HFMA Executive Roundtable
To say that times are changing in health care would be an understatement. Amidst a tumultuous environment, CFOs are tasked with maintaining a strong financial position while anticipating risk and embracing the future. In the following roundtable, several industry-leading CFOs discuss how they approach their daunting responsibilities and act as financial stewards of multifaceted organizations.
With the increase in risk-based payment, what are some strategies your organization uses to balance quality versus cost?
Ann Pumpian: At Sharp HealthCare, more than 40 percent of our revenue is capitated, which is significant compared with industry standards. Although we’ve been taking on financial risk since 1985, our approach to it has evolved over time. Today, we assume risk for slightly less than 300,000 lives, and we spend a lot of energy on ensuring success. For example, we make certain that every capitation payment that we receive from a health plan is appropriate and not just a fixed dollar amount per person. It’s usually age- and sex-adjusted, risk-adjusted, and benefit-plan adjusted. We have systems in place to audit capitation payments to verify we receive the correct amounts. If there is a discrepancy, we reach out to the health plan and resolve things.
Once we receive accurate compensation, we then have to distribute those dollars throughout the various components of our system. We have contracts that govern this distribution and make sure that all care participants are focused on providing the highest-quality care at the most appropriate location using the most efficient processes.
For instance, Sharp has a department of nurses that checks in with patients who have recently been discharged from the hospital. Depending on the situation, these nurses may go to the patient’s home to assess the environment, confirming there is food in the refrigerator and that the patient has acquired and is taking his or her medications. In many cases, nurses find that discharged patients have the prescription script, but they may not have the means to fill it—they don’t have a way to get to the pharmacy or money for the copay. It’s a house of cards, and if something goes wrong, it can generate a readmission. To avoid this, we identify high-risk patients that we think need to have that extra loving touch, and we prioritize our nurses there.
Sharp also uses technology to monitor individuals with certain chronic diseases, such as diabetes or congestive heart failure. This way, we are able to touch base with them every day. If we don’t hear from them, we’ve got somebody calling or physically checking in on them.
We also have what we call the Sharp extended care program for our senior Medicare Advantage population, where we put physicians or nurse practitioners at certain skilled nursing facilities. Just like you have hospitalists in hospitals, we have SNF-ists in the skilled nursing facilities. What this does is it allows the provider to address a patient who has immediate needs but may not require hospitalization. For example, if a patient is dehydrated, the SNF-ist can start fluids and IVs rather than having the patient transported to the hospital emergency room. Many readmissions occur as a result of patients being in skilled nursing and slightly going downhill. Even though the person only requires a small adjustment on the part of a physician, if you don’t have the clinician on site at the skilled nursing facility, then you have to send the patient to the hospital—which can be expensive and introduce a whole host of other risks. We’ve found that having the service of a physician or nurse practitioner in this space is of great value. They can swiftly discharge the patient when he or she is ready, rapidly order required medication adjustments, provide fluids if needed, and if the patient has to be readmitted, they can transition him or her quickly to the hospital so there are less care delays and reduced likelihood of harm. This approach has led to a substantially lower rate of readmissions.
As I mentioned before, because of our various methods for managing risk, Sharp has defined processes for how we distribute capitated revenue. In most cases, we will post a charge for the service, even though there’s not going to be any additional dollars, and we allocate money based on the charges that come forth. Although in a fee-for-service world, charges had little meaning because you were never paid on what your charges were, they now have meaning but not in the same way. It’s basically a relative value unit, and we capture all of the relative value units and distribute to our institutional pools in that fashion. There are also sub-allocations that go on between the clinical sites and the physicians.
Despite having taken on risk for 30 years, we are still refining our tactics and constantly tweaking our models to respond to the changes in regulation and reimbursement.
What are some key considerations to keep in mind related to managing a population health program?
Dennis Chalke: Baystate Health is a healthcare system with four community hospitals and a tertiary facility. We also have a health plan, and we’ve had it for more than 25 years. As such, we’ve been involved in population health initiatives for quite some time, which gives us a little bit of a leg up in the current environment.
One thing we’re seeing is that to be effective at population health, you must have an infrastructure that includes information technology (IT) systems, care managers, clear workflow, and so forth. On the IT side, risk stratification and predictive modeling solutions are especially helpful. These allow us to look at costs across the continuum and identify patients at risk—or soon to be at risk—for large medical outlays. The idea is that these individuals might benefit from a defined care plan or having a care manager assigned to them. The care manager could verify the patient is taking his or her meds, seeing his or her physicians, and basically complying with the treatment plan. By working closely with the patient, the care manager can prevent avoidable admissions or ER visits. We’re embedding care managers in many of our practices. For our larger ones, we have a dedicated individual or individuals, and we have a centralized group for our smaller practices. We are also approaching this process on the payer side so we can work together and learn from each other.
