says the Medicare readmissions penalties will significantly impact facilities like his because their missions focus on caring for the sickest of the sick.

"It's not the classic cardiac cases that are the issue," Mr. Goldberg says. "We have a booming emergency room, and unfortunately we see patients frequently. Frankly, it's the safety-net providers that are taking it on the chin here."

Paul Goldberg is CFO of LibertyHealth.2. Charity care. High percentages of indigent patients will not just affect Medicare readmission data, Mr. Goldberg says. More poor and uninsured patients also means more uncompensated care and bad debt.

Safety-net hospitals usually provide the most charity care within the healthcare sector, and Mr. Goldberg says that's simply a "factor of demographics and of life." It's up to these facilities to stick to their charitable missions while finding other cost-saving efficiencies.

"The difficult part is a lot of our patients are Medicare/Medicaid dual eligibles and charity care patients," Mr. Goldberg says. "They don't have other places to go, or it's hard for them to get other services outside hospitals. If you look at the numbers, we're arguably the second- or third-largest charity care provider in the state, as 23 percent of our patients are eligible for the state's charity care pool. That really impacts revenues and the balance sheet."

3. New delivery models. Moving toward value-based services and managing a set population is the name of the game for hospitals today, and safety-net hospitals have to get on board.

"Trying to understand how we're going to transition from fee-for-service to risk-based and population management is a huge issue for us right now," Mr. Goldberg says. "Eventually, hospitals are going to wind up looking more like an insurance company where a hospital is a cost center. We really have to figure out how to do population management."

Whether a safety-net hospital participates in medical homes, accountable care organizations or other new care delivery forms, he says there is one major driver that will help keep the hospital's finances afloat: physician recruitment. Both primary care physicians and specialists have always been at the center of a hospital's referrals, and they will be even more important to keep revenue steady in the new dawn of healthcare reform. "We spend a lot of time recruiting physicians that will bring elective cases to the hospital," Mr. Goldberg says.

4. Improvement processes. One of the simplest initiatives a safety-net hospital can undertake to shore up its finances are improvement audits to see where revenue can be found. For example, JCMC hired a consulting firm, which made improvement recommendations to the hospital's revenue cycle, supply chain and productivity. In total, Mr. Goldberg says the health system was able to find $10 million in ongoing improvements.

5. Case mix index. Mr. Goldberg says LibertyHealth and JCMC took on another project that was heavily impacting its bottom line: the hospital's case mix index. They created a department staffed by nurses to verify clinicians were documenting everything appropriately — a process more commonly known as clinical documentation improvement.

"[The improved documentation] has had a very positive impact on CMI," Mr. Goldberg says. "It doesn't actually change anything — it's just having physicians document more what they do. It's added $3 million to our bottom line."

6. Managed care contracts. New Jersey is going through a massive shift right now as many hospitals are converting from non-profit to for-profit enterprises. Some for-profit hospitals in New Jersey, including those in Hudson County, do not accept insurance contracts and operate on an out-of-network model, meaning they bill based on charges. That opens the door for other hospitals that contract with the commercial payors on rates because there is less competition for the insurers' populations. However, Mr. Goldberg stresses that there is no such thing as easy payor negotiations, and safety-net hospitals, in particular, have to fight for every dollar they think they can obtain.

"We are very aggressive on managed care contracts so we are getting appropriate rates to support us," Mr. Goldberg says. "We don't want to be in position where we are getting low-balled."

7. Adequate capital. Safety-net providers are usually running on slimmer margins, and that also could mean there is less cash in the reserves. Mr. Goldberg says safety-net hospitals have to find the ability to invest in the future, and sometimes that may involve a safety-net provider merging with larger systems that have the economies of scale, if necessary.

"Having adequate capital to grow is important," Mr. Goldberg says. "This is not just bricks and mortar. This is acquiring physician practices, electronic health records, specialty systems for the operating room. Health IT, in particular, is a huge issue for us."

More Articles on Hospital CFO Issues:

Why Cash is King: Q&A With Dawn Javersack, CFO of Boca Raton Regional Hospital

8 Tips to Improve Your Hospital's Operating Margin

5 Key Points on What Hospital CFOs Can Learn From Corporate CFOs

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