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In 2013, two health systems in suburban Chicago, Edward Hospital and Health Services and Elmhurst Memorial Healthcare, followed the national trend and merged. Thanks to the finance team’s 10-year track record of leading operational improvement efforts, the new health system has achieved significant savings in the first year of the merger.
Vincent Pryor, system executive vice president and CFO of the newly formed Edward-Elmhurst Healthcare—with annual revenues of approximately $1 billion from three hospitals and more than 50 outpatient clinics—discusses the role of finance in the integration.
On the newly merged system’s capital strategy in the first 100 days. “After the merger, we moved very quickly to refinance some fixed-rate, tax-exempt bonds with fixed- and variable-rate bonds for a savings of $3 million annually,” Pryor says. “In addition, we trimmed the number of banks we were using to back our bonds (from five banks to three banks) and reduced the overall cost of the letters of credit through private placements and replacement letters of credit.”
Prior to the merger, Elmhurst had been renewing its letters of credit year to year, he added. “We were able to extend that to five years for private placements and to three years for letters of credit. Down the road, this will eliminate a time-consuming annual task and give the finance team more time to focus on strategy.”
On moving to a defined contribution plan. “We inherited a defined benefit plan from Elmhurst that was more than $60 million underfunded,” Pryor says. “To limit the volatility of that balance sheet item, we froze the defined benefit plan and moved to a defined contribution plan.”
System executives took several steps to quell employee anxiety. “We chose to be very honest and upfront with the staff and invited them to attend several ‘state of Elmhurst’ meetings we hosted, where we spelled out our finances in terms everyone could understand,” Pryor says.
On their operational improvement process. “Each year, our senior leadership team establishes about a dozen initiatives that total approximately $15 million in opportunity,” Pryor says. “For each initiative, we set an annual goal and establish a project team leader, usually an up-and-comer who can drive the process. The team leader selects a multidisciplinary team that includes leaders in finance, clinical, and other areas.
“Some of the teams look at ways to improve top-line revenue through inpatient and outpatient growth, which is what makes an organization sustainable,” he says. “After all, you can’t expense your way to salvation. The teams also look at the quality of that revenue and how to enhance the revenue cycle through collections, managed care contracting, and other processes. These initiatives are focused on broad areas, but they are broad on purpose. We don’t want to restrict the teams as they look for opportunities.”
The health system also has teams focused on the expense categories, such as supply chain, benefits, and pharmacy. On the process side, some teams have worked on patient throughput in the OR and ED, discharge times, case management, and clinical documentation.
“However, our biggest wins typically come from the revenue cycle, inpatient and outpatient growth, and non-salary expenses because these categories are so broad,” Pryor says. “In the other areas, the opportunities tend to be more cyclical.”
On a biweekly basis, each project leader reports back to Pryor, the CEO, and other senior leaders, sharing any results and seeking executive-level assistance as needed. “This approach has been extremely effective,” Pryor says. “Over the past 10 years, we have achieved 90 percent of our goals on an annualized basis. Part of this success is the result of the natural competition that develops between the project leaders—and we use a scorecard to take advantage of that.”
Access related tool: Edward’s Operational Improvement Team Scorecard
On integration management. After the merger, health system leaders established a goal to identify $25 million in savings for FY14, with a focus on reducing costs in the supply chain, revenue cycle, insurance, and other areas (see the exhibit below).
“After nine months, we have achieved more than $31 million in savings,” Pryor says. “A lot of that success is the result of our history of operational improvement. We approach integration management the same way. Integration management is like operational improvement on steroids.”
Advice for other finance leaders in a merger. “You need to act quickly after a merger while still recognizing the different cultures in both hospitals,” Pryor says. “Even if you feel like your organizations will be a good fit, there will still be cultural issues that can derail your progress. And you need to decide early on who is going to lead so you have one voice determining the direction.”
Laura Ramos Hegwer is a freelance writer and editor based in Lake Bluff, Ill.
Interviewed for this article:Vincent Pryor, system executive vice president and CFO, Edward-Elmhurst Healthcare, Naperville, Ill., and a member of HFMA’s First Illinois Chapter.
This article is based on an interview and a presentation at the HFMA’s Capital Conference in Chicago in April 2014.
What do you think? Please share your thoughts in the comments section below. Alternatively, use the "inshare" button at the top of this web page to share this article and your comments on the CFO Forum’s LinkedIn board.
Publication Date: Tuesday, July 08, 2014
TriMedx helps health systems control costs and uncover savings opportunities by optimizing the clinical engineering function.
Patient financial engagement is more challenging than ever – and more critical. With patient responsibility as a percentage of revenue on the rise, providers have seen their billing-related costs and accounts receivable levels increase. If increasing collection yield and reducing costs are a priority for your organization, the metrics outlined in this presentation will provide the framework you need to understand what’s working and what’s not, in order to guide your overall patient financial engagement initiatives and optimize results.
A leader from McKesson discusses how healthcare reform is forcing hospitals and health systems to take a different approach to capacity management and patient flow.
No two patients are the same. Each has a very personal healthcare experience, and each has distinct financial needs and preferences that have an impact on how, when and if they chose to pay their healthcare bill. It’s no longer effective to apply static billing techniques to solve the complex challenge of collecting balances from patients. The need to tailor financial conversations and payment options to individual needs and preferences is critical. This presentation provides 10 recommendations that will not only help you improve payment performance through a more tailored approach, but take control of rising collection costs.
