CFOs are seeing more resource-intensive services that do not reimburse well, or at all.
There are a multitude of challenges that have pushed health system margins to the breaking point, but one is the unprecedented rise in the cost of services coupled with low reimbursement for those services from payers.
But what can CFOs do? Solutions may fall back to some tried and true strategies: play hard with payers and take risks on new revenue streams.
How to attack these hard decisions requires some careful planning, and some advice. We asked the members of the HealthLeaders CFO Exchange for the top issues they are facing, and low reimbursement rates—especially for those more resource-intensive services—are top of mind.
As this will be one of the many challenges addressed at our upcoming HealthLeaders CFO Exchange in May, HealthLeaders met up with CFO Exchange member, Bill Pack, CFO at Conway Regional Health System, to give us a preview of how this challenge—and his solutions—affect his health system.
The challenges
According to Pack, there are three main resource-intensive services that the health system sees that are not reimbursed well, or at all are, he says.
First are chronic disease management programs. According to Pack, these services require continuous monitoring, follow-up, and coordination among caregivers and providers, but are not adequately reimbursed by most payers at his organization.
Pictured: Bill Pack attends the 2023 CFO Exchange in Napa Valley, CA. Photo courtesy of HealthLeaders.
Mental health services are also on the list for the health system.
“Mental health treatment often requires extended ER wait times, specialized staff that is not always readily available, and challenges with appropriate patient placement,” Pack says. “The reimbursement rarely covers the cost of psychiatric patients presenting in the ED.”
Another culprit for the health system? Complex surgical procedures with longer recovery times.
Some surgical procedures, especially those involving complex cases or patients with multiple comorbidities, usually require longer hospital stays and more intensive post-operative care along with higher resource utilization with nominal additional reimbursement, Pack says.
The solutions
So how does Pack—and how can other CFOs—address these challenges? There are four main strategies that Pack has deployed:
Cost-Reduction
“We work to streamline operations (such as ED throughput, bed turnaround times, post-acute patient placement), and ensure contract compliance for supplies, and optimize resource allocation (right patient, right place, right time) to reduce expenses without compromising patient care and quality,” Pack says.
Comprehensive Payer Strategy
“Negotiating with payers for fair and equitable reimbursement for services that are resource-intensive, partnering with payers for care coordination and improving quality metrics, and providing evidence of the cost-effectiveness and positive patient outcomes have all been key in our payer strategy for proper reimbursement,” he says.
Diversification of Services
“We are also expanding and adding services that include higher-reimbursed procedures or specialties to offset the lower margins of resource-intensive services,” Pack says.
Utilization Management and Efficiency Improvements
“We are implementing utilization management processes to ensure that resources are used efficiently,” Pack says. “We are also identifying areas for improvement in care delivery, which lowers costs and improves patient care.”
The event
Pack is attending our Spring 2024 CFO Exchange on May 8-10 at the Fairmont Grand Del Mar in San Diego.
Are you a CFO interested in attending our event and hearing more from Pack and other attendees? To inquire about attending the HealthLeaders Exchange event, email us at exchange@healthleadersmedia.com.
The HealthLeaders Exchange is an executive community for sharing ideas, solutions, and insights. Please join the community at our LinkedIn page.
Pictured: CFOs from across the US met at the 2023 CFO Exchange in Napa Valley, CA. Photo courtesy of HealthLeaders.
Competing with the giants of the industry is more than possible with the right approach, and there are three pivotal ways private physician practices can fight back against extinction and ensure longevity.
Welcome to our April 2024 cover story. Each month, our editors will be taking a deep dive into the topics that matter most to you in our cover story series. From ways to win the payer/provider war to what not to automate in the revenue cycle, we have a lot of stories up our sleeves this year.
So what did we look into this month? Well, as healthcare has evolved over time, so has the prevalence of private physician practices. What was once a common occurrence for patients—heading to the family-owned doctor’s office—has in many cases been replaced by the experience of seeking care at a network of physicians employed by large organizations.
