Robin Damschroder says that moving forward from healthcare's current financial challenges means a rapid redesign in the way hospitals engage with patients and employees.

Hospitals and health systems are eager to put the pandemic behind them, and while the physical devastation may be slowing, its impact, along with the labor crisis, rising expenses, and inflation are still taking its toll on healthcare providers.

Robin Damschroder, the CFO for Henry Ford Health—the Detroit-based healthcare provider with $6.8 billion in total patient revenue—is at the forefront of the fight to regain the health sector's financial stability. She recently connected with HealthLeaders to discuss these and the other challenges keeping CFOs up at night.

HealthLeaders: What was it that drew you to the CFO role for Henry Ford Health?

Robin Damschroder: I fell in love with the team and the mission of the organization. In general, health systems have similar missions, but we think more deeply here at Henry Ford. We have a mission to be part of the community, a commitment to diversity, and an effort to reduce health disparities. We're deeply embedded in our communities, and not just through the services we provide. We are involved with economic development and education around healthcare. It just depends on the needs identified and the partnerships that we have within the communities.

I would say that's the other big thing about Henry Ford culturally, partnership and collaboration is the part of who we are and how we respond. That just resonated with me strongly because I believe you never get anything done alone. And when you're talking about something as hard as social determinants of health, equity, and reducing health disparities, we're not going to do that alone. The engagement helps us attack things like infant mortality, reducing opioid use in the community, or the ability of access to behavioral health services in an online community effort. Those are not problems that any one party is going to resolve on their own.

HL: What challenges are impacting hospitals' financial well-being?

Damschroder: We've moved on and we're hopefully seeing the end of the health crisis. However, we're now starting to see the rise of the financial health crisis, and it's been a roller-coaster. In the first days of the pandemic, it was just watching your bottom line drop. We were busy getting credit lines and that kind of stuff. And then we were fortunate to get provider relief funds, and the accelerated payments from Medicare were extremely helpful. We repaid most of those accelerated payments here in September.

The labor piece has been a challenge. It's just led to the entirety of the wage base, all the way from the [lower end of the] pay scale to nursing, rising anywhere from 5% to 8% over the last three years. Experts are projecting that those costs on the wage side will continue into 2023, maybe even part of 2024.

The largest challenge is that we don't have the opportunity, the way other industries do, to pass those costs on to our customers. We're also watching a little bit of an increase on the payer side for commercial, but Medicare and Medicaid are responding with 5% increases in rates.

HL: How do organizations move forward from that?

Damschroder: It means a rapid redesign of the models that we have. As you have to pay people more, you have to create automation. There are not enough workers in the workforce right now, and that's because people are retiring, and others are choosing to go to other industries with more competitive pay. It is a perfect storm where we're being asked to do what the airline and banking industries probably had to do 20 or 30 years ago when they had their own structural financial crisis. And that's where healthcare finds itself. Healthcare has been slower at that rapid change and growth than other industries, but we're all adapting to that quickly.

HL: What strategies are you utilizing to solve these issues?

Damschroder: By implementing automation. One way is to create more ease for our patients. Think about echeck-in at the airport. Currently, when you go to the airport, you check in on your phone, you get your own bag tag and drop your bag off, and you walk through security, and unless you're having trouble, you're not talking to anyone. Some of our sites already have kiosks where you can walk in, touch a kiosk, check yourself in, and it will alert the techs you've arrived. There's usually one person floating around in the waiting room to offer help but creating ease for patients [reduces the need for some labor].

Another example of implementing automation is an app that our employees can use to pick up shifts around the system, as long as they are credentialed. So a lab tech can pick up a shift at Henry Ford Health or could go out to one of our ambulatory sites. It's a way for us to make sure our own employees get the best access first to whatever shifts we have available [before finding outside labor].

And then there is automation on the back end. For example, patients can pay bills online. We've had that option, particularly during COVID; it's had a lot of uptick. Now we have fewer people having to make calls to patients through our contact center. [Another] item would be if a patient wanted to sign on and become a Henry Ford Health patient, they can use MyChart rather than having to call and talk to somebody. In the past, that might have taken anywhere from 5 to 15 minutes depending on the situation. Now you can do it all online, and 70% of our new MyChart accounts are done online, which makes our current call centers—which have been overwhelmed—more available to do complex appointments.

