Reorganizing the Healthcare Buffet Line: Q&A With Scripps Health CFO Rich Rothberger

When the Supreme Court issued its verdict on the Patient Protection and Affordable Care Act, hospitals and other providers breathed a sigh of relief. Finally, they could move forward with healthcare reform.

However, Rich Rothberger, CFO of Scripps Health in San Diego, and the rest of the Scripps Health system was already moving in the direction of healthcare reform regardless of the Supreme Court decision. He and others at Scripps realized the entire healthcare industry was being treated as a "buffet line." The participants have had the incentive to "eat as much as they want," per se, but the bill (cost) was placed on the backburner.

Here, Mr. Rothberger explains how hospital and health system CFOs can move forward now that the PPACA is the law of the land, how the system can avoid the mistakes of capitation from the 1990s and why a culture change — and not a law — is the real impetus to move toward a more efficient healthcare system.

Question: What are your interpretations of the Supreme Court's decision to uphold the Affordable Care Act? What does this mean for Scripps, and what does this mean for other hospitals from a CFO's point of view?

Richard Rothberger is CFO of Scripps Health.Rich Rothberger: We've been preparing for a lower-cost rate environment for a long time. Expansion of healthcare access though insurance exchanges or Medicaid expansion could be good for not-for-profit hospitals. Currently, uninsured patients are just categorized as charity care and bad debt.

However, on the other side, California is pretty heavily endowed with the uninsured: 21 percent of the population is uninsured. What's not covered [in the PPACA] is the undocumented population. A lot of the border states, similar to southern California, have a fair share of undocumented patients who still will not be covered on a go-forward basis.

One of our larger hospitals, Scripps Mercy, is a safety-net hospital and gets Medicaid disproportionate share hospital payments. DSH is expected to go away. California also has a provider tax through Dec. 31, 2013. It's the calm before the storm. There may be excess revenues now, but in 2014, things are going to change quite a bit in terms of DSH payments, which will change substantially. Also, in the absence of some renewed type of provider tax, the safety-net hospitals with DSH payments are really going to struggle.

We have four hospitals on five campuses, and we have two campuses in the south with the most to gain in terms of uninsured patients becoming insured. We can't just fill up those hospitals with Medicaid payments because it won't be enough to keep things viable. There has to be a supplement, so we will be pushing to keep DSH payments or the provider tax, and there are a lot of hospitals in the same boat.

Q: What do you think hospital CFOs should do to prepare for the potential Medicaid expansion? Should they be monitoring their states' activity to see if they will even accept PPACA funds for the Medicaid expansion?

Each state has a hospital association. Hospital associations typically are the advocate for working with hospitals, the federal government and governors to put programs in place. [California Gov.] Jerry Brown already said he will expand Medicaid. The state of California is usually ahead of game, and we will also move forward with the insurance exchanges and expanding Medicaid. With 21 percent of Californians uninsured, it's a large problem and is not a way that the state wants to be seen in terms of how it takes care of its patients. We're moving to expand Medi-Cal.

It's going to be very interesting, though. If some states don't agree to expand Medicaid coverage, they will just take a Medicare haircut without a Medicaid offset. The wild card for us is the insurance exchanges. As these exchanges open, if a lot of insured people move into exchanges and take a lesser amount of coverage at a lower premium, that will save the enrollee — but it will also hurt the hospitals in terms of lower reimbursement. There are commercial payor reductions, Medicare reductions — it's a lot of negatives, but it'd be even more so without the Medicaid expansion.

Q: What are the best parts of the healthcare reform law, and what else needs to happen to help mend the broken U.S. healthcare system?

RR: The larger issue for us is that we have been moving down this path regardless. The care is not affordable for too many people today. We know the system is broken in terms of the disparity between "haves" and "haves not." In doing so, we've moved forward in number of things prior to reform that will help us gradually move into reform without having to go through a significant culture shock.

Healthcare is one big buffet line. As we move toward more patient responsibility, this can't continue, and we have to cut the buffet line down. We have to be cost effective in what we choose and allow everyone to have skin in the game — patients, hospitals, physicians, insurers. It's a real challenge. I don't know if the solution is the PPACA, single-payor or anything else — it's a culture change. We have to change our underlying expectations.

Q: Do you have any examples of what you and Scripps have done to adapt to these mass changes? What are some of the biggest lessons you have learned?

RR: There are a couple examples. Expanding access to patients is very critical. Our emergency rooms were completely overfilled. Doctor offices worked 8 a.m. to 5 p.m., Monday through Friday, and there were not enough urgent care access points in our network. Recognizing that patients can't see a doctor in the office and will go to ER, we changed how we did business in the ER. We redesigned both the physician structure of the ER and the way the nurses are treating patients to a more effective triage function, and we're up about 20 percent volume because we've cut down a lot of delays. We've improved access and reduced throughput time, and now people who typically would have avoided coming to us want to come to system because they realize we can get things done more quickly. Both physicians and nurses are happier because they helped design the system from the ground up. Expansion of doctor office hours was the other component. We worked with contracted physicians to expand access to evenings and Saturday hours. 

We're also in the middle of trying to negotiate a win-win with payors — risk-adjusted commercial capitation based on a neutral actuary recommendation so that no one takes a disproportionate loss on the utilization of sicker patients. Adverse selection was a big deal in old days of capitation and as we're moving again to commercial capitation, how do we do it differently than 20 years ago when a lot of providers lost a ton of money?

We're in really good shape financially, and now's the time to change. Culture change is paramount to moving the organization to take on more risk of medical managing populations. We're "AA-" rated, have a strong balance sheet and [Scripps Health CEO] Chris [Van Gorder] and his leadership team have created the culture change whether or not healthcare reform passed because we wanted to do the right thing.

Q: Finally, to change gears from bigger policy to individual best practices: What are some of the most important metrics, benchmarks, reports or other information you track on a daily, weekly and monthly basis to be successful?

RR: Managing the cost structure is key. To the extent you're able to look at all areas that are the large cost consumers — lab, pharmacy, surgery, emergency room — you need to redesign those systems, look outside your sandbox and talk to peers to see who's done things better. We're all working in silos. We must share best practice information and need to realize it's for the good of patient. Healthcare reform is a good impetus to close the information gap.

A lot of what's changed is more work is done on an outpatient basis. There are new metrics that people need to focus on, and there are more variables. You have to look at adjusted patient days and adjusted discharges, and on the capitated side: total admissions per 1,000 patients enrolled, bed days, cost of care per member per month, the utilization of services within and outside of network and the cost of outside services.

One of the things people are going to have to focus on is the continuum of care. If you're only focused on inpatient, how will you manage a network for the needs of mental health, skilled nurse facilities, rehabilitation and hospice?

Another piece that is a big focus: Health systems that have mostly just been hospitals where they contract with independent physicians are now looking more on the side of acquiring physician practices, working with primary care and specialty groups and monitoring the utilization of physicians. Hospitals should send utilization reports to physicians — most physicians will react positively to comparative data adjusted for acuity if they are given credible information.

More Articles on Hospital CFOs:

Building the Right Financial Squad: Q&A With Former Mayo Clinic CFO David Ebel

Finding Financial Control: Q&A With Robert Wood Johnson University Hospital CFO Paul D. Storiale

Hospital CFO Panel: How Are You Approaching Your Fiscal Strategy Right Now?

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