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How the CFO enables the board’s success—during COVID-19 and beyond
Two board experts explain how in times of crisis or transformation, the CFO can serve as a rock in the boardroom, a critical arbiter of difficult decisions, and a scout for the future.
Critical business decisions cannot be made unless management teams and boards of directors are on the same page. Transparency, fair and balanced dialogue, and well-structured processes for gaining agreement on strategic plans—these dynamics must be present in every boardroom, in good times and, especially, in bad.
The CFO plays an important role in ensuring that they are.
In crises, such as the global spread of the novel coronavirus, the CFO is best-positioned to provide the most relevant and up-to-date facts and figures, which can help boards find clarity amid chaos. In corporate transformations, the pragmatic, data-focused finance leader is the only one who can prompt the board to actively consider all the short- and long-term consequences of proposed strategy decisions.
Barbara Kux and Rick Haythornthwaite, longtime board directors for multiple global organizations, shared these and other board-related insights with McKinsey senior partner Vivian Hunt in a conversation that spanned two occasions: a gathering of CFOs in London some months ago and, more recently, follow-up phone conversations about the COVID-19 pandemic.
These interviews, which have been condensed and edited here, explained the importance of finance leaders in serving both as scouts for the future and as trusted translators of critical market information.
Shaping the COVID-19 crisis response and recovery
Rick Haythornthwaite: The board’s most important functions in the wake of COVID-19 are threefold: one is making sure that employees are being treated decently and that the company is taking all the precautions it can. Second is obtaining an objective, insightful understanding of the business and trends. And third is anticipating and preparing for recovery. The key in all three areas is having high-quality data to inform the board’s decisions and to share with employees. Of course, getting data from a market in freefall is never easy. This is where you need CFOs to be absolutely on top of their game.
The board needs to know what is really happening to the top line, what short-term measures can be taken to preserve and boost cash, and all the actions you have to take during the early stage of such events to buy time. But the board must also have a handle on long-term issues.1 And now that we’re months into this crisis, people are starting to draw lessons from previous ones and bringing some historical data into board discussions. The CFO can use these data to construct hard-edge scenarios that prompt good conversations in the boardroom.
Barbara Kux: An important difference in the role of CFOs today, as compared with their role during the financial crisis in 2008, is that they need to simultaneously manage both short-term responsiveness and future recovery. The CFO must keep the ship floating through rough waters—safeguarding employees’ health, securing liquidity, monitoring cash flow and payment terms, ensuring the functioning of the supply chain, assessing effects on P&L and the balance sheet, reviewing customers’ and suppliers’ situations, and initiating cost-reduction programs. That is all very challenging indeed. But then the CFO must also serve as the ship’s scout—watching for key trends that are emerging or that have accelerated as a result of COVID-19, such as digitization and changes in consumer behavior.
The balance between opportunity and risk is being altered substantially for most companies. The CEO could be tempted to profit from immediate demands—“let’s make ventilators, let’s make disinfectants.” The CFO’s job, by contrast, is to point out the differences between quick-to-market options and long-term post-COVID-19 options. These post-COVID-19 options can be an important factor in motivating and engaging employees during these challenging times.
It is also important for the CFO to present the board with reports and pre-reads that paint the entire picture in an objective way, including potential scenarios for the future. That is the only way boards and senior management can take thoughtful and well-founded decisions—first for the recovery and then for a sustainable future for all stakeholders. The word “crisis” has two meanings, one being “danger” and the other being “chance.” Today’s CFO must consider both.
The word ‘crisis’ has two meanings, one being ‘danger’ and the other being ‘chance.’ Today’s CFO must consider both.
Shaping the general transformation agenda
Barbara Kux: Outside of crisis periods, studies by INSEAD and McKinsey show, boards spend more than two-thirds of their time on “housekeeping”—financial reporting, compliance, environment, health and safety issues, regulatory issues, and the like. Only about 20 percent is spent on strategy. It is very important for boards to get out of this “compliance cage,” as I call it, and really focus on sustainable value creation. I’m thinking of the board of a leading oil and gas company that did just that. It recognized the importance of sustainable business development early on. The company gained first-mover advantages by diversifying toward a green business, including investing in solar and battery technologies.
At the end of the day, the board is ultimately responsible for the strategy, and the CFO is best-positioned to support strategy discussions. The finance leader can serve as a neutral party among the members of the C-suite, synthesizing their transformation ideas, supplementing them with comprehensive quantitative and qualitative data, and then working with the CEO to bring it all back to the board. This is even more important today to respond to COVID-19–related challenges early on.
