CFOs and other healthcare leaders will need to take a more proactive approach to ease patients' monetary stress without hurting the organization's financial well-being.
Medical spending in the U.S. has grown exponentially over the last several years, jumping to more than $3 trillion, according to the latest ValuePenguin by LendingTree report. The rising cost of healthcare, higher premiums, copays, and deductibles means that patients are responsible for the bulk of this financial burden.
Between 2016 and 2019 healthcare spending rose to $3.07 trillion from $2.69 trillion, according to the ValuePenguin report. That's an increase of 14.3%. The bulk of the spending increased the most on mental illness (29.4%), neoplasms (22.8%), infectious and parasitic diseases (19%), endocrine, nutritional, and metabolic diseases, and immunity disorders (18.3%). Flu treatment costs and the number of flu diagnoses increased by 120.4% and 121.3%, respectively.
The rise in healthcare spending can have a positive and a negative impact on health systems and hospitals, says Javier Vallejo, CFO for Prism Health North Texas.
"Increased spending could lead to an increased bottom line and improved financial performance of the organization; however, this is at the expense of the patient," he says. "Ultimately, increased healthcare spending will have a disparate impact on vulnerable populations and could lead to reduced access to healthcare services."
Several elements impact the rising cost of healthcare including the way physicians are paid, patients' financial circumstances, and a rise in both medical and non-medical expenses. While there is no doubt healthcare costs will continue to rise, experts agree that there are steps patients and healthcare providers can take to help reduce this financial encumbrance.
"Many factors combined to drive up healthcare spending between 2016 and 2019, starting with a growing and aging U.S. population using health services," says Robin Townsend, a healthcare expert with ValuePenguin. "There has been a rise in the incidence of disease and more frequent use of healthcare overall. Ever-rising drug prices, new procedures, and the cost of technologies like telemedicine also contributed to the uptick in healthcare spending."
There has also been a rise in non-medical expenses as spending on administrative and social admission increased 24.2% between 2016 and 2019 and 15.8% on a per-case basis. Additionally, spending on non-prescription pharmaceutical products increased by 12.7% for the same period.
"Administrative costs are a key factor in the cost of healthcare. They are the third-largest healthcare expense after public health programs and hospital expenditures," Townsend says. "The main driver of these costs is administrative waste. Healthcare providers must navigate myriad insurer policies and payment systems and need competent staffing to manage the process, which can be expensive."
Insurance plans have spent decades trying to control the rising cost of healthcare by transferring a higher percentage of those costs to patients, according to Harold Miller, president, and CEO of the Center for Healthcare Quality and Payment Reform.
"The real problem is that insurance plans pay too little for primary care and other high-value services, and they pay too much for unnecessary and ineffective treatments," Miller says. "To solve this, fundamental reforms are needed in the way healthcare providers are paid."
Miller believes hospitals, health systems, and other healthcare providers should switch to a patient-centered payment system. In a patient-centered payment system, hospitals, doctors, and other healthcare providers are paid sufficiently for providing services each patient actually needs, and they are required to offer high-quality patient care to be compensated for helping that patient.
"Under the current payment system in healthcare, physicians and hospitals are financially penalized when they help patients stay healthy," he says. "Most value-based payment reforms don't solve this problem. Health plans need to start using patient-centered payments that pay adequately for high-quality care and stop paying for unnecessary services and avoidable complications. The result would be a financial win-win-win for patients, providers, and payers."
Another factor impacting the financial burden being placed on patients is that salary growth hasn't kept pace with rising healthcare costs, according to Townsend. She predicts that consumer out-of-pocket healthcare costs could grow by 10% per year, over the next five years.
"Prevention and good health habits are the best way to avoid costly healthcare expenses," Townsend says. "Patients should participate in every wellness benefit available, such as programs to control blood pressure and cholesterol. Those with access to preventive services like immunizations and diabetic screening should take advantage of those, too. Even if the patient bears the cost, preventive care can save on overall expenses. For example, a flu shot costs between $20 and $75, but an ER visit for a severe case of the flu can cost $730 and hospitalization can run into the thousands. Indirect effects like lost work time make it even more important to take advantage of preventive care."
One actionable step in preventive care is for hospitals and physicians to provide greater healthcare education to patients to keep care out of the emergency room and urgent care centers. Vallejo says community collaboration can play a huge role in preventive care and education. This can include a community paramedicine program, partnering with local nursing homes and home health entities to provide in-house wellness services, investing more in telemedicine, and getting more aggressive when it comes to following up post-discharge. Hospitals can also make sure patients are aware of the financial assistance programs they offer, which Vallejo says are more common than people realize.