Emad Rizk, MD, president and CEO of Accretive Health, discusses the uncertainty facing hospitals and the transitions affecting revenue cycle management.
This white paper, written by Apex Vice President of Solutions and Services, Carrie Romandine, discusses the importance of patient segmentation and messaging specifically related to the patient revenue cycle. Applying strategic messaging that is tailored to each patient type will not only better educate consumers on payment options specific to their billing needs, but it will maximize the amount collected before sending to collections. Further, targeted messaging should be applied across all points of patient interaction (i.e. point of service, customer service, patient statements) and analyzed regularly for maximized results.
Jim Bohnsack, vice president, solution & corporate development for Conifer Health Solutions, explains how the company helps healthcare providers leverage data to deliver better outcomes while optimizing reimbursement for all payment arrangements.
This white paper, written by Apex President Patrick Maurer, discusses methods to increase patient adoption of online payments. Providers are now seeking ways to incrementally collect more payments due from patients as well as speeding up the rate of collections. This white paper shows why patient-centric approaches to online payment portals are important complements to traditional provider-centric approaches.
Steve Scibetta, senior director of channel sales for Ontario Systems' healthcare product line, shares insights into effectively managing receivables.
Increased electronic engagement between healthcare providers and patients provides significant opportunities for improving revenue cycle metrics and encouraging patients to access EHRs. This article, written by Apex Founder and CEO Brian Kueppers, explores a number of strategies to create synergy between patient billing, online payment portals and electronic health record (EHR) software to realize a high ROI in speed to payment, patient satisfaction and portal adoption for meaningful use.
Elena White, vice president of risk, quality, and network solutions for Optum, discusses how healthcare providers can leverage data and technology as they enable risk in their organization.
Faced with a rising tide of bad debt, a large Southeastern healthcare system was seeing a sharp decline in net patient revenues. The need to improve collections was dire. By integrating critical tools and processes, the health system was able to increase online payments and improve its financial position. Taking a holistic approach increased overall collection yield by 10% while costs came down because the number of statements sent to patients fell by 10%, which equated to a $1.3M annualized improvement in patient cash over a six-month period. This case study explains how.
Somnia President and CEO Marc Koch, MD, MBA, explains how hospitals can drive transformative change in the perioperative experience for outstanding clinical and financial outcomes.
With the ICD10 deadline quickly approaching and daily responsibilities not slowing down, final preparations for October 1 require strategic prioritization and laser focus.
PMMC President Roger L. Shaul discusses the effects of healthcare reform on revenue cycle management and how PMMC's products help clients adapt to a changing financial environment.
Read how Gwinnett Medical Center provides clear connections to financial information, offers multiple payment options for patients, and gives onsite staff the ability to collect payments at multiple points throughout the care process.
Greg Burgess, Founder and Chief Product Officer at Burgess Group shares insights and opportunities for payment integrity in the rapidly changing healthcare IT landscape.
Read how Orlando Health was able to perform deeper dives into claims data to help the health system see claim rejections more quickly–even on the front end–and reduce A/R days.
To maintain fiscal fitness and boost patient satisfaction and loyalty, healthcare providers need visibility into when and how much they will be paid–by whom–and the ability to better navigate obstacles to payment. They need payment clarity. This whitepaper illuminates this concept that is winning fans at forward-thinking hospitals.
Financial services staff are always looking for ways to improve the verification, billing and collections processes, and Munson Healthcare is no different. Read about how they streamlined the billing process to produce cleaner bills on the front end and helped financial services staff collect more than $1 million in additional upfront annual revenue in one year.
Effective revenue cycle management can be a challenge for any hospital, but for smaller providers it is even tougher. Read how Wallace Thomson identified unreimbursed procedures, streamlined claims management, and improved its ability to determine charity eligibility.
Before launching an energy-efficiency initiative, it’s important to build a solid business case and understand the funding options and potential incentives that are available. Healthcare leaders should consider taking the steps outlined in the whitepaper to ease the process of gaining approval, piloting, implementing, and supporting sustainability projects. You will find that investing in sustainability and energy efficiency helps hospitals add cash to their bottom line. Discover how hospitals and health systems have various options for funding energy-efficient and renewable-energy initiatives, depending on their current financial structure and strategy.
Health care is a dynamic mergers and acquisitions market with numerous hospitals and health systems contemplating or pursuing formal arrangements with other entities. These relationships often pose a strategic benefit, such as enhancing competencies across the continuum, facilitating economies of scale, or giving the participants a competitive advantage in a crowded market. Underpinning any profitable acquisition is a robust capital planning strategy that ensures an organization reserves sufficient funds and efficiently onboards partners that advance the enterprise mission and values.
The success of healthcare mergers, acquisitions, and other affiliations is predicated in part on available capital, and the need for and sources of funding are considerations present throughout the partnering process, from choosing a partner to evaluating an arrangement’s capital needs to selecting an integration model to finding the right money source to finance the deal. This whitepaper offers several strategies that health system leaders have used to assess and manage capital needs for their growing networks.
Copyright 2016, Healthcare Financial Management Association.
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