"If you know your market, if you're strategically driven, you are best positioned to make appropriate investments," says CFO Joel Perlman, looking back on Montefiore's wise capital investment strategy over the last 20 years.

Compared with the margins of other large health systems, Montefiore Medical Center's 1 to 2 percent operating margins are "very modest," acknowledges Joel Perlman, executive vice president, finance and CFO, Montefiore Medical Center.

Yet few healthcare organizations serve communities like the Bronx, New York, the poorest urban county in the United States. A major not-for-profit academic medical center, Montefiore has an 80 percent government payer mix (40 percent Medicare and 40 percent Medicaid). It also operates the second largest residency training program in the country.

"We're practical about our margin potential," says Perlman.

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 When asked how Montefiore has generated even a modest profit given its challenging market, Perlman points to a number of daring strategies-strategically-driven, community-oriented investments that have made Montefiore a contender in the race toward accountable care organizations (ACOs).

  • Developing a highly integrated care delivery system
  • Launching a care management organization to handle capitated contracts and care coordination
  • Making calculated investments in specific programs and specialties to increase admissions and market share
  • Employing physicians
  • Pursuing IT, supply chain, and revenue cycle performance improvement efficiencies

"It would have been easy for us to avoid or defer capital investments when our liquidity was very limited," says Perlman. "Instead we borrowed and leveraged our balance sheet. We concluded 20 years ago that to successfully execute our long-term strategy we had to invest, take the risks, borrow the money, and build-but all the while being highly focused on choosing the right priorities to invest in." Fortunately, we have a sophisticated and knowledgeable Board, which has supported management initiatives every step of the way."

Thanks to Montefiore's balanced portfolio of investments, the health system's market share has doubled in the last 20 years. Just as important: overall mortality rates at Montefiore fell to 1.76 in 2008, from 3.5 percent in 1997-while inpatient length of stay also fell. In addition, Montefiore scores higher than average for New York State on most HCAHPS measures of patients' experiences with care.

Building a Coordinated Delivery System

Montefiore has spent the past two decades developing an integrated delivery system capability with significant investments in primary care and community-based services, as well traditional academic medical center investments. Today it is well positioned as an ACO. "Twenty years ago, it was all about growing admissions and hospital market share," says Perlman. "Today it's about managing and delivering more effective care and offering an improved patient experience across the continuum of care."

Care management and capitated contracting. In 1996, Montefiore established CMO, The Care Management Company to manage risk for the medical center and the IPA. "Our CMO is very involved in medical management, utilization review, coordinating care, and case management for all the patients in our full-risk arrangements," says Perlman.

"About 30 percent of our customer base come to us through full-risk capitation arrangements with Medicare Advantage, Medicaid Manage Care, and through contracts with commercial plans like United and Emblem," says Perlman. The medical center also has a number of partial risk arrangements with insurers.

Perlman believes capitated contracts are helping improve care for all Montefiore patients. "Once you're managing care for 150,000 people on a capitated basis, it causes you to learn, with trial and error, what interventions and what processes of care work most effectively. As physicians and the caregiving teams learn more effective ways to deliver care to our capitated population, they extend these same improvements to all of our patients."

It hasn't been a straight line up, admits Perlman. "There were years where we lost money in our managed care businesses. In the past several years, as we've learned to manage care more effectively, our capitated business performance has improved, allowing it to contribute more value to the Montefiore health system."

A clinically integrated medical staff. "The majority of the physicians that practice at Montefiore today are employed by the medical center," says Perlman. That's by necessity, he says, given the Bronx's demographics and payer mix."

"We've had to employ physicians and align the incentives of our physician community with our hospitals in a way that ensures that physicians aren't financially punished for seeing patients whose payment rates are low," he says, adding that every employed physician in the Montefiore system (over 1,500 strong) is obligated to see Medicaid patients.

An EHR and HIE. Since 1995, Montefiore has invested over $200 million in IT advances, including a fully operational inpatient EHR, and a nearly completed ambulatory EHR. Montefiore also spearheaded efforts to create the Bronx Regional Health Information Exchange (RHIE), which launched last July.

"We made these IT investments to automate our businesses and achieve efficiencies, as well as improve overall quality," says Perlman. "However, our investments have also helped us collaborate with other providers. Through the RHIE, which we developed with our provider partners, we can now share medical information at the point of service throughout the Bronx. It puts information into the hands of caregivers in the emergency departments where so many people are seen and helps to inform medical decisions and treatments."