"Organizations could take a more proactive approach to inform and enroll patients into these programs," he says. "Organizations could employ dedicated financial counselors to assist in this process. Having patients take some accountability for their care will help reduce healthcare inflation caused by moral hazards."
Better health comes from overall wellness, whether that is physical, mental, or financial. CFOs and other healthcare leaders will need to take a more proactive approach to help patients alleviate monetary stress without hurting the organization's financial well-being.
"It's important to quickly address barriers to preventive care," Townsend says. "Some hurdles to overcome are cost, limited provider access, and—possibly the biggest obstacle—lack of awareness or understanding of preventive services. Wellness-focused educational campaigns may be key to curbing healthcare costs in the coming years."
Expenses are still weighing heavily on hospitals, health systems, and physician’s practices as the cost of care continues to rise.
Hospitals, health systems, and physician’s practices are still struggling under the weight of significant financial pressure, that the rise in patient volume and revenue can’t seem to outweigh.
The increase in patient volume and revenue has not been able to offset the historically high operating margins these organizations are facing, according to data from Kaufman Hall’s National Hospital Flash Report and Physician Flash Report. Hospitals, health systems, and physician’s practices dealt with negative margins in June for the sixth consecutive month this year.
"To say that 2022 has challenged healthcare providers is an understatement," Erik Swanson, a senior vice president of data and analytics with Kaufman Hall, said in an email report. "It’s unlikely that hospitals and health systems can undo the damage caused by the COVID-19 waves of earlier this year, especially with material and labor costs at record highs this summer."
The median Kaufman Hall year-to-date operating margin index for hospitals was -0.09% through June, for the sixth month of cumulative negative actual operating margins. However, the median change in operating margin in June was up 30.8% compared to May, but down 49.3% from June 2021.
Hospital revenues for June continued to trend upward, even as volumes evened out, according to the Kauffman Hall data. Organizations saw a 2.1% drop in patient length of stay. Both patient days and emergency department visits each dropped by 2.6% in June when compared to May. Hospital’s gross operating revenue was up 1.2% in June from May.
Expenses have been dragging down hospital margins for months, however, June saw a slight month-over-month improvement as total hospital expenses dropped 1.3%, despite this, year-over-year expenses are still up 7.5% from June 2021. Physician practices saw a drop in provider compensation, according to the Kaufman Hall data, however, this wasn’t enough to offset expenses. The competitive labor market for healthcare support staff resulted in a new high for total direct expense per provider FTE in Q2 2022 of $619,682—up 7% from the second quarter of 2021 and 12% from the second quarter of 2020.
"Given the trends in the data, physician practices need to focus on efficiency in the second half of 2022," Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall, said in the email report. "Amid historically high expenses, shifting some services away from physicians to advanced practice providers like nurse practitioners or physician assistants could help rein in the costs of treating an increased patient load while taking some of the weight off the shoulders of physicians."
Serrano has over a decade of experience in the healthcare finance sector, having previously worked at Tenet Healthcare and Broward Health Medical Center in financial leadership positions. Serrano had also previously served as assistant controller for HCA Healthcare’s Kendall Regional Medical Center for almost four years.
"I’m excited to be returning to the HCA family and joining the dynamic team at HCA Florida JFK North Hospital," Serrano said in a release announcing his appointment. "I’m thankful for the opportunity to serve as the ACFO and continue my professional journey with a great organization that is committed to their patients, and equally to their employees. I look forward to partnering with my colleagues and working in tandem to achieve our established goals and solidify our presence within the community to make JFK North Hospital the best."
In his new role, Serrano will oversee the hospital’s financial operations, providing support to administrators and directors.
"We are excited to have Marko rejoining our HCA Family," HCA Florida JFK North Hospital CEO Ashley Vertuno, FACHE said in the release. "His impressive background will complement our executive team and help us further our mission to offer excellent care to patients."
Average breach costs in healthcare increased to $10.1 million this year.
The healthcare industry has been hit hard financially by an increase in data breaches, with the average breach costs in healthcare increasing by nearly $1 million in 2021 to $10.1 million in 2022, according to recent data from IBM.
For 12 consecutive years the healthcare industry—defined as hospitals and clinics in the IBM research—has had the highest average cost of data breaches per year, with financial organizations coming in second. Sixty percent of organizations across a variety of industries have reported needing to increase the price of their products and services because of costly data breaches. However, the IBM report shows that the right strategies coupled with the right technology can make a positive and significant difference when healthcare organizations are attacked.