HL: What should healthcare CFOs keep an eye on going into 2023?

Damschroder: Supply chain issues are still out there, even though it's improving; we all still see that it's slow. We're attentive to that. We are maintaining more inventory again, which costs more than we have done in the past.

The other challenge is interest rates. Whether we're investing in digital systems or IT systems around healthy population or consumer experience, or just for ease of care for consumers, to new facilities, the interest rates rising are concerning. I spend a lot of time talking about how that's going to impact our ability to invest.

There's also been a lot of discussion around price transparency. There's a lot of pressure—as there always has been—on reimbursement rates. Henry Ford Health system and a lot of folks rely on 340B discounts and other mechanisms like disproportionate share payments. We're a big teaching institution, so a lot of these special payments that we do in order to teach the healthcare leaders of the future or make sure that we can take care of vulnerable patients are extremely important. So that is an area that we and others are actively—in our advocacy—ensuring that these programs stay intact or evolve to a place that enhances the programs for the people that were trying to care for.

The hospital operator's stock is declining following the release of its latest financial results.

HCA Healthcare announced its financial results for the 2022 third quarter and while the hospital operator reported profits that topped analysts' expectations, revenue and net income declined year-over-year.

Revenues in the third quarter of 2022 totaled $14.971 billion, compared to $15.276 billion in the third quarter of 2021. Net income attributable to HCA Healthcare, Inc. totaled $1.134 billion, or $3.91 per diluted share, compared to $2.269 billion, or $7.00 per diluted share, in the third quarter of 2021.

HCA Healthcare saw a decline in admissions for the quarter as well. Same-facility admissions dropped 1.5% year-over-year, however, same-facility equivalent admissions increased by 2.3% in the third quarter of 2022. Same facility emergency room visits declined 1.3 percent in the third quarter of 2022, compared to the prior year period. However, HCA saw a 5.6% rise in same-facility inpatient surgeries compared to the same quarter the prior year.

"Despite a difficult comparison to the prior year due to the COVID-19 Delta variant, we are pleased with our results and the execution of our teams in a challenging operating environment, which included tremendous efforts from our courageous frontline caregivers and support teams who worked tirelessly to provide uninterrupted care during Hurricane Ian," Sam Hazen, chief executive officer for HCA Healthcare said in the earnings report.

A strong, collaborative relationship with their payer partners helps this CFO serve patients and maintain the organization's financial well-being.

Hospital and healthcare CFOs are battling challenges they never expected to face all at once: a pandemic, inflation, labor shortages, rising expenses, and negative margins, to name a few. Through all these ups and downs, organizations and their leaders refuse to compromise on the quality of the healthcare provided to their patients—especially when those patients are some of the community's most vulnerable members.

Bridgett Feagin, CFO for Connecticut Children's—a level 1 pediatric trauma center with roughly $600 million in net patient revenue—has been working tirelessly since joining the organization in June 2020 to balance the hospital's financial needs with its mission to help sick children.

Feagin recently sat down with HealthLeaders to discuss how Connecticut Children's gets this done.

HealthLeaders: How do you incorporate maintaining the financial well-being of the organization with the mission of improving the lives of sick children?

Bridgett Feagin: One thing I always tell my team is, no margin, no mission. You need a margin to continue with the mission. So, it's about balancing the needs of the community and being able to cover your costs. We don't have high margins, but we need a decent margin to be able to continue with patient care to cover the inflation. So, we work with our payers to cover our costs and a little bit more than our costs because we need to purchase capital and facilities. So, it's a fine line. We have to be good partners with our payers in order to get paid for the services that we render.

HL: What does a good relationship between the hospital and payers look like?

Feagin: It's a collaborative relationship, meaning that they understand our needs and we also understand their business needs as well. So, if it costs $100 to take care of this patient, we at least need to cover our costs. Now at Connecticut Children's, we are a payer mix, close to 60% of Medicaid. Medicaid does not cover the cost. So, we need our commercial payers to give us a little bit more than the costs. So, we can shift some of that liability over to our commercial payers. And that's just the way it works. They understand that but we are working with the state as well to increase our reimbursement to cover our costs.

