How hospital CFOs are handling healthcare changes

"These things aren't going away and it's interesting to see how the provider's role is evolving."

As 2015 begins, the healthcare landscape is littered with financial challenges for providers to confront. While the nature of these issues differs, the common thread among them is that they represent an ongoing shift of the healthcare business model away from fee-for-service.

For CFOs, this means dealing with a host of changes, such as different reimbursement models, various regulatory and compliance mandates and ongoing pressure to reduce expenditures. It is an overwhelming menu of tasks that requires new strategies and solutions, said Craig Hodges, CEO of Portland, Ore.-based CarePayment.

“These things aren’t going away and it’s interesting to see how the provider’s role is evolving,” he said. “CFOs who cling to the old-school way of thinking will be out of a job.”

Follow Healthcare Finance on Twitter and LinkedIn.

Financial disparity between the health system “haves” and “have nots” is creating a subdued atmosphere for CFOs, a recent survey from Black Book Market Research indicates. The Dunedin, Fla.-based firm based its findings on responses from 590 hospital and inpatient organizations in 45 states and participants included some 2,300 CFOs, CIOs, business office managers, technology and financial staffers.

At issue is the state of hospital revenue cycle management systems, contrasted by “haves,” typically large integrated health delivery networks and academic medical centers, and “have nots,” most often represented by small rural and community hospitals. Because the large systems have deeper pockets, they have had the capital to invest in the IT infrastructure, software and staff necessary to initiate changes, while the cash-strapped small organizations have struggled to keep up.

One of the most telling findings of the survey is that 61 percent of hospital CFOs who identified their organizations as struggling said they expected to lose their jobs. The main reason, the survey states, is “their revenue cycle management, staff and solutions have been stuck in a fee-for-service approach for too long and have been unable to make the transition to capitated or other forms of payments.”

[Also: Tracking 2015 mergers and acquisitions]

Adding to the hardscrabble position they share, 87 percent of small and community hospitals anticipate declining-to-negative profitability through 2015 due to diminishing reimbursement, unrecovered collections and underutilized billing and records technology, the Black Book survey found.

‘Refocus’ required

Another outmoded financial strategy is to combat declining reimbursement by increasing patient volume for services with reduced payments. In a new prospective payment system, that strategy is no longer relevant, said Rob Schreiner, MD, managing director for population health at Chicago-based Huron Healthcare.

[Also: Huron buys Studer for $325M]

“CFOs have traditionally battled declining payments per unit of care by embarking on strategies that increase the cost of operational units,” Schreiner said. “That entailed making up for the number of visits by generating more referrals. What’s different going forward is that the amount of revenue is no longer being measured by the clinical event. Now delivery systems are paid per patient regardless of how much is done. So hospitals have to figure out how to drop the total cost of care.”

The fundamental change that must be made is to refocus provision of care from “reactive” to “proactive,” Schreiner said.

“Physicians need to get paid to prevent illness and complications,” he said. “But the CFO wonders how to get paid for what doesn’t happen. In fee-for-service, there is no financial reward to keep people healthy…and therein lies the problem.”

The consumer factor

As the financial decision-makers for an industry that has operated as a business-to-business enterprise, CFOs now need to factor consumers into the equation, Hodges said. The new reimbursement models are based on outcomes, which he says now drive care quality, pricing matrices, transparency and affordability.

“Healthcare organizations need to change their operations to be more consumer-friendly; they need to develop a successful patient engagement strategy,” Hodges says. “They need to demonstrate their market distinction.”

One way to effectively reach consumers is by establishing a greater community presence and current mergers-and-acquisitions trends indicate that health systems are actively seeking exposure outside the inpatient environment, Hodges said, pointing to a statistic that predicts approximately 70 percent of physician practices will be owned by hospitals in the next five years.