The value of a 'fortresslike balance sheet': Scripps Health's CFO on weathering storms

Healthcare CFOs are facing headwinds as they enter the final stretch of 2023. Becker's connected with Brett Tande, CFO and corporate senior vice president of San Diego-based Scripps Health, to learn how the system is focusing on financial health, from generative AI to smart growth to a durable balance sheet. 

Q: What are the top three strategic financial priorities for your health system in the next fiscal year? How do these align with the organization's overall mission and goals?

Brett Tande: In no particular order, Scripps has been focused on getting back into the black, finding opportunities for smart growth and funding the significant unfunded mandates such as SB1953 (seismic) and SB525 (the new statewide healthcare minimum wage mandate). These goals are all interrelated and require a continued focus on exceptionally high clinical quality and patient satisfaction. Our ability to deliver on these priorities enables us to meet our mission which, in short form, is to provide superior health services in a caring environment and to make a positive, measurable difference in the health of individuals in the communities we serve. These priorities will endure not only in this next fiscal year, but likely for years to come.

Q: What are the biggest financial challenges facing your health system today? On the other hand, what are the most promising financial opportunities?

BT: The continued mismatch in inflationary pressures on the expense side and the rigidity of health care reimbursement on the revenue side. Typical Medicare hospital increases are roughly 3 percent per year, and this year, the Medicare physician fee schedule is actually declining about 3 percent. Commercial insurers continue to push against any increases in reimbursement. On our expense side, with labor and supplies eating up 70 percent to 80 percent of total expenses, it is not surprising to learn that our expenses are rising at 5 percent to 7 percent per year. That mismatch is not sustainable, and our management efforts are intended to close up that gap.

The unfunded mandates present a unique challenge as well. Having hospitals that are fully functional post-earthquake and being able to have a minimum wage of $25 in healthcare are both laudable goals that we fully support. Nevertheless, they are very costly when mandated and unfunded. The 2030 seismic regulations will require more than $3 billion in capital expenditures for Scripps, and the minimum wage bill will increase expenses at Scripps by more than $100 million annually. We will find ways to meet both, and we support the intention of both, but to think that achieving both goals won't ultimately have an impact on the cost of healthcare for Californians is shortsighted. These mandates will add to the inflationary pressures in health care, which is something our society will have to confront in the coming years.

Back in 1976, M.F. Weiner wrote an article in Medical Economics entitled Don’t Waste a Crisis — Your Patient's or Your Own. While the author argued that physicians should approach a medical crisis as an opportunity to enhance other aspects of a patient's health, that is easily translatable to our industry today (health system leadership teams improving aspects of the health systems themselves). We have a unique opportunity to reconsider aspects of how our industry works today to improve the efficacy of how to best meet our mission.

Q: How is your system leveraging technology and digital health platforms to enhance patient care, improve operational efficiency and generate revenue?

BT: Digital platforms have undoubtedly helped us convey more timely information to our patients, and for patients to connect with their clinicians. We have not seen much positive impact, yet, on the economics from these platforms. The economic investment in digital is costly, it needs clinical oversight to ensure it performs as expected, and we have not yet found case studies where patients are willing to pay for these new care pathways. That is not to say we won't ever find those opportunities, but much of that is still on the come.

The teams at Scripps have been pursuing these technologies to understand how to lighten the load on our clinical staff and on administrative staff. We are running pilots on generative AI in the clinical setting, and we continue to evaluate opportunities to wring cost out of the administrative setting in health care, which is a target-rich environment.

It is difficult to determine which specific tactics will generate the biggest opportunity, so our strategy has been to have multiple tactics "in play" in hopes that some of them hit.

Q: What partnerships, joint ventures, mergers or acquisitions is your system exploring to strengthen its financial position or expand service offerings?

BT: One of the three financial priorities I mentioned above was "smart" growth, in which we mean growth that is additive to the system, not dilutive. This can be achieved a number of ways, which could include finding service lines that are complementary to the existing Scripps Health platform. But it could also involve being honest with ourselves as to what is a core competency and what is not, and determining if there is a more effective way at providing non-core services that we do not feel as though it is a core competency.

We have historically pursued these opportunities through the acquisition of organizations such as Imaging Healthcare Specialists, as well as creating partnerships with third parties through contribution of our operations in areas such as home health and behavioral health. Just as we have in the past, we will continue to evaluate all types of these opportunities, both clinical and administrative.

Q: Given the unpredictability of events like global pandemics, what are you doing to ensure financial resilience and sustainability in the face of unforeseen challenges?

BT: Under [CEO Chris Van Gorder's] leadership as well as that of our board and my predecessor, Rich Rothberger, Scripps has been able to develop a fortresslike balance sheet that was central to Scripps Health entering the pandemic with a durable balance sheet that enabled us to focus on taking care of San Diego.

We intend to maintain that financial strength as the bedrock upon which Scripps can meet its mission. The weakness in industry economics affects many, and the unfunded mandates in California exacerbates that pain, but I am impressed by the resilience and determination of the Scripps Health team and I have confidence that a continuation of our strategic and tactical efforts will ensure that Scripps Health, its patients and our employees thrive.

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