Something to keep in mind with population health is: How do you set the budget? Is it based on your historical spend? The state average spend? Growth in medical expenses? If it’s based on your historical spend, how are you going to trend it forward? You want to be certain the budget is achievable but aspirational. You also need to know what the expectations are of the insurance plans with which you work. If you save money for them through these programs, do you get to share in that? If you have too much success, do they start ratcheting down the budget? That’s a no-win situation. Also, if you invest in infrastructure, is the health plan going to contribute financially to that? Because they are seeing part of the savings, shouldn’t they be assuming some of the cost?
In the end, success with population health programs takes time. It makes sense to move gradually into these initiatives, which is what we’ve done. It’s not something where you flip a switch and go all out. You have to first fully understand what your goals are and how you plan to reach them. We’re not perfect at this, for sure, but we’re always learning.
What are some challenges with planning investments given the current shift to value-based care?
Doug Watson: PeaceHealth has nine hospitals across the Pacific Northwest, as well as a strong physician and ambulatory group with a little more than 1,000 physicians. Appropriately allocating capital is a big concern for us as the industry goes through change. It’s the “two canoes going in different directions, and one foot in each,” conundrum. Currently, we’re seeing capacity constraints, as several of our facilities are hitting their limits and demand exceeds supply for primary care in many of our communities. The traditional response to this would be to build more beds; however, while we may need to build additional beds in certain areas that are growing in population, we are also striving to move to a value-oriented model that is ideally more preventive, which means the capacity problem could eventually cure itself. In fact, we should be pushing things out into our community and trying to figure out how to keep patients in their homes rather than hospitalizing them. That’s the challenge: How do we make the right choices right now because capital is long-term and finite. At this point, we’re blessed as a system in that we are well-capitalized and financially healthy; however, we need to be thoughtful about how we spend money and what we invest in. Delivering value-based care requires investments in information systems, patient-engagement capabilities, and other assets that are not the traditional tangible buildings that health systems have invested in for the last 50 years.
Richard Silveria: Boston Medical Center is a 500-bed teaching hospital for Boston University, and it’s the largest safety net hospital in New England. One of our biggest challenges is that about 80 percent of our business comes from public payers like Medicare and Medicaid. We don’t have the traditional framework where we lose on our public payers but subsidize losses on our commercial business. Consequently, declining reimbursements are a big deal for us.
We have a health plan, and we’ve been at risk for lives since 1997. As such, we’re used to managing in a risk framework with risk-based capital, engaging in utilization management, building networks, and making sure we have good rates. We’ve been pretty successful at managed Medicaid as a payer, but I would say what’s changed now is that we’re going to have to work differently, increasingly as a system of care. We have 14 affiliated community health centers, and we have the faculty practice foundation, which is largely on campus, although we do have some off-campus practices. Moving forward, the hospital, the community health centers in our health plan, and the physicians are going to have to work in ways that we’ve never had to before. This is going to require a change in mind-set. We have to think about what’s going to happen with the state as it transitions a substantial number of patients into a population health framework. Because we are 44 percent Medicaid in the acute hospital, that will move us to a population health framework almost overnight. Should we be considering a different business model? How do we identify and manage high-risk and rising-risk covered lives? How do we allocate resources within that model?
As CFO, I look at all the investments we have in bricks and mortar, beds, and technologies, and I have to wonder, are we overweight in some investments, and how should we pivot toward alternative business strategies? It’s the classic question from Harvard’s Theodore Levitt—the economist who talked about the railroads and pointed out that they didn’t recognize they were in the transportation industry. I believe health care is at a somewhat similar inflection point. When a crisis happens like the Boston Marathon bombings, are we in the emergency preparedness business? If a person is in a car accident and we fix his or her fractured leg and lacerated liver to make him or her better, is acute or trauma care our primary business? Or, are we are also pivoting toward addressing other kinds of societal issues like homelessness and food insecurity? Right now, it appears we’re in all of these businesses, and it’s hard to know what types of investments we need.
