Cost containment, the CFO evolution and more: Q&A with Mayo Clinic CFO Dennis Dahlen

A rapidly changing healthcare industry has left many CFOs struggling to balance their traditional responsibilities with a new set of strategic expectations, and few people understand this balance better than Dennis Dahlen.

Mr. Dahlen became CFO of the Rochester, Minn.-based Mayo Clinic in November 2017 after serving for 11 years as senior vice president of finance and CFO of Phoenix-based Banner Health. He earned a master's degree in finance from Minnesota State University Moorhead and a bachelor's degree from the Grand Forks-based University of North Dakota. Mr. Dahlen spoke with Becker's about some of the most pressing issues facing CFO's today.

Editor's Note: Responses have been lightly edited for length and clarity.

Question: What is the greatest challenge hospital and health system CFOs faced in 2018? Do you expect this to be their biggest challenge in 2019 as well?

Dennis Dahlen: Cost control is the top concern for almost every healthcare leader in the country. We're routinely disappointing our patients with high out-of-pocket costs, so everybody's looking at that. We've got to balance those efforts with the need to grow and expand.

I expect those challenges to continue into 2019. I also think there's been evidence of a shift in merger trends. In these past two years, we've seen a lot of hospital mergers, and we've just heard about the finalization of the Aetna/CVS merger, so now we've got vertical integration, non-traditional partnerships. That's not a scale play, that's a disruption play. That's going to influence a lot of us. So, in addition to cost control, we have to address the shifting marketplace as well.

It hastens the need for us to show results. These new market entrants, they tend to move faster; they have less to lose; they have a tremendous advantage. It'll be interesting to see how the alliances disrupt the old models.

Q: How do you feel the CFO role has evolved in recent years?

DD: We're at the point, at least on the large health system end of the healthcare industry, where we have progressed away from the traditional accounting focus. Obviously, we still focus on financial reporting and compliance, but for high-value CFO roles, it's really about being a catalyst and a strategist, rather than a steward or an operator. We've done quite a bit of work since I arrived at Mayo examining the role of CFO. I've looked, not just within the healthcare industry, but to other industries for some leadership on that front.

I'd also point out our revenue models are becoming more diversified and sophisticated, and we just need different talents. We're using our business development functions to commercialize our internally developed intellectual property, as well as partner with others who bring interesting ideas to the floor. We also have the commercialization of our Mayo Clinic ventures, so as revenue streams evolve, the role needs to follow that.

Q: Mayo operates major campuses in three very different regions; how does your financial strategy differ by region?

DD: We operate today as one Mayo Clinic. I've only been here a year, and I just want to give credit to the leadership of John Noseworthy, MD. His term as CEO is up at the end of this year, but he initiated a massive integration effort over the past nine years that really took Mayo from a holding company to a single operating entity. It is paying dividends every single day for our patients, physicians and staff. But the business model across all three campuses is the same. We're focused on the complex and serious end of the care spectrum.

What sets Mayo apart is that we've got a strong integration of clinical services, practice, research and education. We operate off one set of clinical orders now, one chargemaster, one compensation plan. We've got identical business policies. The variances in financial strategies by locale is really because the patient population is different in Florida, Minnesota and Arizona. Our Florida and Arizona campuses have a much more pure destination medical focus. We don't have a health system down there and don't do a lot of primary care. We do complex and serious cases — a lot of surgeries, transplants and oncology work. We're trying to keep pace with the growth in demand for the population and market share in both of those places.

Q: How does Mayo's role as an international provider of highly complex care affect your responsibilities as CFO?

DD: Mayo has been dedicated to the needs of international patients for more than 100 years. This goes back to when the Mayo brothers used to travel the world to share medical and surgical practices, learn from others, and create relationships. Today we care for thousands of international patients from about 140 countries each year.

For the first time in my career, I'm paying attention to developments in foreign affairs and international business. Individual events do disrupt patient flow, and global affairs have, over the last year, impacted our volumes from overseas. We can't be everywhere, but we've established the Mayo Clinic Care Network, which is a network of roughly 40 like-minded organizations that share a commitment to improving the delivery of healthcare in their communities. We've got several international members in the network. All of that requires a lot more surveillance of global economics and politics, as well as a greater understanding of other cultures. Occasionally, you have to travel to experience all of it first hand and build those relationships.

Q: What are your top cost containment strategies?

DD: Each year, Mayo successfully eliminates excess costs through practice optimization and focused efforts. We use lean principles, procurement rigor, all of those things. This year we've tracked savings in the order of $200 million. I wouldn't characterize anything we're doing here as out of the box or extraordinary. It's the same things you would hear from most other health systems of our scale. I think this is a place where a physician-led, physician-driven model pays dividends because our physician leadership is absolutely front and center.

One transformative cost containment example I'll highlight for you is Civica Rx, which is a non-profit, mission-driven drug company we launched in fall 2018. We were a founding member, among seven large health systems and three philanthropic groups. It could be a game changer in terms of the way the industry supplies the population with generic drugs.

A more fundamental key to cost containment is the credibility of the data. You've really got to be sure of your metrics. Healthcare is complicated, and we burden ourselves with a lot administrative billing data to drive our decision making. You really have to scrub it, filter it and normalize it before you bring it into prime time. Otherwise, you end up fighting yourself.

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