IU Health to 'march down' premium pay, 'double down' on destination programs, CFO says

Under the financial stewardship of CFO Jennifer Alvey, Indianapolis-based Indiana University Health reported $45.1 million in operating income for the first quarter — reversing a $29.8 million loss for the same period last year — and returning to the black in 2023. 

Ms. Alvey, a seasoned finance executive, joined IU Health as treasurer and vice president of revenue cycle services in January 2011 before she was promoted to senior vice president and CFO of the 16-hospital system in February 2016. 

Ms. Alvey spoke to Becker's about her top priorities through 2023, how IU Health aims to reduce its labor costs and the health system's biggest opportunities for growth.

Question: IU Health had a positive Q1 as revenue outpaced expenses and increased 8 percent year over year. To what do you attribute the sizable increase in revenue?

Jennifer Alvey: About half of that Q1 year-over-year revenue increase stems from how much we had to shut down elective procedures the year before. We were still in a relatively high COVID period and we had quite a bit of negative volume impact with Omicron in Indiana. I would attribute about half of our growth to cases being down last year. The other part of that growth is due to our work optimizing our assets, including OR optimization, length of stay and throughput. Much of that volume — a lot of which is same store — is up due to how we are utilizing our assets. 

Some health systems across the U.S. are opting to restrict their volume due to labor pressures, which makes sense. However, we have been focused on reducing our premium labor, but at the same time — since we are the largest system in Indiana — we want to make sure we're taking on patients who need to get in. We are the relief valve for the state, so we've been focused on ramping up volume. We actually have had to recently take on more travel nurses to increase volume, but we are still driving our total premium pay down because of how much less we are paying internally and externally for those additional shifts compared to the prior year. 

Q: On the other hand, we saw health system expenses soar last year due to labor challenges, declining inpatient volumes and inflation. What is IU Health doing to reduce its costs given the many macroeconomic pressures of today?

JA: Our team did a great job of managing the premium cost of labor in the first quarter. We certainly have also seen the cost of supplies and drugs increase due to inflation. Like most health systems, most of our expenses are attributed to labor. But I think the market is softening . Travel workers are costing less, and we have been very focused on where we are placing travelers and where we are not. Our new CHRO Adrienne Sims also has a great recruitment and retention plan, and we are beginning to see some strong results there, too. 

We have a great partnership between our human resources, financial and nursing teams and a very intentional plan around how we are going to march down premium pay through the year. As we built our budget for the year, we really focused on labor. We set goals around how much less we are going to pay travelers, the number of travelers we are going to have and how much less we are going to pay internally for premium labor. This also helps with the burnout of your team if they aren’t working significantly more shifts and have the support of the travelers around them. 

Q: Sizeable investment returns helped IU health to a $311.7 million bottom-line gain in the first quarter. What can you share about the investment return jump this quarter compared to Q1 2022?

JA: Overall, we saw a sizable jump on investments based on how well the market returned in the first quarter, though our investment team did a great job of beating the benchmark and providing additional returns, too. Our team also does a nice job with diversifiers. That's the other piece that we've continued to lean into, which not all systems do. The diversifiers help us create a buffer during downswings. 

Q: Where are IU Health's biggest opportunities for growth in the next three years? 

JA: We have a new academic center being built in downtown Indianapolis. We expect growth around that when it comes online, especially because of the halo effect of operating a new facility with our partner, IU School of Medicine. We also have a large hospital project being expanded in Fishers, Indiana, which is one of the largest growth markets in the state. 

Our big area of focus is on our destination programs. We are on the cutting edge of oncology, neurosciences/neurosurgery, and we are really expanding our cardiovascular service line, too. We've doubled down on those three programs in partnership with the IU School of Medicine to lead in the area of physician education, research, clinical programs and having nationally known physicians in those specialties. We also expect to see a lot of material growth in those three areas in the next several years. 

Q: How is IU Health thinking about the growth of those specialties as care increasingly moves to ASCs and outpatient settings? 

JA: We have been expanding our ASC presence. In Fort Wayne, we've entered that market first with primary care, then with medical office buildings and surgery centers. We've been a new entrant into that market, and that is going really well. 

But we are also going to stay true to who we are and perform inpatient and complex care really well. Not only are we a large academic health system, we're also a huge community health provider. We are the largest health system in this state and are continuing to support the community by staying close to home — really expanding outpatient care and home care, especially in rural Indiana communities. 

Another thing is the site-of-service bill that passed in Indiana. We were prepared for that with our pricing plan and intend to reduce the site-of-service differential in how we're planning for the future. We want to be able to move patients to wherever they want to go — the location that works best for them — and have everything be the same price. It's really about delivering on where we think patient care is going, giving price estimates up front, being able to move patients anywhere and have services be priced the same. 

Q: What do you think the knock-on effect of the site-of-service legislation may be at the national level? 

JA: We started that journey a couple of years ago when the legislation first was introduced. We realized it was important to patients and employers in Indiana, so we started a multi-year path to change how we addressed our pricing. I think this is going to become a much bigger issue across the nation, and it will force health systems to take a hard look at ourselves and ask, "How do we want our pricing to work?" We have been trying to get our health system to look like any other business, where you can quote services up front, you know what it's going to be, you know what you're going to pay and there's a lot of rationality to it. That's just not the way healthcare has had its pricing set in the past, so I think all of us are really going to have to think differently about how we set prices for value, service and quality. 

Q: How does IU Health aim to grow its health plan in the coming years?

JA: We grew quite a bit in Medicare last year and are honing in on our Medicare and employee plan. Our ACO has done well in the past — it has been rockier recently due to COVID and some of the benchmark changes — but we really see an opportunity to support and improve the health of our Medicare patients. In addition to focusing on our IU Health Plan and ACO members, we've also engaged with third-party payers on value-based care arrangements — with particular focus on serving their Medicare members.

Q: What advice do you have for CFOs at other health systems who are finding it difficult to boost their margins amid widespread financial challenges? 

JA: These are wicked times with wicked problems. If you're not in healthcare, it's really hard to understand what's going on. Health systems are trying to balance getting their financials back under control after last year with a workforce that has been really hard to recruit and retain. At the same time, patients are starting to demand more service, and employers and state legislators are paying attention to the cost of care. And all the while, you've got to keep your quality of care up —- and with a very heavily temporary workforce. All this is really hard to balance. 

My best advice is to focus on the things that can actually help all of these factors. There are so many things we can do that can help financials, quality of care and team member experience, before you do some of the things that can actually be really harmful to your workforce and cause other problems. The more pressure you put on your workforce, the worse the quality of service gets, so I advise others to make really sound financial decisions right now to keep that balance or else you will end up with many more problems in the future. Come up with a plan to step back up as an executive team — with everyone on board — because you need to think about all of those outcomes in a balanced way. 

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