Hospitals and health systems will need to assess their operating and capital investment strategies as they prepare for the challenges of healthcare reform that affect their credit rating. Four key strategies that will affect hospitals and health systems are growth strategies, physician alignment, investment in IT, and effective management and governance. Jennifer Marion, senior vice president, finance, and CFO at the Franciscan Alliance, Inc., recently discussed with hfm how her health system is tackling each of these strategies in a reform era.

hfm: We'd like to get your thoughts on some of the key strategies that hospitals will be employing to maintain financial strength in an era of reform and structural change in the industry. First, what is your system's growth strategy to drive revenue and achieve critical mass?

Marion: Numerous strategies need to be in play to drive growth. The trend is a migration from a fee-for-service reimbursement environment to that of a fee-for-value proposition. A healthcare provider's market share will be driven by the customer's assessment of a provider's ability to prove its performance and demonstrate its value. Patients, employers, and payers expect high-quality services, but those services need to be affordable. The shift in care to locations outside the confines of an acute care hospital will also be more pronounced in the years to come.

Franciscan Alliance, Inc., formally known as Sisters of St. Francis Health Services, Inc., is a large regional health system with 13 hospital locations and numerous ambulatory locations in Indiana and Illinois. One of our strengths is our regional focus, especially in the new era of healthcare delivery to achieve more brand recognition for high-quality, affordable healthcare as opposed to owning 13 hospitals in 13 states. We can more effectively deploy capital for strategies that make a bigger impact. Our health system's members recognize this opportunity and recently supported our corporate name change. Our 13 hospital locations and associated ambulatory locations are well known at the community level for their high-quality medical treatment and compassionate care. But with the prominence of our new name on each of our healthcare facilities, we expect to broaden the awareness of our system.

For years, Franciscan has been working on continuing to improve its clinical quality performance, which is reflected in the distinguished awards our facilities have received from U.S. News and World Report, Thomson Reuters, HealthGrades, numerous payers, and clinical associations. Quality improvement is not an area that could be mastered and then go on autopilot, and our board of trustees and leadership team have made that well known. They have set some high quality targets for our facilities. To support those goals, Franciscan has instituted a number of initiatives.

In 2008, we hired our first system chief medical officer, who quickly established our system's quality council. The council is composed of multidisciplinary leaders throughout the organization, including physicians, CEOs, chief nursing officers, quality directors, the chief information officer, and the leaders of human resources, materials management, pharmacy, and mission, and me. The objective of the quality council is to transform the healthcare delivery model across Franciscan to meet the current and future needs of our patients and stakeholders and embrace the use of clinical and technical innovation, operationalize best practices, drive evidence-based standardization, and personalize patient-centered care. The system quality council develops the annual operating quality plan that is aligned with and executes the strategic quality plan of the Franciscan board. We hold ourselves and our direct reports accountable for timely and thorough execution and implementation of agreed-upon initiatives.

One of our Franciscan values is Christian stewardship of resources, whether they are our resources or those of our communities. Over the years, we have standardized and centralized a large number of back-office-type functions where it makes sense so our health centers can focus on providing high-quality, patient-centered care. The centralized functions include cash and investment management, financing, IT, patient accounting, managed care contracting, procurement, payables, laboratory services, pharmacy order verification, insurance services, and construction services/management with our own construction company Tonn & Blank LLC. We began centralizing services more than 30 years ago. We view this strategy as a competitive advantage because we have taken costs out of the system and don't have to tackle these traditional areas in the middle of this radical healthcare transformation.

Because of what we have been doing on the quality side and the cost side, we have had good discussions with payers on our value proposition. Franciscan has experience with capitation in managing Medicare, Medicaid, and commercial risk, and in direct contracting with employers. We also are part owner of both a third-party administrator and a health plan.

As far as expanding the access points for our integrated delivery system, we have been increasing our number of employed physicians and expanding the number of ambulatory location sites. We are fortunate to have a strong balance sheet (298 days cash as of October 2010) to be able to fund such strategic initiatives.

hfm: What is your approach to physician alignment to prepare for global payment?

Marion: Physicians are well aware that the world is changing, especially when it comes to the threat of sustainable growth rate formula cuts. However, they may not be aware of the dollar impact to hospitals in terms of the cost reduction needed to "make it" on Medicare. We held an eight-hour systemwide physician leadership meeting that included both employed and independent physicians to discuss the new realities of healthcare reform and the dollar impact that Franciscan would experience if we were reimbursed at Medicare rates, to roll out our Franciscan quality agenda, to review our accountable care organization development, and to highlight the new paradigm needed to succeed as an integrated delivery system in which medicine and management could no longer be separable.

We also have been alerting them to CMS's latest physician quality reporting initiative, which will publish physicians' quality level and their efficiency of providing that care. Franciscan has taken this physician leadership road show to each of our regions. We feel it is important to be transparent with the physicians so we can continue to build an integrated delivery system that aligns with physicians and other healthcare providers to become an essential provider of choice to patients and health plans.

hfm: Tell us about your investment in IT to further cost and quality initiatives.

Marion: Since 1999, Franciscan followed a best-of-breed IT vendor model. That strategy resulted in a difficult-to-manage IT environment that supported applications from multiple vendors, included numerous bolt-on programs, and required significant interfacing efforts to get siloed applications to work together to support both clinical and revenue cycle processes. Over time, the best-of-breed vendor strategy resulted in a complex computing environment that did not effectively meet the needs of our clinicians, nor was it capable of meeting emerging care reimbursement models.

Today's healthcare model requires a robust, highly integrated health IT architecture that allows for virtual health management. Technology will have to be patient-centered and connect patients with the resources needed to manage their health, whether it's connecting them with their physician, providing e-health learning opportunities, offering e-monitoring for themselves or their family's health conditions, or allowing for ease of scheduling. A health organization's IT system also has to be available to healthcare providers regardless of location and employment status to improve patient safety, avoid duplication of tests, improve care coordination and appropriateness, and reduce medical errors and costs.

Some years ago, Franciscan began rolling out a single integrated clinical, patient access, and revenue cycle health IT system to our physician practice locations, and earlier this year, we selected the same technology for all our hospital locations. Such integrated information will provide Franciscan with a platform that supports the dramatic transformation of the U.S. healthcare environment and will strengthen our system's processes related to patient care, clinical administration, and cost-effectiveness. Our first hospital implementation will take place in early 2011.

hfm: Finally, what are Franciscan's keys to effective management and governance that drive its long-term financial sustainability?

Marion: I have worked for Franciscan for more than 10 years and previously worked as the health system's external auditor for a number of years. One of the reasons I was drawn to work for Franciscan, beyond its mission, is because it has a high-quality leadership team and board that are focused on providing cost-effective, high-quality, compassionate care. Our quality and financial targets are set to not just achieve the median level of performance, but also to achieve the highest performance. Our board and management team are mindful of the importance of having a strong balance sheet so that we are able to deploy resources quickly for strategic opportunities.

Franciscan has also been cultivating physicians as leaders. We have added two additional physicians to our system board and have a physician president at one of our hospitals who has been very helpful in the development of our clinical operations group, or COG. The COG focuses on the various cost components of each diagnosis-related group and that information is used by our physician champions in the development of clinically effective and efficient evidence-based order sets.

Throughout our 135-year existence, Franciscan has been able to effectively adapt and transform itself, and our mission of providing health care to the communities we are privileged to serve has been strengthened.

Jennifer P. Marion, CPA, CHFP Senior Vice President, Finance and CFO Franciscan Alliance, Inc. Mishawaka, Ind.


Publication Date: Monday, January 03, 2011

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