How cost, supply controls kept Goshen Health from falling over the edge

IU Goshen Health CFO Amy Floria (photo by Abbie Welch)

When Amy Floria was promoted to chief financial officer at IU Health Goshen in 2008, she had already booked nine years of experience managing finances for the Indiana health system.

Floria previously served as assistant vice president of what was then called Goshen Health System, and also held the titles of director of finance, and managing director of financial planning and reimbursement.

However, the economic collapse in 2008 changed everything for the new CFO, plunging Goshen, both the city and hospital, into crisis.

More than 20 percent of the workforce in the area, including in nearby Elkhart, Indiana--the "RV Capital of the World"--was out of a job. By 2009, unemployment topped 18 percent.

Many hospital employees suddenly found themselves as the family's sole breadwinner. Bad debt and charity care at IU Health Goshen skyrocketed as operating margins dropped.

Through the downturn, Floria helped financially navigate the health system, without layoffs. The unemployment rate in the area has gone down to around 6 percent, and IU Health Goshen's operating margin now stands at a healthy 10 percent.

"We have started to see a rebound," Floria said. "We were at the leading edge of the downturn. We were also at the leading edge of the uptick."

IU Health Goshen includes IU Health Goshen Hospital, IU Health Center for Cancer Care and 17 other member services, employing an estimated 1,300 people full-time.

As part of Indiana University Health, it's helped to have the buying power of a larger health system, but IU Health Goshen is governed independently.

When she first interviewed at Goshen, Floria said she was asked whether she might get bored after being in public accounting.

She's been anything but.

"It's a lot of fun," she said. "Maybe it's crazy to say that, but it's the world we work in. I'm not going to get bored."

We spoke to Floria about managing through a downturn, and how creating new systems helped Goshen to thrive.

Q. What were your initial challenges?

A. We brainstormed and came up with ideas to decrease operating costs. Layoffs were on the list. We asked colleagues, 'How can we buffer this storm?' They immediately said, 'No layoffs.' We froze hiring, had no pay increase that year. We did flexible staffing, reducing hours; we cut back on 401K contributions. They were willing to give up some of the other benefits.

After the crisis we gave a lump-sum bonus. They really were the ones to tell us how to survive. That is really our culture and our method of operations here at Goshen. Not only when the economy is bad. When you come to Goshen to work, we don't expect you to punch a time clock. We want ideas.

Q. What about charity care and bad debt during that time?

A. We had no cash flow. Our margins fell to 3 percent; it fell to half of what it was in 2006 and 2007 when we were running about 5-and-a-half percent operating margin. Our cash-on-hand fell to 60 days. The uninsured rate did grow. We scraped to get by.

Today, charity care has maintained pretty steady. We've had bad debt go down some."

Q. On the supply and purchasing side, what was and is being done to cut costs? Does Goshen combine purchasing power with other hospitals in the IU Health system, or is it involved in any other group purchasing consortiums?

A. We work through the same group purchasing organization. IU health does negotiate on our behalf, for ortho or blood or routine supplies and also for pharma. It does help being part of that purchasing pool. The majority of the work goes through IU Health.

We're in the process of looking at contracts outside of the purchasing organizing, reducing the number of vendors and variation and types of supplies we're getting. Getting a better price, that's a challenge when you're smaller.

Q. What are some of the other challenges for a smaller health system?

A. During the economic crisis we did meet often with IU Health to share ideas on what the organization is doing to save costs, to take the best of all solutions.

We're fairly autonomous, but we steal ideas and talk through possible solutions. Our accounting systems, we do a lot in-house, but some of those processes I expect to be consolidated.

Q. Are other IU Health members integrated into one billing system?

A. A lot of the other hospitals are integrated. It's been a key initiative with IU health, to have one accounting and billing system. Goshen is not on the system at this time. It takes quite a few resources to make the transition. It's not a priority.

