The Value Behind Small Hospitals: Q&A With Marc Nakagawa, CFO of Transylvania Regional Hospital

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Marc Nakagawa never thought he'd be so engrossed, professionally, with the healthcare sector. Twelve years later after his first accounting position at a hospital, he now finds himself as CFO of Transylvania Regional Hospital in Brevard, N.C., which is part of Asheville, N.C.-based Mission Health.

TRH just named Mr. Nakagawa as CFO in June, meaning he is still trying to get his bearings on his new facility and community. This is not a dip into new waters, though. Mr. Nakagawa has held other hospital CFO positions, most recently at the 231-bed Trinity Hospital of Augusta (Ga.), a Community Health Systems-owned hospital that was near his wife's family.

As Mr. Nakagawa takes charge of the financial strategy of the 25-bed, non-profit TRH, he says he's noticed the evolving role of CFOs at small hospitals over the years. He has worked at a couple of hospitals with CHS and Naples, Fla.-based Health Management Associates, many of which were sole community providers, and he's learned the CFO is more than just numbers these days.

"In the for-profit arena, there's a lot of pressure being put on CFOs to understand operations," Mr. Nakagawa says. "From colleagues and peers that have been in the business, this has been shifting for quite some time. Hospital management is leaning more on the CFO to not just be a scorekeeper or do return on investment analysis, but also truly understand operations and be able to make strategic decisions."

Here, Mr. Nakagawa gives his insight on how he is transitioning into his new CFO role, why small hospitals could benefit from affiliations with large systems and what gives him the most satisfaction as a small hospital CFO.

Question: You just started at Transylvania Regional Hospital. As a CFO, what's going through your mind in terms of what needs to be done first? How do you manage your priorities coming to a new hospital?

Marc Nakagawa is CFO of Transylvania Regional Hospital.Marc Nakagawa: This question is facing every CFO at every hospital in the United States. I do not believe this to be exclusive to new CFOs. Correctly answering the question "What do I tackle first today?" is the difference between good CFOs and great ones. My priority here at Transylvania Regional Hospital is revenue cycle because of the other great systems that are already in place here. Patient care, quality and physician relations are better, in most cases, if not at least on par with any other facility in the immediate primary service area.

Being a member hospital in Mission Health is also another great strategic advantage. Their size, expertise and support make operating a small rural hospital much easier. With access to physician support, technology, pure purchasing power and the very deep, very well-established financial folks in Asheville, I can worry about the ground-level issues facing the facility. Being the new kid on the block means a bit of a learning curve and the normal culture shifts, but this is a fantastic organization. The entire staff at the facility has made the transition as easy as any I have ever had.

Q: TRH is a small hospital. In fact, it's a critical access hospital with 25 beds. What do you believe are the financial keys to success at CAHs and other small hospitals with fewer than 100 beds?

MN: As a small, sole-provider facility, we need to focus on the needs of the community, continually improve in all aspects of the patient experience, make the facility a great place to practice for the physician and ensure we are continually analyzing the current business lines and focusing our resources where it makes the most sense. These are keys to our success. I think ongoing, relevant, accurate data and service line analysis will be even more important in our small facility than in larger ones in our primary and secondary service areas.

Q: Since TRH is part of Mission Health, does that give you an extra sense of security or confidence in your decision-making?

MN: From a CFO's standpoint, being connected with a system — for-profit or non-profit — it really gives the CFO a much better knowledge base to make his or her best judgment. I have another set of eyes behind me.

When I ran my first CAH, we were standalone. Looking back, that was very scary. The hospital depends on you and your knowledge base. It's hard to keep up with all the rules and regulations, but being connected to a system is nice to have that backup. It's a safety net to assist CFOs in validating or figuring out if they have best solutions in place.

Q: Where do you see opportunities for growth at the hospital and in the region?

MN: Transylvania County (N.C.) only has 31,000 people, but it has a very active retirement population, more active than in any market I have ever seen before — even Florida. What the county lacks in sheer numbers, it makes up in the percentage of folks that lead active lifestyles. In addition, this is also a great place to raise children. I have three school-age children, and the schools and programs here rival those in much larger, more urban cities. We have a very wide spectrum of patients to serve here.  

Our community faces the challenges/opportunities the aging population brings, and the services needed to support the health of those in that demographic will be key. Again, our community has unique needs as our population is very active and very engaged in their own healthcare. Additionally, as we attract younger families, there will also be a need for enhanced services to fit their needs as well.

Q: How do you approach TRH's credit and debt since it is part of a larger system, and how important is the credit flexibility to the hospital's financial health?

MN: Transylvania Regional Hospital enjoys a very good rating and access to capital through our management agreement with Mission Health. With interest rates being stable for so long, it's a matter of when, not if, rates will start climbing. Having access to favorable fixed rates now will position us to feel little, if any, effects from a rate increase in the future.

Q: What advice would you give to other small hospital CFOs in regards to cutting costs at their facilities?

MN: Make sure that you have your controllable costs — salary, supplies, etc. — in line. Also, go over your contracts. CFOs need to really pay attention there. Contracts that have been in place for quite some may have been negotiated in a healthcare reimbursement model that has since shifted. The competitive nature of the business lends itself to renegotiate better rates, specifically with purchasing contracts.

A group purchasing organization impacts everything you do every day. Supplies are flying off shelves — not just for inpatients, but outpatients and the emergency department, too. Try and achieve better tiered pricing. CFOs can achieve that through affiliation through a larger facility. We can only burn through so many supplies here [at TRH], but if you combine us with four other hospitals, we can achieve lower prices because of our combined volume.

On the revenue side, renegotiate more with managed care payors. Every small hospital I've been at has had opportunities to renegotiate managed care plans or make some kind of market adjustments when the volumes are combined with more facilities.

Q: With so much change and declining reimbursements in healthcare, what makes being a hospital CFO worthwhile?

My professional satisfaction comes from managing and navigating through the changes and challenges running a facility in our healthcare system poses. Mistakes are made, but I learn from them more than my successes. I spent 15-plus years in accounting for oil and gas, manufacturing, entertainment and textiles, and I have never had such a feeling of professional satisfaction as I do in healthcare. Growing publically held share value, making consumable commodities or providing entertainment are all very noble causes, but for me I continuously ask myself, "If I were in need of healthcare, what kind of facility would I want for myself or my family?"

This keeps me going and motivated to be a good steward of the resources of the facility and the community. I chose a smaller facility to be more connected to the employees and community. A lot of my peers do not share my vision, but it works for me and I am extremely happy here at Transylvania Regional Hospital. Working with great people while doing what you love makes it all worthwhile.

More Articles on Hospital CFOs:

Physician-Owned Hospital Finances: Q&A With Ben Dunford, CFO of Texas Regional Medical Center at Sunnyvale

Why Cash is King: Q&A With Dawn Javersack, CFO of Boca Raton Regional Hospital

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

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