In this cover story, HealthLeaders' Jay Asser spoke with healthcare executives on three major ways private physician practices can fight back against extinction and ensure survival: partnering, solving for reimbursement woes, and expanding revenue streams.
Did you miss our March story on the three negotiation trends that will be the difference between a deal, termination, or walk out in your next payer/provider negotiation? No worries, you can read it here.
Whether you are a payer or provider, there are three important strategies that will be key in working through successful contract negotiations this year.
I am proud to introduce the first edition of our newly launched cover story series. Each month, our editors will be taking a deep dive into the topics that matter most to you. From taking your physician practice back to what not to automate in the revenue cycle, we have a lot of stories up our sleeves this year.
So what did we look into this month? As we know, the tug-of-war between payers and providers hits the precipice at the negotiating table. Contract negotiation is more than just tough business, and the strategies each party takes to the table can be do or die for any organization.
Portals, portals everywhere. Patient payment portals are great, but there's something to be said about too much of a good thing.
Technology is the cornerstone of any successful revenue cycle, especially when it comes to patient payment portals. But at a time when patients expect the Amazon payment experience, how can leaders pair down their options to create a seamless experience for patients?
The answer may be more “simple” than you think.
Hear from Brandon Burnett, Vice President of Revenue Cycle at Community Health Systems, and Heather Dunn, Vice President and Chief Revenue Cycle Officer at Vanderbilt University Medical Center, in this week’s HealthLeaders Shorts on how to keep payments simple.
As the leaders on the front lines of the patient financial experience, revenue cycle execs need to figure out how to create a more positive financial experience while keeping processes streamlined and efficient for their staff.
How are they pulling it off?
Hear from Brandon Burnett, Vice President of Revenue Cycle at Community Medical, Heather Dunn, Vice President and Chief Revenue Cycle Officer at Vanderbilt University Medical Center, and Melissa Woods, AVP of Revenue Cycle at Ochsner Health, as they discuss how they are improving their patient financial experience in light of patients paying more for their healthcare costs.
Mayo Clinic's approach to workforce management may have been the key to its robust earnings report.
Blowing its 2022 earnings out of the water, Mayo Clinic's recently reported financial results for 2023 that surpassed the industry average and grew about 82% year over year.
On top of that, with a net operating income of $1.1 billion and a 6% operating margin, Mayo has exceeded the typical margin range for non-profits.
Mayo's ability to achieve a 6% operating margin is a significant accomplishment, especially considering the financial challenges that many healthcare organizations have faced in recent years.
In fact, as HealthLeaders previously reported, it was forecasted that the ideal margin range for not-for-profit hospitals will likely reset to 1%-2% in the future, making 6% all the more impressive.
So how did Mayo pull it off?
The system's revenue of $17.9 billion exceeded its expenses of $16.8 billion, resulting in a healthy profit margin that far surpasses the industry average.
One of the key factors contributing to Mayo's financial success in 2023 was its focus on lowering labor costs.
With more than 80,000 employees, the system spent $10.5 billion on salaries and benefits in 2023. By raising salaries and offering a minimum 4% increase in base pay to most employees, Mayo was able to support retention and recruiting efforts, while also adding about 14,000 staff into new roles.
As we know, reducing the dependence on contract labor has been a huge focus for CFOs in the last few years, so Mayo’s ability to save $160 million in the process shows the strategy’s importance.
Mayo Clinic's CFO, Dennis Dahlen, highlighted the impact of these efforts, stating that the system has seen a return to pre-pandemic attrition rates and has largely addressed staff shortages.
By reducing labor costs and improving workforce management, the system was able to achieve a more stable financial position in 2023, Dahlen says.
Forty-seven percent of these expenditures were allocated to major projects, including expanding its campus in Phoenix, building new hospital bed towers in Wisconsin and Minnesota, and meeting the growing demand for complex care in Florida.
These investments demonstrate the system’s commitment to continued growth and innovation in healthcare delivery.
What it means for CFOs
Mayo Clinic's robust financial results in 2023 have implications for other hospital and health system CFOs who are surely looking to increase their margins too.
