This contributed Q&A is the fourth in a content series as a lead-in to Becker’s 9th Annual CEO+CFO Roundtable: Nov. 9-12, 2020. During this premier gathering of the country’s most distinguished and accomplished healthcare executives, Becker’s will present the inaugural Future of Pediatric Healthcare Forum in collaboration with Phoenix Children’s and other terrific pediatric leaders.
Phoenix Children’s is honored to work with Becker’s in elevating the conversation of pediatrics as a substantive component of the overall healthcare value chain. Over the next several months, we are excited to bring you a robust offering of informative and insightful pediatric content. We encourage healthcare leaders to engage in the dialogue and participate in The Future of Pediatric Healthcare Forum by RSVP'ing your spot here.
Becoming a world-class health system that continuously improves performance depends on solving medicine’s triple constraint of access, quality and cost. But these three concepts look a lot different in the pediatric realm than in the adult care environment.
In this three-part Q&A, Phoenix Children’s leaders discuss the access, cost and quality dynamic.
Part II: Cost in Pediatrics: A conversation with Kari Cornicelli, EVP/CFO, Phoenix Children’s
Question #1: Can you articulate from a 10,000-foot level the differences in pediatric finances and adult system finances?
Kari C: One of the biggest differences between pediatric and adult system finances is the payer mix. In pediatric healthcare, Medicaid comprises a larger percentage of gross revenue – roughly 50% - 60% – and Medicaid patients are typically more challenging to manage from a cost perspective. They tend to be disproportionately affected by the social determinants of health, like limited access to safe housing, food, public safety, social support and economic opportunities. They may struggle to access primary and specialty care in a timely fashion and may have difficulties understanding and complying with treatment plans.
What’s more, many children’s health systems, like Phoenix Children’s, provide integrated care for patients throughout childhood (and, in some cases, into adulthood). Our systems include primary physicians and subspecialists to address a comprehensive range of medical needs. Like all health systems, our goal is to keep patients healthy and well.
Question #2: Can you talk about changes to the revenue cycle during COVID-19?
Kari C: We had the early scramble to move our team to work-from-home, build out our telehealth billing capabilities and understand the requirements and opportunities within the CARES Act and FFCRA. That led us to revise our Financial Aid policy and operationalize the decision not to collect share-of-costs for any patients treated for COVID-19, along with the requirement to eliminate cost-sharing for testing and balance billing for out-of-network patients.
A silver lining of Phoenix Children’s pandemic response has been the opportunity to carve out time to assess and improve our revenue cycle processes with a new lens. We realized if we could move our team home in a week, then we’re certainly capable of solving the longer-term issues now facing us.
For example, volumes have declined for hospitals and health systems across the country, which means reduced revenues. Commercial payer volumes have slightly decreased while Medicaid cases have started to increase, further impacting revenues and cash collections. Recognizing that it’s vital that we improve our billing and collection process for all accounts to ensure we don’t experience cash shortfalls, we shifted to an account-stratification approach. We are refocusing our team’s efforts to ensure our high-dollar accounts are impeccably managed, denial issues are addressed and well-documented, and our payor Joint Operating Committees are effective in driving cash through issues resolution for the Medicaid and commercial books of business.
We will soon shift our focus to revamping our self-pay approach to create the stellar level of family engagement and support required given all of the challenges now facing our families.
Question #3: Can you discuss cost from a health system perspective? Specifically, many health system costs are long-term investments. How do you measure the cost/value investment proposition?
Kari C: There are several components to consider when measuring the long-term investment into value. At Phoenix Children’s, we are approaching “value” from the perspective of keeping children healthy, meeting their medical needs and providing world-class care – all at the lowest possible cost. Our strategic investments have been multi-faceted, including growing our workforce through the hiring of pediatric specialists, expanding key programs and high-acuity services to meet the needs of every patient, and the development of Phoenix Children’s Care Network to provide care navigation to those patients most in need. Additionally, we have invested in the traditional bricks and mortar and high-tech equipment.
Phoenix Children’s has made substantial investments in specialty care, programs and services. We care for patients with a range of pediatric conditions that require a breadth and depth of subspecialty care. This spend is a long-term investment that can be quite sizable, as specialist care is expensive. We have grown to more than 500 subspecialists in more than 70 different specialties. This is a big investment, but it’s one we will continue to make, as it is essential to our core mission.
