St. Vincent's HealthCare CFO Mark Doyle: 3 Burning Questions Right Now

Sitting in the healthcare "hot seat" is a turbulent experience right now for any hospital CFO. It's similar to the game show "Who Wants to Be a Millionaire?" in that the personal pressure builds the further along someone goes, and there is gradually more on the line, financially speaking. However, healthcare does not have any multiple choice options, 50/50 lifelines or Regis Philbin's calm demeanor.

Mark Doyle, CFO of St. Vincent's HealthCare in Jacksonville, Fla., lays out three questions that are at the forefront of any hospital CFO's mind right now. And unlike a game show, there are no easy answers.

1. How will Medicaid cuts impact my hospital?
Medicare, Medicaid and commercial payors are the three main revenue sources of most hospitals. There are, undoubtedly, pressures on all three. Medicare reimbursement rates have an anemic growth rate — the Medicare payment adjustment actually fell behind inflation rates this past year. Hospitals also may have to barter more with commercial payors to make up for the declining governmental payments.

Medicaid, though, has become a growing concern for hospital CFOs because the impact of Medicaid cuts depends solely on what state the organization is located in.

Medicaid spending for the entire country for fiscal year 2011 was around $398.6 billion, a 10.1 percent increase from FY 2010, according to a report from the National Governors Association and the National Association of State Budget Officers. That total accounted for almost 24 percent of state spending — the single largest element of state spending. At the same time, many state officials are enacting austerity measures on state budgets, and Medicaid reimbursement is one of the biggest items on the chopping block.

More than a dozen states have already sliced Medicaid payments to hospitals and physicians. For example, Arizona cut Medicaid reimbursement to hospitals and other providers by 5 percent this past year. South Dakota (11.5 percent cut to hospitals), Oregon (11 percent cut to hospitals), Washington (10 percent cut to hospitals), North Carolina (7.3 percent cut to hospitals) and many others have also reduced Medicaid rates.

St. Vincent HealthCare in Florida faces roughly $2 billion in Medicaid cuts for the 2012 to 2013 fiscal year, which amounts to a 12 percent average cut to Medicaid reimbursements for hospitals, and Mr. Doyle says those types of reductions will hurt his state's struggling program even more. "Funding for Medicaid has taken a huge bite out of reimbursement, and every patient of Medicaid will be a significant loss for each hospital," Mr. Doyle says.

Hospital CFOs looking to stay on the offensive have to consider areas that can compensate for this lost Medicaid revenue. For some, this may require an analysis of service line productivity. "This will force a lot of hospitals that are standalone and don't have [market] leverage to probably close their doors or choke off less profitable service lines," Mr. Doyle says. "Hospitals won't be able to keep up the level of services. In the past, it's been you pass the lack of reimbursement onto the backs of the commercial payors and the HMOs. In the future, I don't think we'll be able to do that — or at least not like 10 years ago."

Additionally, Mr. Doyle says hospitals need to constantly review production metrics, become more persistent in payor negotiations, manage the supply chain as efficiently as possible and control every other type of cost (e.g., energy, labor, etc.) down to the penny. "That's the only way right now, absent of rate increases, that we'll be able to survive," he adds.

2. Will ACOs and bundled payments be beneficial? The Medicare Shared Savings Program set the parameters for accountable care organizations, and the Bundled Payments for Care Improvement Program created guidelines for a bundled payment system focused on the continuum of care. Both initiatives, part of the Patient Protection and Affordable Care Act, are under way, but concrete financial benefits will not be seen for quite some time. Mr. Doyle says although his organization is analyzing the new programs, they are not moving full-force until more large-scale financial ramifications become clearer.

However, St. Vincent's HealthCare has submitted an application for Model 2 of the Bundled Payments for Care Improvement Program. Model 2 focuses on bundled payments for both the inpatient stay as well as the post-acute setting, and the hospital decides the scope of diagnosis-related groups to be included in the bundled payments. In this instance, Mr. Doyle says the organization plans to focus on orthopedics and cardiology for the bundled payments, but St. Vincent's HealthCare has not necessarily committed to anything yet.

Mr. Doyle believes the success of these programs will largely be dependent on one component: physician alignment. About a year and a half ago, St. Vincent's HealthCare employed five physicians. Now, the health system has 92 employed physicians. Regardless of how the PPACA programs shake out, there is a shift to congregate physicians and make them a more integral part of the health system's financial solvency. "You can see a rapid expansion for physician alignment, and it's all to manage the entire spectrum of a patient's health," Mr. Doyle says.

3. What exactly is going to happen with the healthcare reform law? This is the million-dollar question. The Supreme Court is scheduled to hear arguments on the PPACA this March, with a final ruling expected in the summer. Parts of the healthcare reform law being questioned include the individual mandate for health insurance and the expansion of Medicaid. However, because the law is in a legal limbo of sorts, it makes it difficult for hospital CFOs and other executives to make definitive short-term plans for their organizations. "It has to be all or nothing," Mr. Doyle says of the potential ruling. "You need the first domino to fall for the rest to come into play."

The early indicators vary on how the Supreme Court will rule. Many healthcare experts think because so much of the PPACA has been ruled constitutional elsewhere — and because so much has been implemented — it will be unlikely there will be a full repeal or even a repeal of the individual mandate, which is one of the biggest hot-button issues. However, in an election year, nothing is for certain. Mr. Doyle, who believes the funding of the PPACA appears to be unsustainable in the future, says it is that uncertainty that is making things so difficult for the healthcare sector.

Related Articles on Hospital CFOs:

4 Thoughts on Children's Hospital Finances From La Rabida Children's Hospital CFO Mark Renfree

Denver Health CFO Peg Burnette: 6 Strategies to Stay Lean and Mean

How to Cope in This Economic Climate: 4 Thoughts From Elkhart General CFO Kevin Higdon

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