Once we pivot to the population health business and have access to the per-member-per-month premium funding stream, I suspect it will be somewhat liberating. We may be able to pay for non-traditional services that are typically not “allowable” on a medical insurance claim. You can now envision being able to hire ride services for people to get to their appointments or investing in community health workers who will go out and review the living conditions of a young person who has frequent asthma attacks and find out whether or not there’s dust or animals in his or her home that are triggering the medical condition. Those are the things as a CFO that I start to contemplate. What’s the right investment in beds, and what’s the right investment in traditional acute care or emergency preparedness, and what kinds of investments do we have to make going forward? There are no easy answers, and, currently, it feels like there are just more questions.
What are your thoughts on MACRA? How is it moving organizations toward value-based care?
Richard Silveria: Although MACRA is a relatively sophisticated approach to addressing the Sustainable Growth Rate (SGR) and avoiding the catastrophic cuts that Congress was considering to balance the budget, it will drive a good deal of change—acting to catalyze the adoption of alternative payment models and payment for performance. It’s good that the federal government is staging full implementation, making the program revenue neutral if providers participate in reporting during 2017.
With that said, organizations need to face the fact that MACRA is coming, and to drive compliance, a great deal of physician behavior change will be required. I believe that’s a significant challenge for CFOs: How do you tailor compensation plans that appropriately expose your medical staff to the risk of not achieving the various performance measures? You need to balance the need be competitive in terms of salary and fair pay, but you also must provide incentives so providers will devote attention to achieving performance targets.
Let’s say your current compensation model is based on regional compensation benchmarks. For example, if you are designing a compensation plan for a cardiologist in the Northeast using salary and productivity benchmarks, the target salary has to consider the achievement of performance measures and the impacts on Medicare rates of payment. You’ve got to put clinicians at risk for achieving quality and other measures so they have skin in the game and so you don’t find your compensation model paying up to a compensation target that inadvertently subsidizes lower Medicare payments when performance targets are not achieved.
As competition between healthcare organizations grows due to increasing consumerism and patient choice, how are you keeping your organization relevant in the marketplace?
Chris Bergman: Dayton Children’s Hospital has two main competitors, but they are slightly out of our primary service area—60 miles south of us and 7 miles east. We are trying to deliver all the services our region needs without having parents and their children have to drive long distances for good pediatric care. Our biggest challenge is making sure we can deliver the right services in the right places at the right times for the kids in our community. There are three major initiatives that we have underway to address this. First, we are in the process of a large facility upgrade at our main campus. Second, because a lot of our community moved about 15 miles south of Dayton, we’re in the midst of opening a $60 million ambulatory facility, which will put all of our 75,000 square feet of physician and clinic space in the suburbs. We will also have a free-standing emergency room and a four-room OR located there. The third piece is the formation of a clinically integrated network for pediatrics. We are trying to wrap our arms around the primary care physicians in our area to have better collaboration and coordination of care. Many of these primary care physicians are independent and not affiliated with a specific hospital.
In addition to these three initiatives, we are pursuing something that is not common in pediatric facilities—value-based payment. We know for a fact that we provide a good outcome at a lower price point than our two nearby competitors, so we’re trying to determine how to use that to better engage with providers, employers, payers, and so on. To that end, we are looking at employing an executive sales position of sorts to create employer and product touch strategies and to work with payers. To date, we haven’t proactively tried to develop volume. We’ve made sure that we have the right technology in place, the appropriate facility locations, and fair contracts. Then we have sat back and hoped patients would come to us. Up until this point, we haven’t gone to employers and said, “Hey, 20 percent of the kids in your employer group go somewhere else; how do we create incentives to keep all of those kids with us?” It could start with a bundle or perhaps a product strategy. Maybe it’s a small initiative to familiarize them with us, or maybe we give them a fixed price on certain types of procedures, such as tonsillectomies or tubes or asthma care. The pediatric world is a little bit behind in fee-for-value, and so we are in somewhat uncharted territory. However, we are committed to making the shift and look forward to what comes next.
Participants in the HFMA Executive Roundtable
Ann Pumpian is senior vice president of finance and CFO for Sharp HealthCare in San Diego.
Dennis Chalke is senior vice president, CFO, and treasurer at Baystate Health in Springfield, Mass.
Doug Watson is COO and CFO, ambulatory care, for PeaceHealth in Portland, Ore.
Richard Silveria is CFO for Boston Medical Center in Boston
Chris Bergman is vice president and CFO for Dayton Children’s Hospital in Dayton, Ohio.