Advancing the AMC Mission

Montefiore has also invested heavily in vital specialty programs-including transplant and a children's hospital.

"We rebuilt a children's hospital when a lot of parties thought it would be impossible to develop a successful children's hospital in such a poor borough. But children's health status in the Bronx is among the poorest in the region and in the country with disproportionately high levels of asthma, obesity, and other health problems. So we felt an obligation to make that investment, and it's really been a tremendous success story. It has been a catalyst for fundraising, bringing in tens of millions of dollars in philanthropy. And, in the last couple of years, our children's hospital has gotten into the U.S. News and World Report's Best Hospitals rankings. The children's hospital has also served as catalyst for attracting and retaining some of nation's best pediatric doctors."

Recruiting specialists and primary care physicians -and keeping them very productive-helped Montefiore achieve an annual compounded 4 percent increase in total hospital admissions between 1999 and 2009-in a region where the population is static or growing by less than 1 percent a year. "So it has helped us to utilize our capacity, improve productivity, and generate more top-line revenue, some of which stuck to our bottom line," says Perlman.

However, physician recruitment has required enormous support from the hospital, says Perlman, noting that top physicians tend to choose more socio-economically advantaged communities to practice in than the Bronx.

"We have had to make extraordinary investments in recruiting and supporting the practices of employed primary care and specialty physicians and compensating them in a market-based manner. But the investments in employed physicians has not only benefitted Montefiore but has greatly improved access to care for many thousands of people living in vulnerable communities throughout the Bronx."

Utilizing Assets, Reducing Costs

Perlman points to a number of other strategies that Montefiore has used:

Bed management and turnover. "We've made very effective use of our physical assets," says Perlman. "Our occupancy levels have hovered over 90 percent for many years now. And it's difficult because there's an efficiency tipping point when you're operating at that level of capacity. But our bed turnover has been very high (over 60 per bed), and that comes from managing throughput and length of stay using care plans and effective discharge planning."

"We also have made very efficient use of our critical care beds and extended these services throughout the hospital through a model 'ICUs without walls,'" says Perlman. "This has allowed us to spread fixed costs and overhead and make effective use of our capital assets and facilities. Furthermore our bed management initiatives have allowed us to handle an enormous patient flow from the second busiest emergency department in the United States."

Supply chain. "We invested very heavily in automating our supply chain 15 years ago," he says. "And that's produced, we think, very significant benefits to our organization in terms of controlling our unit costs and managing our resources more effectively."

Revenue cycle. "There's always an opportunity to do better in the revenue cycle-to automate, to establish more effective business rules and workflows, and make the transactions more efficient and cost effective for the health plans as well for the providers," says Perlman. "However, we have always benchmarked very well on receivable management and cost to collect performance measures. Recently working with a commercial technology company, we have designed and implemented exciting new automation and workflow changes improving our O/P collections and reducing operating costs."

Montefiore, through a joint venture company Linxus, is partnering with other hospitals and health plans in the New York region to automate and simplify business transactions -and improving the workflow for both providers and health plans. "We're excited about where this work is taking us," says Perlman. "Collaboration of providers and health plans is essential to automate and standardize eligibility, claims, remittance, and other HIPAA transactions in ways that will reduce everyone's cost of doing business."

Be Willing to Take Risks

Perlman advises finance leaders: "Embrace change, including a willingness to take risks and pursue innovative payment arrangements and partnering, which serve to better align payer and provider incentives. Some mistakes will occur along the way; however, it is essential that finance executives champion initiatives within their organizations aimed at improving care, achieving cost efficiency, and accepting responsibility for our role as accountable care organizations. The provider industry has to do its part to ensure that the quality and affordability of U.S. health care supports a strong economy and enhances our global competitiveness."

Joel Perlman is executive vice president, finance and CFO, Montefiore Medical Center, New York City, and a new member of HFMA's New York chapter (jperlman@montefiore.org).

Before joining Montefiore in 1988, Joel was CFO at New Jersey's St Francis Medical Center in Trenton. Before that, he was involved in performing numerous audits and consulting engagements with Ernst & Young. When asked what he likes most about healthcare finance, Joel says he enjoys the fact that he can meld his business and finance interests with the social and healing mission of health care, and also that he has been able to spend over 20 years in his career working at an organization where five generations of his family have received their care. Joel finds the biggest challenge in his position the obligation to try to fulfill both the mission and margin objectives of Montefiore given the extraordinary challenging characteristics in the Bronx market environment.

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Publication Date: Thursday, February 10, 2011