Healthcare organizations have reported nearly two-times as many breaches between January and July of 2022 than for the same period last year, according to a Politico report. Additionally, four out of five organizations surveyed by IBM said they'd experienced at least one successful attack.
Some organizations may think the best approach is to simply pay the ransomware demands and move on, but the IBM data shows this approach is more costly—especially when factoring in the cost of the ransom. Those in the study who decided to pay saw only $610,000 less in average breach costs compared to those that chose not to pay—and that is not including the cost of the ransom.
Investing in security AI and automation is the best way to protect against costly attacks, the IBM report says. Breaches at organizations with fully deployed security AI and automation cost $3.05 million less than breaches at organizations with no security AI and automation deployed. This 65.2% difference in average breach cost represented the largest cost savings in the study. Additionally, companies with fully deployed security AI and automation were able to identify and contain a breach in a shorter span—74 days shorter—than companies with no AI and automation. The use of security AI and automation has jumped from 59% in 2020 to 70% in 2022.
"Businesses need to put their security defenses on the offense and beat attackers to the punch," Charles Henderson, Global Head of IBM Security X-Force, said in a release announcing the IBM findings. "It's time to stop the adversary from achieving their objectives and start to minimize the impact of attacks. The more businesses try to perfect their perimeter instead of investing in detection and response, the more breaches can fuel cost of living increases."
Vincent Tammaro will succeed the current interim co-leader and chief financial officer, Mark Larmore, who is retiring at the end of August.
Ohio State Wexner Medical Center— a Columbus-based healthcare provider with over $4 billion in total revenue and more than 2,000 total staffed beds—has appointed Vincent Tammaro, an industry veteran with over two decades of experience in the healthcare space, as its new chief financial officer, effective August 1, 2022.
In this role, Tammaro will oversee finance, treasury, information technology, data analytics, revenue cycle, supply chain, the OSU Health Plan, and related areas. He will support the strategic and financial planning of the medical center, including long-range business planning and financial goal setting. Additionally, Tammaro will manage short- and long-term operational and capital plans in support of the academic health center’s mission to improve people’s lives in Ohio and across the world through innovation in research, education, and patient care.
Tammaro will succeed the current interim co-leader and chief financial officer, Mark Larmore, who is retiring at the end of August. Larmore has served as CFO for Ohio State Wexner Medical Center since 2015.
"With more than 26 years of experience as a healthcare leader, Vincent has a distinguished record of building diverse, high-performing teams focused on innovative financial management solutions," Larmore said in an email statement announcing Tammaro’s appointment. "His breadth and depth of expertise and successes will undoubtedly be an asset as the medical center enterprise continues to advance strategic priorities in support of our patient care, education and research missions."
Currently, Tammaro is serving as executive vice president and CFO for Yale New Haven Health, an integrated health system in Connecticut—a healthcare provider with over $5 billion in total patient revenue and more than 1,500 total staffed beds.
"We are thrilled to welcome Vincent, his wife Catherine and their three children to the Buckeye family," Dr. Andrew Thomas, interim co-leader and chief clinical officer for Ohio State Wexner Medical Center said in the email announcement. "He is the right person to build on the strong foundation that Mark has established over the past seven years. On behalf of the entire medical center, we are looking forward to working with him as we continue to grow our footprint, our community impact, and our national reputation."
Daniel Morash is leaving his current position with Mass General Physicians’ Organization and will take up the reins as CFO for Brigham this fall.
Brigham and Women’s Hospital—a Boston-based medical center with over $8 billion in total patient revenue and 812 total staffed beds—has appointed Daniel Morash as its new chief financial officer, effective September 1, 2022.
"Daniel’s strong business acumen as well his ability to be creative, nimble, and disciplined will continue to be an invaluable asset to the Mass General Brigham enterprise finance leadership team and to the Brigham team," Giles Boland, MD, president of the Brigham and Women’s Physicians’ Organization, said in a release announcing Morash’s appointment.
Morash—who is currently serving as CFO and senior vice president for the Mass General Physicians’ Organization—will oversee the finance departments for Brigham and Women’s Hospital, the Brigham and Women’s Physicians’ Organization, and Brigham and Women’s Faulkner Hospital.
"Brigham and Women’s Hospital is a leader in healthcare, innovation, and quality and I’m honored to have been chosen for this role," Morash said in a release announcing his appointment. "I look forward to collaborating with the Brigham’s talented leadership and helping to lead the financial strategy of our storied institution and I’m excited to continue to work with my colleagues across Mass General Brigham as we tackle the serious financial challenges our industry is facing."
Prior to his role with the Mass General Physicians’ Organization, Morash served in the Department of Anesthesia, Critical Care, and Pain Medicine at Massachusetts General Hospital as Executive Director.
