Why Cedars-Sinai leans into efficiency when expenses outpace revenue

Cedars-Sinai CFO David Wrigley told Becker's that the Los Angeles-based health system's financial plan is about having a "forward look" at all times as hospitals across the country deal with issues such as inflation, staffing pressures and lingering effects of the COVID-19 pandemic.

While Mr. Wrigley said that the health system is "always looking for opportunities and growth," that doesn't necessarily mean that Cedars-Sinai is looking to expand through acquisitions. 

"We're really focusing now a lot on our ambulatory network. Our hospital provider network is relatively well developed, but we are continuing to look at physician practices, ambulatory surgery centers and imaging centers throughout the community," said Mr. Wrigley.

To learn more about Cedars-Sinai's financial vision, Becker's caught up with Mr. Wrigley:

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

David Wrigley: We always put stewardship at the forefront of almost all of our work, and we try to align that through our strategic financial plan. Our financial plan is a living document that we update many times during the year as things change. We generally start and try to align all of our resources, whether it's cash investments plus our operating margins and then things like philanthropy and expected returns on some of our IP with our needs. How are we going to support clinical needs? How are we going to support academic and research needs? We're really looking at two big buckets: that strength of the balance sheet and then our operating performance and how we're doing.

As we line those up, sometimes we see areas where we need to improve and other times we see where we need to accelerate to really realize and capture some of those pieces. Right now we continue to be focused on efficiency. With all the work and challenges that have been facing hospitals and healthcare organizations since COVID-19 started, I think it's really important that people focus on efficiency. What I have seen, though, is that people aren't looking as hard at growth. 

We're always looking for opportunities and growth and how we might invest in the future. Whether it's a new facility, especially in the ambulatory space, to be close to our patients, whether it's in artificial intelligence or digital technology or emerging companies, we're always looking for those kinds of growth areas where we might be able to make a difference and serve our community better in the future. We bleed all those back into that strategic financial plan. We have a forward look at all times that really aligns the strength of our business and our balance sheet to the needs of our community to make sure that we can continue to thrive for generations to come.

Q: What are the biggest financial challenges facing your health system today? 

DW: Hospitals have had a really hard run over the last few years since COVID-19. We can see this particularly with labor challenges as more and more clinicians are needed and not really available in the marketplace. I think everybody is really aware of where temp labor has moved over the last few years. I think everyone's challenged with that. The simple fact, though, is that COVID-19 is still not gone. It's still in our hospitals. We still have primary cases of COVID-19 where patients are coming in with COVID-19 infections and are very ill. We're seeing secondary infections where patients are here longer because they're sicker. They may present to us with a primary condition other than COVID-19, but they're here for longer because they also have COVID-19.

If I had to look at clinician shortages, whether it's physicians or nurses or other other areas, those are big challenges for us and one that we need to address over the long term. 

We recently started the Chuck Lorre School of Allied Health to promote six areas of clinical labor that we need in the future, things like respiratory therapists, pharmacy techs, clinical labs, scientists and imaging techs to move more and more of those folks into the profession so that we'll have a steady labor force in those areas. It serves our community with good jobs that they need, but it also helps the broader healthcare community as we produce more clinicians to help.

Inflation on the expense side continues to outpace inflation on the revenue side, you look at most hospitals, 60% to 70% of their revenue comes from governmental sources. The Medi-Cal program generally goes up less than 1% on the revenue side every year, Medicare less than 3%. Right now most organizations are seeing inflation on the expense side and closer to 5%. You layer that onto the economic reality in communities where even commercial payers are challenged to give a 5% annual increase, even if that's what inflation is. We really have to double back then our efficiency efforts. Expenses are really outpacing revenues, and we need to make sure to maintain our financial viability in that space.

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

DW: We actually have taken a unique path, with a product that we rolled out last week, a digital platform called CS Connect. It will really help us on two fronts, the clinician front, but also the access or capacity issues that we have in some of our areas. It's a virtual tool where people can put their symptoms into an app online to escalate and determine what their condition is and where they should be treated and how they should be treated. We think that helps us in a lot of different ways. One, the capital for it is far less than creating a new physical structure. You can use the tool and thus need fewer clinical resources to serve. But clearly, it alleviates the weight of people coming to urgent care or the emergency department. So, we believe that the community demand for that over the future will really help us. 

There are a lot of areas that we continue to try to differentiate ourselves to align our needs for: the margin, the clinicians and then the capacity and access concerns that we have for our broad community.

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

DW: So for us, we have over the last years engaged in some affiliation strategies with Torrance Memorial and Huntington Hospital; we continue to listen to people who are interested. We're really focusing now a lot on our ambulatory network. Our hospital provider network is relatively well developed, but we are continuing to look at physician practices, ambulatory surgery centers, imaging centers throughout the community to treat our patients where they need to be treated, where it's more convenient for them to be treated. In Los Angeles, if you live 20 miles away from somewhere, it may take you two hours to get there. Treating patients where they are is usually a lot better for our community.

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?

DW: It changes a little bit of how you think about everything you do because of the challenges that you had during that time. Healthcare providers had a lot of challenges with line items, aisles and requisitions. So, you had to find alternate supplier and vendor choices. Now, you need to keep those lines of communication open. So you have a steady supply of everything you need to do your work. 

We were fortunate that we were able to do that in real-time during the COVID-19 crisis. But there are other organizations that couldn't. We were able to make those relationships during that time and it really demonstrates the strength of relationships and the need to have good relationships. 

I think another area that's just key to that is just the workforce itself. In healthcare, probably 60% of our employees are patient-facing, needing to be there at all times. Others are spread now remotely throughout the country. For us, we have people who are working in many different states at this point and are able to do so very successfully. So all of those pieces, I think we're doing better than we ever have.


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