Becker's Hospital Review

14 Sign up for the COMPLIMENTARY Becker's Hospital Review CEO Report & CFO Report E-Weeklies at www.BeckersHospitalReview.com or call (800) 417-2035 Now think about where healthcare is going — focusing on the continuum of care, so a hospital is more like a short-stay urgency center. But at the center of everything we do are patients. We have to think about the continuum of care and all those stops on the continuum of care. It's about chronic disease management and primary care medical homes, in particular. Our HealthTexas Provider Network is an example of that with more than 600 physicians and extenders. Q: As you mentioned, Baylor Health Care System has grown significantly over the past several decades, even the past several years. Mergers and acquisitions are becoming more prominent than ever before. How do you see this evolving in the short term, and how big of a role should CFOs have in the M&A process? FS: Consolidation is going to continue to occur on the provider side — and it is happening on the payor side, too. Size and scale can be a shock absorber when you're managing transition risk, and you have to have balance sheet strength. Days cash on hand is an example of [an important metric to watch]. Baylor Health Care System is in a highly competitive environment, and the reason why we have such a diversity of business models at this point in time is although the market has settled down, the national healthcare environment hasn't. There are more changes coming in 2014 [due to the Patient Protection and Affordable Care Act]. For example, our state government has said it will decline participation in the Medicaid expansion. What is that going to look like? Those are business models that have to be evaluated, and we are doing that. But right now, there are still too many unknowns to define further M&A movement. Q: Texas Gov. Rick Perry, as you said, has indicated Texas will not expand its Medicaid program. Essentially for hospitals and health systems in Texas, and other states declining Medicaid expansion, this means continued uncompensated care for patients who could have at least received Medicaid coverage. Texas will also not design its own health insurance exchange. What are your thoughts on how Texas is handling the big PPACA elements? FS: When the [PPACA] was passed, Texas had the highest rate of uninsured people. The exchanges and Medicaid expansion would provide an option for the uninsured, and it would help the situation in Texas. There are significant healthcare access issues in Texas that have to be addressed. I think this whole situation around exchanges will come down to benefit design. What are the payments to physicians and to providers who take exchange patients? If I look at it right now, only 37 percent of physicians in Texas take Medicaid, and 70 percent said they will take Medicare. This is a big concern for the state of Texas. Q: If there's one important point you'd like to relay to other hospital and health system CFOs out there, what would it be? FS: One is cost structure. It's really where payments are going. It's about managing transition risk between the top line and cost base and trying to maintain that parity between where the top line is changing and pulling costs out of the organization. One example is our STEEEP governance council, which stands for safe, timely, effective, efficient, equitable and patient-centered care. We have brought together myself, our CMO, COO, chief quality officer, chief safety officer and clinicians, and we look at the finance, quality and clinical care from an efficiency standpoint. That's one of the structures we're looking at for our Medicare break-even strategy. Basically, we're trying to right-size the cost structure to where we think the puck is going to be, and we want to take $680 million in costs out of Baylor Health Care System over a five-year period. We are in our third year of the journey. We re-evaluate this every year as part of our strategic financial budgeting process. We also track it on a monthly basis and then we measure whether we are accomplishing our goals. Q: Any final thoughts as we head into 2013? FS: Over the last 10 years, there have been a lot of acquisitions of freestanding ASCs and shortstay hospitals. We are doing acquisitions as well. With that growth, it will be highly competitive, but you have to invest in those new models. Back to the STEEEP committee, Baylor Health Care System made a decision to establish a quality institute to look to the future and look at big data. Through [Baylor's Chief Quality Officer] David Ballard, MD, PhD, a large group of physicians and others, they can analyze our data and quality outcomes. That is part of how you compete in the future. You need to have data to continuously improve your organization and prove your outcomes. That was something Baylor invested in years ago, and we are in a position to capitalize on that. And I'll leave you with this — providers have to find a financing vehicle. In order to compete, you have to have a financing vehicle because that gives you another source of big data. Q: When you say "find a financing vehicle," do you mean hospitals should start their own health insurance plans? FS: They could start a health plan, acquire a health plan or partner with the payor. Why is that important? Because you'll be responsible for bundled payments, or any variation of capitation or payments based on outcomes. Having a financing vehicle and having covered lives is very important form a competitive advantage standpoint. n REGISTER TODAY! Becker's Hospital Review Annual Meeting: CEO Strategy, ACOs, PhysicianHospital Integration, Improving Profits and Key Specialties 83 Health System Executives as Speakers Co-Chaired by Chuck Lauer and Scott Becker May 9-11, 2013; Chicago Westin Michigan Avenue, Chicago For more information and to register, visit: www.beckershospitalreview.com/4th-annual-beckers-hospital-review-meeting.html

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