Edward J. Giniat

Finance needs to lead the healthcare innovation effort.

The pursuit of comprehensive healthcare reforms -significant changes in the way hospitals and health systems do business-will challenge healthcare finance officers and other leaders for some time to come. New laws may take on everything from specific components of healthcare delivery to how the system is financed in whole or in part.  The Health Information Technology for Clinical Health (HITECH) Act of 2009 is a perfect case in point: It was a wake-up call for healthcare providers, reminding them they need to follow virtually every other sector in the economy in transforming the way they capture, use, and share information.

By the time this article is published, the 60-day comment period on HITECH's proposed definition of meaningful use of electronic health records will have passed. It is possible, but not certain, that by that time President Obama will also have signed into law certain healthcare reforms and modernizations. What is certain is that concerns about the Medicare Trust Fund and its long-term solvency will not have been addressed fully. Based on the federal government's estimate, the United States now faces more than $36 trillion in unfunded promises for Medicare Parts A, B, and D, without even counting Medicaid.a

No one knows precisely what the current economic recovery will bring, how specific healthcare reform components may affect human behavior once these take effect, or what future legislation will be developed to address any needed revisions or unintended consequences of new laws and regulations. But it remains reasonable to expect that the HITECH Act and the principles underlying the administration's  agenda for change-access, coverage, cost control, and quality-will have far-reaching impacts in whatever forms and reforms are enabled.

What Finance Officers Can Do

In these challenging times, finance officers have an exceptional opportunity to help their organizations accelerate the process of change. They have the experience to lead in analyzing legislation and regulations for planning and forecasting.  They are especially qualified to answer questions such as "What do these mean for us?" and "What are the potential impacts on our operations?"  They can help leadership teams understand how changes in options and exchanges (terms once reserved for the trading room floor), expanded entitlements, and subsidies might affect the price, volume, and mix of their services.

Finance officers may need to help their own businesses-and the industry-realign their basic revenue management model to a cost management model. At the same time, the introduction of accountable care organizations, bundled payment, and comparative effectiveness initiatives could compound the complexity of how institutions operate and with what other entities as partners. When combined with the increasing scrutiny over regulatory enforcement, the potential for the equivalent of blunt force trauma to the day-to-day business operations escalates.

Finance officers have the skills and need to develop new tools to help others in the organization understand their changing financial condition and the new realities that change may present. For example, the American Hospital Association recently announced that the cumulative profit for the country's 5,010 nonfederal community hospitals for FY08 was $17 billion, while total underpayments for Medicare and Medicaid for this same group in 2007, the most recent year reported, were $32 billion, up from $4 billion in 2000.b In addition, an analysis by Alvarez & Marsal of more than 4,500 hospitals, even before the full impact of the recent recession, found that more than half were technically insolvent or at risk for insolvency.c If hospital payment reductions such as those in the comprehensive reform bill approved by the Senate in December 2009-a sum estimated at about $156 billion over 10 years-were to be adopted, it could effectively wipe out the profit of all these 5,010 hospitals.

As margins decline and slim profits threaten to vanish, finance officers will need to help their organizations explore options for restructuring such as mergers, acquisitions, and systemwide consolidation to reduce administrative overhead, gain purchasing power, and increase market share. They can also help their organizations assess their relationships with physicians, their current service lines, and the balance between inpatient and outpatient services. Such substantive strategic planning-and ongoing review-is just one area where finance professionals can bring particular value to their organizations in equipping them for change.

Another important area where finance officers can help their organizations is in embracing transparency. It is becoming increasingly critical for organizations to measure and report the information that matters most to manage the business in a timelier and "tighter" way and to enable management to tell their story to the marketplace.

One of the great challenges in this current period, in fact, is to treat HITECH compliance as an opportunity to help the organization create an IT architecture that enables the more effective capture, utilization, and integration of financial and clinical information. Finance officers need to play a central role in this process to ensure that the evolving business needs of the organization are truly met.

Helping Organizations Change and Prosper

This is clearly not an easy time to be a finance officer of a hospital or health system. The pressures on performance are escalating, and the uncertainty about what shape healthcare reforms may take, and their consequences, is high. Nevertheless, finance officers have the skills and the objective approach to using information that can help their organizations gain valuable insights into both current conditions and potential scenarios for change.

The next five to 10 years will be an exciting time for health care as the industry finally gets to work on right sizing and on realigning its complex and fragmented operating model. Ultimately, understanding the risk and reward trade-offs that you will all inevitably encounter can help your organizations change and prosper.

Edward J. Giniat, CPA, is a member of HFMA's National Board of Directors, the national leader of KPMG's Healthcare practice, Chicago, and a member of HFMA's First Illinois Chapter (eginiat@kpmg.com).

This article represents the views of the author only and does not
necessarily represent the views or professional advice of KPMG LLP.

a. The Real National Debt in 2008, The Peter G. Peterson Foundation, using 2008 Financial Report of the United States Government. Medicare benefits are present values as of Jan. 1, 2008 (www.pgpf.org/about/nationaldebt).

b. AHA Hospital StatisticsTM, 2010 Edition; AHA Report on the Economic Crisis Initial Impact on Hospitals; and AHA Trendwatch Chartbook 2009 showing data from AHA Annual Survey, 1997-2007 for Community Hospitals.

c. Hospital Insolvency: The Looming Crisis, Alvarez & Marsal Healthcare Industry Group, April 2008.

Publication Date: Monday, February 01, 2010

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