Baltimore-based Johns Hopkins Medicine has flipped the traditional hospital budget script, building margins around capital needs rather than the other way around.
During Becker’s 16th Annual Meeting on the panel, “Margin, Mission + Market Pressure: CEO + CFO Straight Talk,” Cheryl Sadro, senior vice president and CFO of Johns Hopkins Medicine and executive vice president and CFO of the Johns Hopkins Health System, also in Baltimore, said that a capital-first budgeting framework inverts how many systems approach financial planning.
“One of the reasons for that is in the Maryland model, you get a rate increase every year, [it] could vary from 2% to 5%, generally somewhere in the middle,” she said. “You do not negotiate with payers, with the exception of your outpatient work, so you have a fairly limited pathway in terms of how to create margin.”
She said that Johns Hopkins starts with capital instead of projecting revenue and growth first, leaving whatever remains to capital. Then, the system tells its hospital presidents to rank the importance of their capital needs.
“In order to fund X dollars of that, along with the strategic initiatives … what do we want to see our margins be,” she said. “Here’s the margin you need to simply get to your capital. It’s very, very, very simple.”
While Ms. Sadro said this thought process is not always attainable, and the finance team does have to say no at times, she tries to work it into a partnership with Johns Hopkins Medicine’s leadership.
“The presidents take a great deal of pride,” she said. “They have a lot of integrity in determining what would be best for the system. We do look at strategic investments from the system level, from the executive level.”
Two of Hopkins’ hospitals fall outside the Maryland model and are managed like facilities elsewhere in the country. For the hospitals that do operate under it, Ms. Sadro described a nuanced navigation of roughly 16 rate policies that govern reimbursement, where all services are currently paid at the same base rate.
When Maryland’s current model launched, the structure was so blunt that in some cases it was actually more financially advantageous to close beds than keep them open.
“You got a bucket of money, and you kept that bucket of money,” she said. “Whether or not you had 100 beds open or 50 beds open. It really just didn’t matter.”
Regulators have since worked to refine those dynamics. However, Ms. Sadro said the broader takeaway is that even in a regulated environment, systems must closely track which policies and service lines drive return.
At Becker's 4th Annual CEO + CFO Roundtable, taking place November 2–5 in Chicago, more than 1,500 hospital and health system executives tackle decisions that determine whether organizations thrive or merely survive: protecting margins under cost pressure, choosing where to grow, renegotiating payer relationships, stabilizing the workforce and proving real ROI on technology. This is where leaders work through them together, face-to-face. Apply for complimentary registration now.
