Budgeting in Times of Uncertainty: Insight From 3 Hospital CFOs

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In a session moderated by Holly Carnell, JD, associate at McGuireWoods at the Becker's Hospital Review Annual Meeting on May 17 in Chicago, three hospital CFOs shared their insights on the most challenging aspects of budgeting and managing finances within a hospital today.

The panel included John Zell, vice president of finance and CFO of OSF St. Joseph Medical Center in Bloomington, Ill., Joe Guarracino, senior vice president and CFO of The Brooklyn (N.Y.) Hospital Center, and Henry Brown, CFO of Internal Fixation Systems and former CFO of several hospitals throughout Florida and the Midwest.

Mr. Zell said one of the most difficult things in budgeting for a hospital's operations is trying to predict revenues and costs for service lines that are undergoing massive change and new physician employment models. For example, OSF St. Joseph, like many other hospitals, has ramped up its physician employment strategy. Currently, it employs 30 primary care physicians and 30 specialists. However, that fluctuating mix of physicians changes the perspective on hospital service line mixes and the associated revenues and costs with them, he said.

Other major budgeting challenges include cost structures, the ambiguity of accountable care organizations and finding new ways to keep costs in check even more than they already are. "There's a difference between fixed and variable costs, but when the rubber hits the road, everything is a fixed cost up to a point," Mr. Zell said.

Mr. Guarracino oversees the financial operations of the The Brooklyn Hospital Center, an affiliated hospital of NewYork-Presbyterian and Brooklyn's first hospital. He said his hospital, which recently emerged from bankruptcy in 2007, experiences a lot of challenges as a safety-net institution — 70 percent of its payor mix is Medicaid and Medicare. Its margins are slim, and the hospital usually has less than 20 days of cash on hand.

However, Mr. Guarracino was brought on to help The Brooklyn Hospital Center, and through growing a primary care base, finding access to capital and shrewd and appropriate budgeting measures, he has helped the hospital stay in the black. In fact, the hospital increased its equity by 40 percent since 2007. He also attributes the success to an improved culture in addition to better financial management. "I have two titles — CFO and chairman of the employee engagement team," Mr. Guarracino said. "I talk to all nurses, recruiting, go out to dinner with doctors. [Being a CFO] is more than the treasury and revenue cycle — it's becoming an operational CFO."

Mr. Brown has extensive experience in Florida hospitals, and he echoed Mr. Zell's and Mr. Guarracino's thoughts that net revenue is the most difficult thing to budget, especially as Medicare, Medicaid and even commercial payor reimbursements are changing. "You can have all the sophisticated variable and fixed cost structures, but it comes down to is, what's reality?" Mr. Brown said.

More Articles on the Becker's Hospital Review Annual Meeting:

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3 Hospital Leaders Discuss Unintended Consequences of the Affordable Care Act

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