"I’m so pleased to welcome Daniel in his new role as CFO and SVP of Finance," Robert Higgins, MD, MSHA, president of Brigham and Women’s Hospital, said in the release. "His proven track record of thoughtful and strategic leadership, coupled with his vast experience in academic medicine make him an excellent choice to shepherd our financial priorities and well-being."
ReChelle Horinek will step into the position next month.
Norton County Hospital—a Norton, Kansas-based 25-bed critical access hospital with over $60 million in total revenue, has hired ReChelle Horinek as its new chief financial officer, effective August 8, 2022.
"We are excited to have ReChelle join our team," Brian Kirk, CEO of Norton County Hospital, said in a release announcing Horinek’s appointment. "She has tremendous background and experience leading finance activities at several critical access hospitals in our vicinity. ReChelle and I worked together in the past, and we converted that hospital from a 'going concern' annual audit report opinion to a financially viable operation. She will bring some key strengths to our organization that will help make NCH the best place to work, receive health care, and practice medicine."
Horinek has over 15 years of combined work experience as a hospital CFO and has served in this position with several hospitals in Northwest Kansas. Horinek most recently served as CFO for Logan County Hospital in Oakley, Kansas.
"I'm delighted to join Brian and the team at Norton County Hospital," Horinek said in the release. "Having grown up in northwest Kansas, I know how important health care is to rural communities. Increasing concerns about access to care and decreasing reimbursement weigh heavily on community hospitals. I'm excited to use my experience in health care finance to help Norton County Hospital maximize its current services and help it grow for the future."
GRMC has expanded its reach through this management agreement, allowing it to provide greater healthcare services to patients in its community.
Garrett Regional Medical Center—a 55-bed, not-for-profit, acute care facility in Garrett County, Maryland, with over $82 million in total patient revenue—has officially become part of the WVU Health System, effective July 1, 2022.
Garrett Regional Medical Center entered into a management agreement with WVU Hospitals—the largest health system in West Virginia with over $1 billion in total revenue and over 1,800 beds—in January of 2018, the two organizations had been working together since 2015 when a clinical affiliation between the two brought services in heart and vascular, laboratory testing, nephrology, neurology, and oncology to Garrett Regional Medical Center.
"Our relationship with Garrett Regional Medical Center has grown and strengthened over the last several years, and we’re excited to finally bring them fully into the WVU Medicine family," Albert Wright, Jr., president, and CEO of the WVU Health System, said in a release announcing the partnership. "We are honored that the residents of Garrett County and the surrounding region have put their faith and trust in us to provide them with world-class healthcare, and we will continue to do just that for many years to come."
Garrett Regional Medical Center first expanded its healthcare services in 2017, when it opened the Grantsville Medical Center, which offers primary, urgent, and specialty care in northern Garrett County, and with the 2019 launch of the Regional Behavioral Health Clinic in Oakland.
"The partnership between Garrett Regional Medical Center and WVU Medicine will help ensure the stability of healthcare in our region," Paul Edwards, Garrett County commissioner, said in the release. "This has been a heavily vetted process, and we feel confident it is the right step for the health of our community."
Javier Vallejo, the new CFO for Prism Health North Texas, sees succession planning as one of the biggest challenges in the healthcare industry today.
Earlier this summer, Javier Vallejo was chosen to lead the financial efforts for Prism Health North Texas as its new CFO—a role he was proud to step into to help Prism Health continue its mission to serve people with HIV and AIDS.
Prism Health North Texas is the largest HIV and AIDS service organization in the region. The system serves over 13,000 patients, 5,000 of whom are living with HIV. Prism operates clinics, pharmacies, and a clinical research department. The organization also focuses on behavioral health, healthcare access, and education. Prism Health North Texas recently expanded its telehealth services and STI testing services to address what it describes as an "alarming rise" in STI infections in Dallas County and North Texas.
Vallejo recently connected with HealthLeaders to discuss his plans to help Prism Health grow over the next decade and the way the healthcare CFO role has been evolving over the last few years.
HealthLeaders: What drew you to the CFO role for Prism Health North Texas?
Javier Vallejo: Prism has grown out from primarily a grant organization to getting into more general healthcare services. And through that growth, I've noticed a lot of opportunities to come in and fine-tune some of my strengths and weaknesses, but also to help build Prism up into the next 10 years. I tend to have a systems perspective in how I approached operations and healthcare. My core competencies are in accounting, and my background is in finance. But [what really stood out to Prism] was my vision and knowing how processes should be, being able to work with people, being able to manage and lead and direct change. Those are strengths that typically not a lot of people who have a finance and accounting background tend to have.