We are now investing in the “local” expansion of primary care, specialty care and hospital services so that children have access to high-quality pediatric care in their own communities, as opposed to an adult system where they might get lost and may not receive the timely, specialized, pediatric-specific healthcare they need and deserve. We are always considering how best to allocate capital to further the goal of enhancing patient access and keeping pediatric patients healthy at the lowest possible cost.
A third area of investment we are aggressively pursuing is care management. Phoenix Children’s has developed a proprietary care management system for pediatric primary care. Patients attributed to our clinically integrated network may be identified for care management through several factors, such as medical complexity, gaps in care, emergency and inpatient hospitalizations or through direct physician referral. When patient families enter the care management system, our care navigators, nurses and social workers provide assistance and support throughout their healthcare journey. Running a care management system is expensive, but I go back to our long-term approach to bring best-in-class quality care to kids to help them grow into healthy adults.
Question #4: When considering a capital deployment into technology, how do you evaluate return on investment: a traditional Net Income / Cost of Investment, internal rate of return or payback period?
Kari C: We use a combination of these approaches with a focus on whether the investment is going to improve health outcomes and generate the required return on investment. In some cases, we may anticipate a quality improvement, but if the payback period is too long, if the purchase is unaffordable, if it means compromising another program, or if the investment/cost dynamic simply does not bring enough value to the organization, we may choose not to make the investment. We always try to take a balanced approach from both the cost and quality perspective. We also approach the return on investment analysis from a multi-disciplinary approach; providers have a strong voice at the table to guide our clinical investment strategy.
Question #5: Let’s shift to payor costs for a moment. Can you describe pediatric finances relative to value-based care?
Kari C: Medicaid revenues comprise a large percentage of our payor mix. Medicaid also is our largest area of focus for current value-based agreements. In Arizona, we enjoy a terrific partnership with Arizona Health Care Cost Containment System (AHCCCS), which runs the state’s Medicaid program. AHCCCS actively promotes value-based contracts while commercial payors have moved more slowly to adopt this model in pediatric care. Today, our contracts include a mix of quality incentives and shared savings and care management payments based on pre-determined metrics for quality, outcomes and cost improvement.
With pediatrics, value and outcome improvement are challenging to measure. For example, in a managed care contract with a one-year time frame, an investment is not going to yield the same success as a five- or 10-year window. In fact, in a single year, we may put more money into the system in the interest of preventive care and long-term health status. As a result, we try to negotiate contracts that reward investment in providing appropriate care, not simply short-term reduction in costs.
Question #6: Over the last decade, Medicaid and commercial reimbursement rates, have fallen, and experts forecast that trend to continue. As a nonprofit pediatric health system, how do you effectively manage operating revenue and operating costs?
Kari C: From a strategic growth perspective, our CEO, Bob Meyer, always says, “You can’t cut your way to prosperity.” The question then becomes, “How do you expand your health system capacity to cover the fixed costs of operation?” Phoenix Children’s is very efficient when you compare acuity adjusted cost per adjusted discharge with other pediatric hospitals. We accomplish this by monitoring and managing costs on a continuous basis. We’re also extremely mindful of how we spend money.
Still, the reality is that reimbursement rates are not going to outpace medical inflation, so the solution is to grow to cover the fixed costs. In Phoenix, one of the fastest-growing markets in the country, we’re expanding our physical footprint to meet the needs of pediatric patients in their own communities with local, high-quality, cost-effective care.
For example, we are building pediatric emergency departments in other parts of Greater Phoenix to deliver care more efficiently and effectively. Pediatric patients treated in a Phoenix Children’s emergency room have access not only to emergency providers specializing in pediatric care, but also ancillary services, supplies, testing and subspecialists all focused on the needs of pediatric patients. This allows us to ensure accurate and efficient diagnoses and treatments, reduce unnecessary testing, and avoid additional referrals that may delay care.
Our goal is to bring high-quality, cost-effective care to children throughout the state while strengthening our balance sheet. This makes Phoenix Children’s a more cost-effective system over the long-term.
