Roundtables

Hospitals Feeling the Squeeze: 4 CFOs on Today's Most Pressing Financial Issues and we are a self-funded health in- surance plan. We are inching up the employee contribution, but it's not quite at 25 percent of cost. Dave Nelson: We're doing a lot of same things with HealthTrust GPO contracts regarding supply chain and pharmacy. We have a lot of high- cost drugs, especially with our neuro programs. For us, we're also rede- signing our entire inventory manage- ment system to install barcoding and electronic inventory. At [Sacred Heart Hospital in Eau Claire, Wis., and St. Joseph's Hospital in Chippewa Falls, Wis.], it's a huge process for materials management, running up floors, tak- ing inventory manually — it's a really inefficient system. We're working with [the Hospital Sisters Health System] on a systemwide initiative to stream- line and automate the supply chain. We've also increased [health] premi- ums to employees. And we've in- creased deductibles and copays based on utilization history on the several different plans we offer. We are trying to understand what's going on with our health insurance utilization, so we are also initiating wellness programs for employees. A lot of work goes into this process. One of things we've also really focused on is drilling down and looking at productivity. Our biggest cost is labor, which is about 50 percent of our ex- penses, so we've put in a daily produc- tivity monitoring system (COGNOS), and our goal for the organization this year is to have all clinical care de- partments at or better than the 60th percentile [for productivity]. Most are now at the 50th or better. Our basic measure of productivity, is hours per CMI adjusted admission. We're still high, at least in my opinion: as we're at 101 hours per CMI adjusted admis- sion, but last year we were at 108, so we've had a 6 percent improvement this year. Rich Rico: e number one area for cost savings is labor. We're constantly looking at how we can be more lean and efficient in all areas, and [labor] is always somewhere you can get better — and we are doing that for most of our departments. We've got a lot of tools we give directors — benchmark- ing, looking at full-time equivalent per unit of service with our soware, seeing how they are doing per pay period, monthly results — and I think it's something that requires more and more work. We actually have out- sourced one department. Sometimes, it actually costs more to outsource, and it depends on the situation. We are also preparing for the tran- sition to population health manage- ment. It's not quite here yet, but we see it on the horizon. We're getting our ducks in a row and getting capitated contracts for population health man- agement. We've started that process even though it's not making us a lot of money right now. We've also been looking at our infra- structure on water and utilizes, and that's reaping huge benefits for us. We've expanded geothermal, and we've expanded the infrastructure including new cooling towers. at has reduced our energy usage, and that's the gi that keeps on giving for years and years. Q: Operating margins for many systems, especially smaller hospi- tals, took a hit in 2013 due to lower admissions, reimbursement cuts and rising expenses. What can hospital CFOs and finance executives do to ensure the operating margin doesn't get too close to the red right now? GE: at's the $64 million question. Connecticut had a massive cut in Medicaid last year. All the hospitals were desperately trying to make their bottom line. Streamlining the over- head areas was the first step. We can no longer reduce patient care services. Focus on the revenue cycle is critical. We are actively collecting what is owed to us and creating a more efficient revenue cycle. We've invested some money in the revenue cycle to ensure that we can collect every dollar. e executives must work together as a team and focus in the right areas. For example, we spent quite a bit of money on physician acquisitions, and it's worked out well for us. A few special- ties — orthopedics, bariatrics — have helped our bottom line significantly. ose were strategic investments that helped us overcome those types of problems. DM: We did experience lower admis- sions in 2013, but we were able to keep expenses in line. We're the only hospi- tal in our county, so we have a little bit of a competitive advantage. All of our commercial contracts are favorable. Twenty-eight percent of our business is commercial, so for that chunk we have favorable reimbursements. We tell our management team and our board one of the things we strive to be is a high-performing hospital. e consensus is if you have a 4 percent operating margin, you're high-per- forming. at always seems to be the number when you're talking to people. We're ecstatic to be at 7 percent, and when we budget, we make sure to get to at least that 4 percent. If we do what we do and do it well, people will continue to come to us, and managed care contracts will continue to give us good rates. We also work very hard with self-pay clients and make sure everyone can get Medicaid if eligible.

• Cover