Financial Success in Challenging Times: Q&A With Dignity Health CFO Michael Blaszyk

Dignity Health CFO Michael Blaszyk discusses the health system's financial success and the challenges, financial and otherwise, that lie ahead for Dignity and other health systems.

In October, San Francisco-based Dignity Health announced its 2013 financials; the nonprofit health system earned a profit of $812 million for the year, an astounding six times its 2012 total. In a time where many health systems struggle to survive, Dignity Health's financials have remained strong, allowing it to further its mission to provide high-quality, affordable healthcare to the communities it serves.

After the financials were released, Dignity Health CFO Michael Blaszyk sat down with Becker's Hospital Review to discuss the health system's financial success and the challenges, financial and otherwise, that lie ahead for Dignity and other health systems.

Question: Dignity Health recently released its 2013 financials, and net income was up significantly. Some of this increase was linked to growth in investment income, but your operating income was also up quite a bit. How were you able to achieve this given so many of the financial pressures currently facing hospitals in the U.S.?  

MichaelBlaszykMichael Blaszyk: It is up significantly, and there were a few key items that led to this.

U.S. HealthWorks [an occupational and urgent care provider, which Dignity Health acquired in July 2012] was in our earnings for a partial year. That contributed substantially to our overall improvement. We were also heavily involved in cost control in the area of supply chain. We have among the lowest supply chain costs in the industry, and we're continuing to try to drive those down further. We also are focusing on denial management, which is just a huge issue for us. While we have been successful in dealing with denials generally, we got hurt pretty badly this year with RAC audits. We're very successful when we get a chance to appeal those, but the system doesn't work. It's just a big funnel, and nobody can get through in terms of the appeals. And then, I'd say, we've achieved success in the area of clinical integration by looking at variation among the way physicians practice. It's something we're very focused on. We're not all the way there, but we've made some strides in this last year. Finally, managed care rates were not as deleterious as we thought they might have been, so we basically held our own in that area.

So, it was a lot of focus on cost control, diversifying our revenue stream, the success of U.S. HealthWorks, and our investments were incredibly successful. As you look at our investment results at one, three, five, and ten years, we beat our benchmarks by a long shot. We're very proud of our results in this area.

Q: Despite your strong financials, there are many financial pressures and industry changes that your system must deal with. What is the biggest of those challenges challenge as you look maybe one or two years ahead? Or, perhaps I could ask it differently: What keeps you up at night?

MB: I'm very excited, to be honest with you. You know, a lot of people hate change. I've always been somebody that loves it, and I've probably helped impose a fair amount of it on the organization since I joined. I think we're entering an exciting time. But this is a time of tremendous dislocation. We're going to have to learn to provide care very differently. For those that are still in love with bricks and mortar, the big boxes if you will, I think they're going to have a lot of problems in the future. You have to be able to adapt; you're going to have to provide a continuum of care at a lot of different levels, and that's going to be a lot of work. And a lot of it is new to this industry. We're going to be making it up as we go along, and others are going to be making it up as they go along.

The biggest thing that actually does cause me concern is the inequity in payment. We have a huge expansion of Medicaid and we have Medicare, which is already paying quite a bit less than cost. We're all trying to bring our costs down as rapidly as we can. But you have a public policy that basically says it's okay for individuals, under the new health reform law, and employers, to make up that difference. I think that's not okay. And I think that's going to have to be a discussion that we have from a policy standpoint.

Q: If you had to pick one or two core capabilities that hospital will need to have to be successful in the future, what would they be?

MB: You only want one or two? Because it's going to take more than that! I think there has to be a lot of arrows in the quiver in order to be successful today. And with the massive sort of dislocation of healthcare, many of these are skills we just don't inherently have in healthcare and are things that we have to develop.

First and foremost, though, you have to have the ability to take risk. And if you're going to take risk, you have to have a seamless integrated system that is all around the patient. It has to be around the patient and not a patient encounter, but the whole around the patient's health — whether it's wellness, whether it's an acute-care episode or whether it's after-care. You have to be able to handle that patient in a seamless way. If you're going to do that, you have to have clinical information systems that are very effective.

The other is that you have to drive costs down. You have to have the capability to be able to control labor costs, you have to have the capability to drive supply costs, and then finally, I'd say you have to have the ability to diversify. Our acquisition of U.S. HealthWorks is a classic example of that.

Also, you'll notice that we have gone out with a brand — Hello humankindness. I think a brand is absolutely critical to the organization for several reasons. First, it reminds us, as caregivers, as stewards of that patient's health, to make sure that they're absolutely gaining every benefit that we can bring them, and that we're trying to hold them accountable for their own health status as well. But, the brand also reminds us of who we are, and it has a strong customer- or consumer-facing element, because more and more we think consumers are going to be making the decisions [about where they receive care]. So as we watch what's unfolding, what are they making that decision on? We see them making it based on price. We have to position ourselves to be able to accomplish that [being competitive on price], but we want our name to mean something beyond price. We want to be able to say, "You're safe with us. We care about you." It's a core value of who we are.

More Articles on Health System CFOs:
CFOs as "Chief Flight Officers": CHE Trinity Health's Ben Carter on Financial Leadership Today
Philosophies on Mergers and Finances: Q&A With Beaumont Health System CFO Nick Vitale
Coordinating Care and Incentives: Q&A With Cleveland Clinic CFO Steve Glass

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