New York hospital CFO focuses on cost control, revenue growth

Currently senior vice president and chief financial officer at South Nassau Communities Hospital in Oceanside, N.Y., Mark Bogen has more than 35 years of experience in healthcare financial operations. He spoke recently with editorial director Richard Pizzi about the increasing demands on hospital CFOs around cost control and revenue growth. Here are some excerpts from that conversation.

What are some top-of-mind issues for your hospital in regard to expense and cost control?

From a cost perspective, we could see which way the wind was blowing a few years ago. We engaged a national firm to examine potential cost savings opportunities in the supply chain. They did an assessment and found that, in an $80 million book of business, there was a $5 to $10 million opportunity to reduce expenses. Beginning January 2013, we began to study how to implement these opportunities. We weren’t shy about tackling sacred cows like physician preference items. In 2013, we implemented about $2.5 million in itemized cost savings opportunities. And in 2014 we found another $6 million in savings, and we needed that savings for the 2014 budget in order to produce a profit, because of pressures from top line revenue. So far, we seem to be hitting our target.

Just as important, we’ve created a formalized infrastructure to make sure those cost savings opportunities are maintained in the future. This will also help us to analyze other prospects for savings. There is still a lot of work to be done to maintain and expand upon the approach.

What about the flip side – revenue projects?

Revenue has leveled off, if not declined. Here on Long Island, in 2013 we had 30,000 fewer admissions as a region than we did in 2011, and in the first two months of 2014 we had 3,600 fewer admissions than in the same period in 2013. The decline is real, and not simply a conversion from inpatient to outpatient.

Looking back, you can see tha admissions trends have changed. From 1997 through 2010, we have had a meteoric increase in patient volume. In 1997 we were doing about 12,400 admissions per year. At the end of 2010 we were in excess of 22,000 admissions. On the outpatient side, we did a combined 100,000 or so visits in 1997, and moved up to 300,000 by the end of 2010. In a fee for service world, volume covers up a lot of potential problems. But things are changing and will continue to do so.

We’ve grown extensively in response to the volume increases. We were at 1,600 FTEs in 1997, and now we’re at 2,700, so those costs have grown. We’re also beginning to integrate physicians, but we have to be thoughtful about that. You can’t just hire every physician in the community. We’re doing it through joint ventures and other approaches in addition to employment.

After a number of years of strong managed care rates increases, those increases have come down substantially. We are starting to put money at risk, living with value-based purchasing and the results of healthcare reform.

But overall, there is a tremendous downward pressure on revenue.

How do these pressures change the way you approach risk management?

We’re self-insured for malpractice and general liability. When we talk about risk management, it tends to be from that traditional, “how do we not get sued,” perspective. We’re also self-insured for health insurance. We had been using third party administrators for many years. We’re now looking at creating care management programs for our employees and their dependents. For the first time, we’re going to look at risk management from an employee health perspective. We hope that gives us a laboratory to learn more about overall population health management. We want to learn how to reduce utilization, better manage utilization as a whole. Ultimately, you want to use risk management to help establish a new health delivery system.