From Pizzas to Patients: Q&A With Mike Brown, CFO of Children's Hospital & Medical Center

Mike Brown's path to his role as senior vice president and CFO of Children's Hospital & Medical Center in Omaha, Neb., has involved a few twists and turns.

After getting his start as a certified public accountant and gaining some healthcare experience, he ended up working as a finance executive in the pizza business. However, after a few years, he decided he wanted to do something involving public service.

Mike Brown"I just set my sights on a job in the healthcare industry," he says.

After transitioning from pizza to healthcare finance and administration, Mr. Brown eventually joined Children's as vice president of administrative and regulatory affairs before becoming CFO and senior vice president. Under his leadership, the hospital has experienced strong operating performance and has strengthened financial resources, leading Moody's Investors Service in December to upgrade Children's outlook to positive from stable.

Here, Mr. Brown discusses the hospital's journey to strengthen its balance sheet, the transition to value-based care and his thoughts on healthcare price transparency.

Question: In recent years, your hospital's financial resources have become considerably stronger, according to Moody's. What's the story behind that increased financial strength?

Mike Brown: We've been fortunate enough to drive market share. We're in our sixth year of a practice plan affiliation with the University of Nebraska College of Medicine; that brought our clinical resources together. We've grown our physician cohort extensively. At the same time, we're keeping expenses in line. If you look at our compound annual growth rate on the expense side versus the revenue side, we've grown the revenue base while keeping expenses in line.

We're like so many others. We're on a long-term journey to strengthen our balance sheet. This has been a seven- or eight-year journey. We've all benefited in the past two and a half years; our balance sheets have improved as we’ve benefitted from sound performances in the investment markets.

Q: Moody's, Fitch Ratings and Standard & Poor's Ratings Services have issued gloomy forecasts for nonprofit hospitals like Children's for 2014. How do you think Children's will fare this year?

MB: Our environment, like many others, is going to get more difficult. I don't think there's any question about that. Our ability to continue to drive operating margins at the level we've been able to in the past is going to be more difficult. Our marginal revenue is going to go down. Medicaid is our biggest payer partner, and just about every state government is dealing with fiscal constraints. These get manifested in Medicaid payment rates.

With commercial payers, there's proliferation of narrow networks, which bring reduced marginal payments. Revenues are going to go down, and the goal is to manage the business effectively enough to offset some of that reduction. We're all getting better from a care delivery perspective. Our electronic medical record should help us to deliver care more effectively. But we wouldn't expect the profitability levels and the margin levels that we've experienced in the past to continue on into the future.

We're addressing this by continuing to maximize and market share and consolidate the pediatric market. We're also working to drive waste out of the system in areas we can do that safely and effectively.

Q: What are your top financial priorities and objectives for Children's at this point?

MB: We are preparing for value-based care in whatever form, trying to determine what our risk tolerance is, and what our position should be regarding at-risk arrangements. In our market, those haven't come too fast…yet we know the payers are still trying to decide what to do on the at-risk side with adult facilities. Our part of the premium dollar is very small, so we're working to proactively estimate that future state.

We look at the revenue side of the equation and then how to identify waste in the system from an expense perspective and ways to drive that waste out. It's about how we deliver care and how we can do it more effectively. We’ve reduced costs; now we're re-engineering how we deliver services.

We continue to evaluate what our employee mix looks like - the right way to deliver services and the right employee cohort to deliver these services; this is a major initiative. We’re also increasing utilization of our electronic medical record. We're whole-house Epic now, a recent implementation so we now truly have an integrated record. It’s important to take this system and the information it can provide and use it to provide quality, cost-effective care. These are our greatest opportunities as we move forward.

Q: The call for hospitals and other healthcare providers to be more open about their finances is getting louder. What do you think of the push for healthcare price transparency?

MB: Financial transparency is a trend that will continue. It's in our best interest as an industry to proactively continue to develop this. I don't think we want our regulators at the state level or at the federal level to drive the agenda. This is something we need to lead.

There are challenges, however. Sharing meaningful pricing with health care consumers is difficult. We still haven't found the right way to do that….but we should keep in mind that this doesn’t mean it’s not important. We need to find the right way. This idea of establishing the value proposition is key going forward. The cost to the consumer or the price that you charge them is a crucial component in the value equation. We need to do a better job in that arena.

More Articles on Hospital CFOs:
The State of Healthcare Finance: 9 Major Survey Findings From Hospital CFOs  
CFO Roundtable: How Will 3 Major Changes for the Year Ahead Impact Finances?  
Excited About the Road Ahead: Q&A With Mercy Health CFO Patrick Kowalski 

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