How CFOs Tackle Financial Integration

Consolidating finance operations, whether the result of a merger or even within an existing system, requires finesse and transparency, CFOs say.

This article first appeared in the May 2015 issue of HealthLeaders magazine.

With most mergers and acquisitions, chief financial officers quickly realize that consolidating finance operations would improve efficiency and lower costs. Achieving that integration is no small task, however, and healthcare executives who have met that challenge more than once say it requires a focus on common platforms and sensitivity to the impact on employees.

The feasibility of merging finance operations was one factor considered in the recent merger of Banner Health in Phoenix with the University of Arizona Health Network. Banner CFO Dennis Dahlen says he intends to consolidate financial operations in such a way that finances for the newly merged system can be managed with about the same resources, or slightly more, than used by Banner prior to the acquisition.

The integration of the two large health systems employing more than 36,000 in Arizona will result in three hospitals and a large physician practice all being renamed to reflect the Banner brand. Banner Health's flagship hospital, Good Samaritan Medical Center, will be renamed Banner University Medical Center Phoenix.

The deal closed in late February, but all staff changes at both organizations are on hold for six months while Banner determines the right sequencing and pace of the consolidation. Dahlen anticipates that the bulk of the workflow changes and other consolidation efforts will be complete in summer 2015. The first steps will involve migrating all of the university network's operations to the same platform that Banner uses, along with implementing Banner's standard policies and procedures. But that won't be simple.

"Clearly there are challenges," Dahlen says. "It's kind of like Microsoft vs. Apple. We're a strong Cerner shop, and the University of Arizona Health Network just implemented Epic. Being a young Epic user, that system is not optimized and they're not getting the best result from it, and conversely our Cerner is mature and well established."

Although no decision has been made on an EMR and revenue cycle system, Banner has learned from experience that it doesn't work to allow some entities to retain their own infrastructure, especially using a different platform. In past acquisitions Banner had tried leaving revenue cycle and practice management systems in place in some clinics because they had existing contracts, but found that those exceptions significantly hindered efforts to improve efficiency and lower costs.

"Of all the challenges, that is the largest one," Dahlen says. "A common platform is a foundational building block for what we would frame as the ultimate finance optimization."

Having dual platforms could complicate the revenue cycle, revenue reporting, supply chain operations, and many other facets of the Banner operation, he says. Even if the switch could be made faster, Dahlen says he wouldn't be willing to move the university to Cerner until the vendor completes some improvements to how the system handles Banner's revenue cycle and ambulatory care. Epic's integrated approach to EMR and revenue cycle solutions provides advantages that Banner's current Cerner solutions do not provide, he says, so it would be wiser to wait until Cerner's tools are enhanced to meet Epic's functionality before integrating one to the other.

Workflow will be addressed by consolidating transactional functions into specialized teams that can increase efficiency, achieve scale, and be more effective than separate financial operations, Dahlen says.

"Workflow is a difficult issue because we're moving lots of people's cheese," he explains. "The University of Arizona Health Network is like most academic medical enterprises in that it is a distributed, shared governance model where everyone gets a say in any decision and has their finger in every aspect of running the business."

That structure meant that every single medical department in the university's network had its own payables department, payroll employees, and office manager. None of that is necessary, so Banner will be moving those operations to the centralized teams and trying to reposition those employees.

"Those people will certainly have a part in the centralized operations, but they won't be running their own shops anymore," Dahlen says. "We will be changing that workflow in a significant way."

Banner has had transition teams on site at the university system for several months to meet with the 6,000 employees about what the merger would mean for them. The pending merger restricted how much they could explain in detail, but the real goal was "to put a human face on Banner to these employees who don't know us." Town hall–style meetings have been well-attended and employees have expressed appreciation for the face-to-face interactions.

"We provide a lot of resources to people whose lives and careers are affected. We take great pride in our ability to reposition those whose jobs are disrupted by the changes, trying to find them new positions within our operation," Dahlen says. "All of our acquisitions to date have been quite successful in that regard, with 80% or more of disrupted employees repurposed into other positions."

Banner expects to see a "huge return on investment" with the finance consolidation, Dahlen says. The cost of the consolidation is relatively small, he says, because Banner has a mature, well-established enterprise resource planning system, clinical system, and revenue cycle solutions that can be licensed more broadly rather than having to buy new systems. Banner has an infrastructure system that operates at a cost of $550 million, and the university system's corresponding infrastructure costs about $150 million.

"Because the investment is relatively modest, I think we'll see a positive return by the end of the year," Dahlen says. "We're going to do our best to take costs out without a whole lot of additional investment."

Detailed modeling was expected to be complete by mid-April, yielding targets and time frames for functional areas and also for individual executives. Those targets will be used to determine anticipated savings for 2015 and 2016. In addition, Banner will be measuring dozens of metrics for revenue cycle, clinical turnaround times, and other key factors.