HL: What is the mission at Prism Health North Texas?
Vallejo: When HIV and AIDS initially became a huge pandemic in the 80s to today, that science has changed a lot. We're hopeful there will be a long-term cure for HIV and AIDS that's not so invasive and rely on allowing more people to live a full and healthy life based not on their health and income level. But with that, we also have to be open to keeping true to that mission of finding new ways to reach our target demographics and provide new ways to treat them from every front.
HL: Where do you hope to make the biggest difference?
Vallejo: I want to have a real impact on facing the social determinants of health. I want to be an advocate of change. I want to be a leader of change. I want to help shift and navigate the traditional transactional-based healthcare towards more value-based care and help lead that shift. That's going on in the macroeconomic world as it pertains to healthcare.
HL: What is your specific strategy coming into the role of CFO for Prism?
Vallejo: My 100-day plan is I want to make sure that I understand operations, understand the people, and then do some organizational restructuring to put aces in their places and find out where the value truly is. I want to find out what processes aren't bringing any value and try to build an equitable experience. I expect only two things from people that work under me or work with me. I am looking for people who want to do a good job and people who want to be here. To err is human, people make mistakes. But if you want to come to work every day and you want to learn you're going to make those mistakes, but you're going to learn from them and you're going to improve. I'm trying to build a culture of high performance and success and that helps bring about that change I was thinking about.
HL: Someone might hear 'organizational restructuring' and think their job is in trouble. What are your thoughts regarding balancing the organization's overall financial health with maintaining its workforce?
Vallejo: It's not ever someone's intent to lose jobs or to outsource jobs, that's not my focus. Because of the operational growth and because of the business lifecycle, Prism has lost a lot of legacy and institutional knowledge. When CEO John Carlo hired me, he was looking for someone with innovative ideas. COVID-19 has brought about a lot of opportunities to see that the traditional means of doing things—the age of the five-day workweeks or having to commute every day—isn't necessary for every single job function. It's being able to figure out a strategy that works best for everyone. An organization can say I want a standardized process, but a standardized process doesn't necessarily mean everything's identical for everyone. It is about setting proper expectations and making sure you communicate those expectations. And, quite frankly, for me, it's making sure you're not setting anybody up for failure.
HL: What are some of the innovative ideas you are bringing to the table?
Vallejo: I'm focusing on quality and value and trying to align the financial aspects of healthcare with the delivery of care. Healthcare, in general, is known as a loss leader—you can't make any money at healthcare. Time and time again, if you look at the business cycles, the facilities that are doing something right, the facilities that are working towards the future, they are finding ways to bridge that gap and bring those two concepts together.
HL: What are some of the biggest challenges facing healthcare CFOs today, and what solutions to these problems exist?
Vallejo: The pipeline is short. You read about the great resignation and a lot of it's been in the healthcare space. There's been a lot of good leaders who have retired probably a little earlier than planned. I think it's about the next generation having all the skills and having the want to know how to pull those pieces together. It's about being able to give avenues so that the healthcare system does not have a breach, and good financial management, good doctors, and good nurses. I think that one of the main struggles right now in the entire healthcare system space is just a lack of bench strength, a lack of succession planning. We need to be grooming the next generation of leaders.
Lee has more than three decades of experience in the healthcare finance space.
MultiCare Health System—a Tacoma, Washington-based eleven-hospital system with over $3 billion in annual revenue—has appointed 30-year industry veteran James Lee as its new chief financial officer.
Lee will lead MultiCare’s population-based care strategy and oversee the organization’s financial performance. Before joining MultiCare Lee spent 17 years with Adventist HealthCare in Gaithersburg, Maryland, as executive vice president and chief financial officer. While with Adventist Lee introduced employee wellness programs that aimed to identify health issues early and facilitate timely care. Lee also worked for more than a decade to bring a new hospital to a Maryland community in need.
"I had the privilege of working with James at Adventist HealthCare for 11 years before I came to MultiCare," Bill Robertson, MultiCare CEO, said in a release announcing Lee’s appointment. "He is a positive, thoughtful leader who has broad experience in population-based care, capitated revenue models, finance, and operations. I am thrilled to have him on board.”
As part of the team at MultiCare Lee will be responsible for supporting work to expand patient access to care and services and drive the organization’s ongoing transition away from episodic, fee-for-service care models toward a more value-driven approach.
"I’m energized to start this new chapter in my career," Lee said in the release. "My position at MultiCare combines the challenge of improving the health of a population with providing care in a financially feasible way, and I’m excited for this opportunity."