Question #7: Let’s turn to the cost of care for consumers. By any number of metrics – like medical costs as a percentage of GDP or per capita expenditures – healthcare costs continue to rise above the rate of inflation. Against this backdrop, there is a push for greater transparency in healthcare pricing. Can you address this cost dynamic for consumers?
Kari C: Yes, healthcare costs are continuing to increase, and we understand the desire for transparency in the cost of healthcare services. As we all know, healthcare services – especially hospital care – are not as clear cut as a trip to the grocery store or buying a car. Many healthcare costs are not known in advance because they depend on the clinical needs of each unique patient. That being said, regulatory requirements are pushing for hospitals to publish not only their charge master, but also their contract rates with insurance plans.
While the majority of our patients are covered under some type of insurance, this information will likely not address consumer needs around price transparency. Most families are not equipped to understand how a Diagnosis Related Group (DRG) works, which specific surgical procedure their child needs, or how to weigh cost vs. quality in evaluating options. Ultimately, we have found that families are more concerned about the dollars that are coming out of their pockets than the charge master or a contractual allowance.
As we work to become transparent in the way that matters most to our families, we are reframing our thinking. We are purposefully and consistently working to understand the implications of our decisions, policies, actions and inactions on their wallet, because nearly every single decision we make impacts their pocketbook. This concept will be a guiding principle in our efforts to fulfill our reimagined approach to self-pay/family engagement.
As a safety net hospital – and as a health system committed to caring for all children – Phoenix Children’s will always help families who do not have the ability to pay to find a workable solution for payment.
Question #8: Unlike many major metros, Greater Phoenix’s pediatric population is growing. As a health system, how do you keep pace with that growth while expanding your revenue streams?
Kari C: We are always assessing the market to identify areas in need of additional services. We are expanding primary and specialty care and developing infrastructure – including new hospitals, medical office buildings and clinics. We have multiple goals, from bringing lower-acuity care closer to home for our patients and families to strengthening our secondary, tertiary and quaternary care offerings across greater Phoenix. We are committed to providing Arizona families with high-quality, high-acuity pediatric health services, from primary care to treatment for the most complex conditions.
Question #9: Medicaid is financed jointly between states and the federal government. As CFO, how do you prepare for the possibility of reduced Medicaid funding at the federal level?
Kari C: While reduced funding is always a concern, our relationship with AHCCCS is extremely collaborative, and AHCCCS is highly respected by the Centers for Medicare & Medicaid as a model of cost management. In partnership with AHCCCS, we have identified creative funding mechanisms. Together, we are working to keep patients healthy with high-quality care at the lowest cost.
As to the funding levels, from a national perspective, the only way to change the trajectory of Medicare and Medicaid finances is to find a way to manage care more effectively. Phoenix Children’s is committed to its care management strategy to drive costs down.
Question #10: Can you talk about The CARES Act and the payments to healthcare providers?
Kari C: Like many health systems, COVID-19 has affected Phoenix Children’s in profound ways. The financial impacts, especially, have been considerable. Our estimated revenue losses and increased expenses through September exceeded $95 million. It’s a significant loss, especially for a children’s hospital that serves a large and diverse patient population and provides safety-net services to families across the state. We were grateful for the funding the CARES Act provided, as it has offset some of these losses and enabled us to continue providing the care our patient families depend on. Most notably, this funding has supported costs of all COVID-19 testing and treatment for our patients.
The provider relief reporting requirement changes that were published by HHS on Sept. 19 will restrict the ability of many children’s hospitals to keep and use the CARES Act funding that has been received. The CARES Act was intended to provide financial relief to help hospitals offset losses incurred. The recently published changes come at a time when the funding is needed most, given the continued losses in revenues and increased costs that we are experiencing. It is my hope that the guidance changes will be reversed.
Phoenix Children’s is committed to the health and well-being of all children. We look forward to collaborating and sharing information, insights and best practices with the Becker’s community and patrons of Becker's 2020 CEO/CFO Roundtable: The Future of Pediatric Healthcare Forum.
If you enjoyed Access, Quality and Cost in Pediatrics, please look for our next content piece: Quality in Pediatric Care. We look forward to seeing you in November!
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