Finances in the Era of Population Health: Q&A With Kevin Lang and Steve Mohr of Loma Linda University Medical Center

Loma Linda (Calif.) University Medical Center knows a thing or two about handling finances. In fiscal year 2010, it brought in more than $1.2 billion in total patient revenues and still maintained a net income of $33.9 million — all in a state that some say is experiencing a "healthcare affordability crisis."

Kevin Lang, executive vice president and corporate CFO of Loma Linda University Adventist Health Sciences, and Steve Mohr, senior vice president of finance and CFO of LLUMC, explain that handling the large load of hospital finances certainly has its challenges — but making the right changes during the coming era of accountable care and population health management are key to keeping a healthcare institution solvent.

Q: What are some of the major financial issues LLUMC is dealing with right now?

Steve Mohr: Medi-Cal, our Medicaid program, and Medicare are more than 50 percent of our business. Medi-Cal alone is in excess of 35 percent of the business at LLUMC, and unfortunately, LLUMC is significantly under-reimbursed for costs.

Kevin Lang: California, in terms of Medicaid hospital reimbursement, has the lowest reimbursement of all 50 states. That is documented.

SM: The Kaiser Family Foundation did an analysis of that, and we're actually 51st, including the District of Columbia. That presents a huge challenge for us. One of the things we've had to do is cost shift. But with the current economic environment, that is becoming more and more difficult to do. We are getting squeezed from a revenue standpoint, and we have to look at our expenses very carefully.

KL: Another [issue] is California requires high earthquake standards in facilities. Our hospital was built in 1967, and it was going to cost too much money to retrofit it. Now we need to build new hospital to the tune of $800 million. There are two earthquake standards, one due in 2013 and one in 2030, and we plan to meet both codes by 2020. It appears [the state] will give us permission to meet the lower-level and higher-level codes by then.

Q: How does LLUMC plan to implement ICD-10?

LLUMC has a legacy billing system which goes back 15 to 20 years, and to modify that system, the costs would be prohibitive. We are actually implementing the Epic system for both electronic health records and billing for our faculty practices and physicians. That is our primary plan right now.

Obviously, there is a significant amount of training that will be required. We will need almost 100 hours of training for each of our coders, which is extremely expensive. We're definitely concerned. We started this in May of [2011], and the whole project will be implemented within 18 months.

Q: LLUMC is one of the highest grossing non-profit hospitals in the country. What is the pressure like to manage the billions of dollars in revenue that pass through every year?

SM: Our organization has gone through tough times in the past, changes in reimbursements. Being a non-profit, we've focused on our people. Kevin and I go home with 13,000 and 7,000 [employees of LLU] on our minds, making sure we are not only providing the highest level of care for our patients but also making sure employees who give their lives to our organizations are well cared for. The community is relying on us, but employees are relying on us as well.

Q: How can hospitals best navigate through the upcoming Medicare and Medicaid cuts, and what kind of initiatives are you taking on to ensure financial solvency and quality care?

KL: This is going to be real challenge, and the biggest thing is the unknown. We have to prepare ourselves to be proactive on how we can deliver the best overall service in the most cost-effective way. The biggest thing we've taken on as an organization is that our physicians are consolidating into one faculty practice group. At the same time, we are combining our corporations to become one health system. We are bringing physicians to the table, the medical center to the table, and we are integrating the care from physician practice through the medical center to when [patients] return. We are focusing on the continuum of care to manage chronic disease. The way we view the future, [accountable care organizations] or what have you, will revolve around population management. Health systems put us in a position to manage populations. We are spending a lot of time to create the right structure and implement the right information systems to support it.

SM: An integrated health system provides a great opportunity to align incentives between the hospital and our physicians in our faculty practice plan. This will reduce overall costs but will increase our quality to our patients at the same time. But it is not easy to implement organizationally competing interests. Aligning those interests is challenging, but our organization is moving strongly in that direction.

We also wanted to reduce the number of [full-time equivalents], but we wanted a plan that was thoughtful of employees. We reduced 240 FTEs without any significant layoffs, saving $28 million on a year-over-year basis, and this was mostly done through attrition and retraining.

Q: What kind of advice would you give to CFOs of smaller hospitals during these fluctuating financial times?

For small community hospitals, they need to be looking at where they can align with other hospitals in the future. I'm not talking about mergers, but just aligning and working together on population management. It is part of the [PPACA] initiative, so they must share information from a quality perspective. That's a key for long-term success: who your partners are.

Ramp up physician alignment and cost cutting. We hate to be the masters of the obvious, but it's putting a new spin on old concepts.

I want to add that hospitals need to be a low-cost provider; that's essential. Quality cost-cutting initiatives are going to be key. Volume drives costs, and to be viable in the long term, the physician alignment and cost-saving initiatives are essential.

Related Articles on Hospital CFOs:

110 Hospital and Health System CFOs to Know
Texas' Methodist Hospital System CFO Steps Down
5 Common Accounting Blunders Hospitals Can Avoid

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