Q. Can you give specific numbers on savings generated by efforts to cut costs?

A. We have program called T.U.L., The Uncommon Leader. It's a robust process. We expect our colleagues to come to work with ideas such as revenue enhancement opportunities. Over the last three years, our colleague population has generated 30,000 ideas and generated $12.5 million in documented savings or revenue enhancements.

We looked at how they could save time in transferring a patient from the Emergency Department to the inpatient floor and looked at more efficient, step-saving ways to clean patient rooms. On a smaller scale, colleagues started buying less expensive printer labels.We went with LEAN, the systematic elimination of waste, through hospital procedures, down to the supply carts.

We found the supply carts were not all the same. Everyone had their own way of doing things.

Q. Can you talk about efforts to collect patient payments up front?

A. We started really emphasizing point of service in July 2013. Before, if I came to the hospital, the co-payment expectation was low. With The Advisory Board, we put processes in place along with technology and tools. 

The cheapest dollar is the one sitting right in front of you. That overhead goes away. We've had some good success. The challenge for colleagues is they're not used to asking for money. We're still fine-tuning, scripting, how to ask for money. We do offer patients a 20 percent discount if they pay for service up front.

In the first six months, we collected $281,000. This year for 2015, we expect to collect $1.4 million. It's not enough. We want it to be more. We're still not great collecting co-pays in the Emergency Department. At this time, we don't turn anyone away if they can't pay. We're looking at elective scheduled surgery, looking at being more aggressive in payments up front.

Q. What are some of the major revenue cycle challenges for the hospital?

A. We are looking at price transparency, providing cost estimates. Health insurance is great until you need to use it, and then it's extremely confusing. Insurance denials seem to be a challenge.

We have a phone number our patients can call to talk to a billing specialist. They can ask, 'What is the insurance coverage?' We will electronically look up insurance on a deductible for co-pays and the maximum out- of-pocket.

We tell them, for a hip replacement, the cost is $45,000 to $50,000. Coverage provides for X, this is what we expect to be your portion of that bill.

We set up payment arrangements on the back end. We don't like going over 12 months. We have loans through a local bank. We'll see if you qualify for financial assistance.

Q. These are challenging financial times for hospitals. How would you assess some of your key financial metrics, such as operating and overall margins? What other financial metrics do you find most telling about the status of IU Health Goshen?

A. We have good operating margins, up over 10 percent so far this year; last year it was 12 percent. I think a lot of it has to do with the $12.5 million of ideas we've generated over the past three years.

We're looking at, as reimbursement cuts continue to grow, can hospitals operate on Medicare margins? We've looked at staffing ratios, gotten creative with staffing ratios, always keeping in mind patient safety as well. We could make margins of 15-20 percent, but we're not willing to go there.

Q. How has the adoption of Medicaid expansion in Indiana affected the hospital?

A. Medicaid expansion was approved at the end of January and was effective February 1. Prior to Medicaid expansion, Indiana had a state-based program. We expanded an already successful program. We expect to see a benefit.

Q. What best practices do you recommend for other providers, especially in the area of supply chain costs?

A. The big thing, be willing to ask, 'Why do we have a tendency to use a certain supplier?' Be open to trying something different. Talk to nurses. Maybe they've been using a product for a certain amount of time and don't like it. Talk to people using the product. They're going to have the answers. They work every day with the vendors.

I don't think you can get physicians involved enough. A lot of the changes affect medical devices. Educate them to what is the impact of their choice. For instance with hip replacements, be transparent with that financial information and quality scores. Engage the colleagues and physicians in those decisions.

The cash coming in the door is smaller and smaller and you have to work within those means. Hospitals can learn a lot from our manufacturing fellows. We don't understand our cost components very well. All of the cost components of a hip replacement or heart attack, we need to have a better understanding.

Eventually we'll take care of that patient over a longer period of time. We're going to be paid to keep them out of the hospital. We have a lot to do.

Twitter: @SusanMorseHFN