A good payer partnership also reduces administrative burdens, such as a denial. When a payer denies a claim, it creates more administrative work for my team. On the front end, we're talking to payers about what we need to do, to make sure we don't get a denial in the first place.

HL: Can you provide an example of the collaboration to ensure that a claim won't be denied?

Feagin: We have monthly meetings, where we change our workflows based on these conversations, so claims won't be denied. But one example would be with our NICU babies. Typically, we're supposed to notify our payers within 48 hours, that the baby is admitted to the hospital. However, those parents are not thinking about providing the information, because they have a critically ill child that's been admitted to the ICU.

We need to be compassionate and work with the family to get the information and find out who their insurance company is. Sometimes that takes over 48 hours. So, say if it goes to 72 hours, we'll contact the payer and say we'll have this information beyond the 48 hours. Now they'll have it in their system, and they get the authorization done. So that's an example of working with the payer to make sure we don't get a denial on the back end.

HL: How have the pandemic, inflation, and labor shortages impacted Connecticut Children's?

Feagin: The pandemic hurt us financially because elective surgeries were canceled. At the onset of the pandemic, it was not impacting children the way it was impacting adults. We couldn't do elective surgeries, so, it challenged our finances. But, coming through the pandemic, our volume is at record highs right now. Our volume is much higher than our capacity.

To deal with the labor shortage, we have increased our premium pay to [have staff] cover extra shifts. We had a lot of vacancies, so we had to bring in a lot of agency staff, so financially, that hurt us. However, we are maintaining it because our volume is high. We are probably one of the few hospitals in Connecticut that has a positive margin.

HL: What strategies as CFO are you utilizing to ensure not only the short-term but the long-term financial health of the organization?

Feagin: We're looking at different ways to bring in revenue. Part of that is making sure our documentation is complete and up to par, that our coding is up to par, and streamlining some of our processes in non-clinical areas. The key to that enhanced revenue capture was the documentation coding and getting the bills out of the door quicker.

Good expense management is also key—revenue capture, that's our short-term strategy. In the long term, we need to look at the needs of the community. Are we providing those needs and how do we provide the services at the least cost possible? So, looking at the labor and retention, we wouldn't have the vacancies if we had retention. So, we must look at retention policies and come up with retention programs that, in turn, will reduce our costs in the long run, because having to orientate new people costs us as we bring them in.

Staying on top of technology long-term has financial benefits as well. The more technology we can bring in, the more we automate, it reduces the manual processes that we have, which should reduce our expenses as well. And finally, we need to look geographically at the areas that we need to be in. Also, growth and new business opportunities are also our mid- to long-term financial strategy.

The quarter saw two ''mega transactions" that were spurred by organizations' capital structure interests.

There were 10 announced M&A transactions from hospitals and health systems during the third quarter of 2022, a relatively sluggish figure, but an improvement from the seven transactions announced during the same quarter in 2021, according to research from Kaufman Hall.

This quarter saw two "mega transactions," which Kaufman Hall defines as "smaller party annual revenues over $1 billion." According to Kaufman Hall, these transactions are normally "strategic in nature" but the two from this quarter were the result of financial and capital structure interests.

Pure Health, an Alpha Dhabi Holding subsidiary based in the United Arab Emirates, signed an agreement in September to purchase a $500 million minority equity investment in Ardent Health Services, a Nashville-based 30-hospital system. The second of the two mega transactions involved the sale of nine hospitals and two related medical office buildings in California, Indiana, Nevada, and Pennsylvania from Medical Properties Trust, Inc. to Prime Healthcare.

Two of the 10 Q3 transactions were by for-profit health systems, three were by non-profit organizations, four of the transactions were by academic or university-affiliated acquirers, and there was a religiously affiliated acquirer as well, according to Kaufman Hall.

"Given the current volatile interest rate environment, we anticipate that systems (both for-profit and not-for-profit) will be focusing heavily on their capital structures, which may spur more financially driven transactions," Kaufman Hall said in the report. " Portfolio realignment and focused regional growth are among the trends we expect to continue, as hospitals and health systems focus on building depth and breadth of services within core markets. We also anticipate continued growth in partnership models that can offer new sources of capital and new capabilities as organizations emerge from an extremely challenging financial year and refocus on strategic growth opportunities."