As the industry continues to face ongoing challenges, including reimbursement pressures, rising costs, and evolving patient needs, hospitals and health system CFOs must prioritize financial sustainability and operational efficiency; and they key may be in reducing those contract labor costs.
Steward Health Care has a six-point action plan to emerge as a sustainable business, but will it work?
On the heels of a tumultuous few months, Steward Health Care is now moving into its next operational phase: “sustainability.”
How will it do this? Well, from funding to asset sales to leadership communication, Steward says it has a plan to stay afloat.
But first, let's revisit how we got here
As we know, Steward, established over a decade ago through a partnership between a private equity firm and a CEO with a mission to revitalize struggling Boston-based hospitals, grew to 33 community hospitals spanning eight states.
However, the health system, facing challenges since late last year, found itself in a financial crisis.
Seeking restructuring advisors in January has sparked rumors of a potential bankruptcy filing.
As media coverage continues to intensify on Steward's struggles in Massachusetts, the health system's ability to overcome these obstacles and maintain its strong position in the healthcare industry remains uncertain, but as stated, Steward says it has a plan.
Digging out
OK, back to the plan. Steward says it is implementing a six-point action plan to emerge as a sustainable business. Let’s take a look at what Steward has in store.
Funding and Financial Stability
According to the press release, Steward has recently finalized a robust financing agreement that will provide a $150 million cash infusion to provide additional liquidity as the company marches towards the sale of its highly desired asset physician group Stewardship Health.
This would allow Steward to reset its operations and address vendor obligations.
“Included in these agreements, the lenders have provided an additional ‘vote of confidence’ in this plan. They have not only decided to increase their financial commitment to Steward through the bridge loan, but they have also agreed to extend their forbearance agreement through April 30, 2024, to give the Company time to execute this plan,” the release says.
Employee Retention and Continuity
To maintain staffing and levels of care, Steward has successfully negotiated new labor agreements with the MNA and SEIU and secured and maintained its pension plan for employees, according to the press release.
It is continuing to incentivize its employees to ensure that medical centers and physician’s offices are open and continuing to serve patients and the broader community.
Steward says it has instituted a plan to attract nursing employees to work at its busiest hospitals and has offered “referral” fees to current employees of up to $40,000 per hired employee.
Asset Sales
Steward is in process and working proactively to immediately sell non-essential assets, including Steward-owned aviation and downsizing its non-patient footprint through back-office consolidations.
In addition, Steward is continuing to actively seek strategic opportunities to divest non-core assets with a focus on improving the system’s liquidity position, the press release says.
Northeast Restructuring
Steward has retained Alix Partners to advise on a restructuring of Steward to better support their hospitals.
Cooperation and Transparency in Massachusetts
Steward sent a letter in response Governor Healey on February 21.
“Steward has tried to be transparent, compliant, and cooperative over the years in providing a significant amount of detailed and relevant financial documentation to various state agencies and regulatory bodies and moving forward it commits to do even better,” the press release says.
Leadership Communication
Senior Steward representatives intend to meet with public officials in the Commonwealth to discuss the go forward plan for ensuring continued first-class care to its patient population.
What’s in store for the future?
While a solid plan of action is a step in the right direction, Steward's financial crisis could be far from over.
There's even worry of a potential ripple effect causing problems for hospitals all over the country. In fact, Federal officials say the uncertainty surrounding the future of Steward's hospitals could result in tougher regulations of for-profit health care.
This situation should serve as a cautionary tale for other hospital and health system CFOs. It highlights the importance of closely monitoring financial health, diversifying revenue streams, and being prepared for unexpected challenges.
CommonSpirit Health's latest earnings report shows a significant improvement in financial performance compared to the prior year, driven by higher volume levels, efficiency initiatives, and a reduction in length-of-stay.
Here is a snapshot of what CommonSpirit reported for the second quarter of its fiscal year 2024.
Pictured: Bill Pack attends the 2023 CFO Exchange in Napa Valley, CA. Photo courtesy of HealthLeaders.
Pictured: CFOs from across the US met at the 2023 CFO Exchange in Napa Valley, CA. Photo courtesy of HealthLeaders.
