The CFO Agenda: Top 10 Issues to Keep in Mind in 2014
The year 2014 figures to be an important transitional year in health care as key provisions of the Affordable Care Act (ACA) take hold, including health insurance exchanges and expansion of the Medicaid program. CFOs must provide leadership to their organizations in quantifying the potential financial impact of these changes, and they must participate in developing strategies to adapt to this rapidly changing marketplace. The following are the top 10 most critical issues likely to impact CFOs in the coming year.
- Changing payer mix affecting margins. Enrollment in traditional commercial or managed care plans is declining as the population ages into Medicare or migrates to exchanges. This trend will negatively affect margins. In addition, patients will bear an increased share of healthcare expenditures as higher deductible plans become more common. Expect bad debt expense to increase as a result. CFOs should be actively involved in thinking through payer contracting strategy.
- Viability for independence. Consolidation in the industry is a trend that is unlikely to go away in 2014. CFOs should provide guidance in dealing with the effect of completed and future mergers and affiliations on their organizations’ competitive positions, and in assessing whether their organizations have the resources and skills needed to remain independent.
- Declining inpatient utilization. Expect continued declines in inpatient utilization. Payer contracts and cost structure should be aligned in a way that preserves margin in this environment. Consider restructuring per diem contracts to case rates as a means to stabilize revenue and create margin opportunities from improved resource utilization.
- Physician alignment. The employed physician model is costly, and subsidies for physician practices can be substantial. In value-based care, it will be important to understand whether the downstream impact from physician practices justifies these subsidies. In addition, current physician compensation plans may be aligned more closely with fee-for service than fee-for-value. Developing new compensation models and reducing losses in the clinics should be a priority for 2014.
- Throughput. As pressure on the top line continues and utilization increases with the expansion of insurance coverage, throughput as a means to reduce costs and accommodate incremental volume increases in importance. Improving 11 a.m. discharges and reducing length-of-stay can save millions in nursing costs and reduce emergency department wait times. These are complicated, enterprisewide initiatives. Leadership from the CFO, in collaboration with the clinical leaders, will be required.
- Portfolio management. Healthcare systems should continually evaluate their portfolio of facilities in the context of return on assets and strategic importance for population health management. Consider divestiture of entities that do not currently provide either or both. Re-allocating capital investment is a critical aspect of survival in this increasingly challenging environment.
- Population health infrastructure. Risk-bearing contracts likely will represent an increasing share of revenues. Important steps will be to evaluate the organization’s infrastructure for managing risk, including both human and information technology, and to assess the level of investment needed. Determine if your organization is sufficiently large to own this infrastructure or should explore contracting with an outside provider. Start with managing risk for your own employees.
- Post-acute care strategy. With the prospect of (and opportunities created by) bundled payments for episodes of care, now is the time to develop a post-acute care strategy. Developing an owned or contracted post-acute care network should be part of your strategy for 2014.
- Disproportionate share hospital (DSH) payments. The theory behind cuts in DSH reimbursement is sound: Reduced bad debt expense from a reduction in the uninsured population will offset reduced DSH reimbursement. However, individual circumstances and demographics may limit the increase in enrolled lives. Even with increased Medicaid coverage, there will be significant working capital requirement as accounts receivable increases—Medicaid programs are traditionally not the fastest payers.
- Narrow networks. In response to employer demands for lower-cost healthcare, insurance companies will increase their reliance on narrow, lower cost networks. Participation in these narrow networks will become increasingly critical to retaining volume; CFOs must balance rate requirements with the potential impact on volume.
Margins will continue to take hits on many fronts in 2014. The ability to offset such hits through commercial premium increases is becoming increasingly difficult. Capturing a population, improving efficiency, and positioning for risk will be key priorities for finance executives.
Jonathan Spees, CPA, is senior vice president, The Camden Group, El Segundo, Calif.
Publication Date: Monday, January 20, 2014