Autonomous option
Though nearly every CFO wants it, not every health system can achieve finance consolidation. When South Nassau Communities Hospital in Ocean-side, New York, formed a partnership with Winthrop University Hospital in Mineola, New York, in 1996, finance consolidation was considered, but ultimately rejected as too costly. The Winthrop-South Nassau University Health System still maintains autonomous financial departments at the two hospitals, which are only 6 miles apart, explains Mark Bogen, senior vice president of finance and CFO at the system.

"When we first formed this relationship 19 years ago, there was every expectation that we would consolidate all of the back-office operations," Bogen says. "But we realized that the pay schedule was vastly different between the two hospitals. Having to increase the salaries of all our employees in similar positions to Winthrop's would have meant millions of dollars in additional costs to South Nassau, which would have far outweighed any financial benefits from consolidation."

South Nassau Communities Hospital, however, has created a central business office for the physician practices it has been acquiring in recent years. Whenever possible, billing employees at the practice are transitioned to a position in the central business office—an especially important effort when those employees are the physician's family members.

Corporate services option
Mergers and acquisitions are not the only impetus for finance consolidation. At Mission Health System in Asheville, North Carolina, Vice President of Finance Larry Hill explains that the system is in the process of streamlining its revenue cycle operations into a centralized corporate model as part of a massive cost-containment initiative for its seven hospitals, along with physician offices and other ancillary sites. Mission Health has about $1.5 billion in net revenue.

Mission Health has been moving toward a corporate services model for the past 18 months, part of what Hill calls the maturation of the health system. The finance segment of that transition was tackled in a big way in the past budget cycle, ending in summer 2014. Prior to that, each hospital had a mostly autonomous accounting department and staff.

Moving toward the corporate services model includes providing appropriate care without waste, so Hill focused on cutting duplication, standardizing operations, and reducing errors. Mission Health developed a home office–style finance operation that included not only accounting but also revenue cycle and supply chain.

"It is a large amount of change for people. We were transparent in saying that we were going to be centralizing functions to more of a home office, corporate model," Hill says. "The areas most affected were things that are routine functions and happen on a regular schedule, to gain the most efficiencies. The things we identified were payroll, accounts payable, treasury functions, and standardized financial reporting."

Mission Health also explained to employees that some functions would remain local, and some level of financial oversight would still be necessary at each institution. Those remaining on site should be focused on using financial data rather than compiling and reporting it, Hill says. For instance, they should focus on labor efficiency, projections, budgets, and working with departments to create more lean processes.

"We were transparent in saying that we were going to be centralizing functions to more of a home office, corporate model."

Centralizing finance functions meant that in October 2014 some employees were repositioned to the home office in Asheville from facilities elsewhere in the state, requiring long commutes for some. Mission Health is open to allowing some finance employees, such as coders, to work from home, In the early stages of the consolidation, however, Hill says it is essential to have people working face to face.

"The fear created by the change cannot be underestimated," Hill says. "We saw employees who, even though they had been through the evaluations and had secure jobs in the home office, were still uncertain about whether this was only step one in a series of changes to come. They kept looking for jobs elsewhere and even after we had gotten to a stabilization point, we had a couple more turnovers in key positions."

Two of Mission Health's hospitals were left out of the financial consolidation initially because their financial systems could not quickly mesh with the home office system. Hill underscores the lesson that Banner Health had experienced, saying a common platform is essential to fully consolidating finance operations. Like Banner, Mission Health had tried in the past to let facilities keep a different platform that was working well, but found that the various systems became a burden. One of the lagging Mission Health hospitals converted to the common financial platform in January, and the other is expected to be online in October.

Mission Health also has acquired a number of primary care and specialty practices, so the health system is now supporting at least 10 unique physician billing and EMR applications, explains Mission Health CFO Charles Ayscue. He expects to consolidate down to three applications within the next two to three years.

"Consolidation is necessary within the industry, but we have had a considerable amount of activity over the past several years, and I am concerned that our star performers are wearing down," Ayscue says. "If I had known how much work was involved, I would have developed a deeper bench to spread out the support needs."

The first months of the consolidation with the university system are proving it was the right move, Hill says. In addition to significant improvements in efficiency, Mission Health is benefitting from standardizing processes such as journal entry reports and streamlining board packages. Hill and his team monitor the effects of the consolidation through metrics such as the number of touches required to prepare month-end financials and the number of entries made in the accounting book.

"We actually took pictures of the stacks of work papers that we started with at each of the hospitals from day one, and we've compared that now three months later to what journal entries the same work required. It was a significant amount of paperwork that we've reduced through either touches or technology," Hill says.

Once the benefits start appearing, be quick to celebrate your successes with the whole team, Hill advises. "They need the reinforcement as to why we made this change and that they were a big part of the success," he says. "Celebrate a month-end close that went well. We went through our fiscal year-end audit with a reduced number of staff; it was done centrally, and we were able to successfully move through that audit with no material findings and clean opinions. We celebrated that with the staff."

Gregory A. Freeman is a contributing writer for HealthLeaders Media.

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