Rick Haythornthwaite: The biggest challenge for any CEO, CFO, or other senior leader is to institutionalize new ideas without sucking the life out of them. Each C-suite leader plays a different but important role in this regard. The CFO needs to give transformation initiatives structure and rigor, while the CEO is probably better suited to take on the motivational aspects—for instance, the context for change and definitions of success. The whole team creates the strategy map—the markets and products affected, changes in pricing, the execution plan. But the CFO needs to ensure that the financial and operational underpinnings are there. Even if they are not visible to every single part of the organization, the board can see them through the CFO.
‘Scouting for the future’
Barbara Kux: To serve as an effective scout, the CFO should establish nonfinancial KPIs, like net promoter and employee-engagement scores, that are critical for the future health and performance of the organization. CFOs should review the strategy process to see that risks and opportunities are being well-assessed. And they can raise the political antennae of the board—accessing global think tanks, for instance, to understand what’s going on in Washington, China, and other important regions or in the medical community. The CEO often is not the most long-term–focused person in the organization; we know this because our financial markets are still very much short-term oriented. The board has to be long-term oriented. The CFO, therefore, must maintain a good balance of both. That might mean introducing a lean-transformation program with a focus on short-term results while, at the same time, contributing to the definition and implementation of a sustainable strategy for the company to emerge strong from the COVID-19 pandemic.
Rick Haythornthwaite: Boards need CEOs who can handle multiple truths, who can be expansive in thinking, and who can live comfortably in the future and bring the company along for the ride. The CFO also needs to be a protagonist in the boardroom, but from a different base: you can’t move to the future until you are anchored in the present. The CFO provides that anchor. Having a balance between future and present, between CEO and CFO, is important. The board wants to feel that there is strategic momentum—but also that the company is not just heading off on a journey of delusion.
Daring to dissent
Barbara Kux: It is important for the CEO and CFO to get on well, but their relationship should not be too close. It is better for the CFO to be objective, even if that sometimes leads to constructive conflicts. At times the CEO defaults to presenting only the positive in the boardroom, which makes it harder for the CFO to play back a more objective story. But that is very much the role of CFOs. They need to raise those early warnings. As a board director, I feel better if the CFO sometimes states, “by the way, we are losing market share here.” It takes a great deal of self-assurance for the CFO to come into the boardroom and say something like that. An independent-minded CFO will always be transparent with the board. A good CEO will always strive to establish an open relationship with the CFO. It is important for the board to motivate this constructive behavior from both executives so it can truly understand what is going well or not so well.
An independent-minded CFO will always be transparent with the board. A good CEO will always strive to establish an open relationship with the CFO.
Leading constructive dialogues
Rick Haythornthwaite: The senior-management team should not be delivering full solutions to the board at the outset; there should be a period of questions and discussion. The boardroom should be the place for CFOs and boards to engage in the cut and thrust of examination and exploration, with thoughtful planning and framing of dialogues to ensure that decision making is of the highest possible quality.
I’ll give you an example. CFOs used to be able to put traditional capital cases in front of the board about things like investments in plant and equipment, and there was typically a well-grooved dialogue. The kinds of actions they are talking about have changed, though. Think about companies’ investments in platform technologies, which can involve large sums being paid for targets with very low EBITDA—the idea being that value will ultimately come from the combination of entities rather than from a singular target.
Boards may be unfamiliar with such investment cases, so rather than jumping into quick, instinctive type-one decisions forced by the imposition of inappropriate and probably unnecessary time constraints, they will need an education. The board must take time to understand what, in practice, the acquisition of a platform would look like—how it might be scaled under new ownership, how that scaling would affect the bottom line, any risks involved, and so on. This is fundamentally a type-two decision, requiring time and deliberation. The CFO has an important role to play in making sure that this process happens, that it plays out over several board sessions rather than being squeezed into one meeting, and that conversations are grounded in hard numbers.
In the wake of COVID-19, of course, these dialogues may need to happen virtually; the quality of the conversation will still be good, as people are becoming accustomed to virtual meetings.2 They are fine for certain pro-forma tasks, where the issues are well-understood and processes are well-established. But when you’re trying to bring in new voices and new ideas, that’s when you need to be together in the same room.
Growing into the role of change agent
Barbara Kux: The role of the CFO is so much more expansive than it was even five years ago, including additional responsibility for cyber and digital transformations and for IT initiatives. To get your arms around the role and grow in it, take a step back and look at the company objectively. “What other roles could I play in the company, and how does that overlap with what I am doing now?” “Which initiatives would make the most impact in the company, and how could I realize quick wins in those areas?” Maybe it’s a focus on digital or compliance or export control or political intelligence. The CFO’s professional response to COVID-19 crisis management could be a springboard for future development. Whatever it is, I would identify it and just start. Take any kind of training you can get; read as many business publications as you can. Train yourself in how to deal with activist investors. Step by step, your hat will become bigger.
Rick Haythornthwaite: Whether you are talking about COVID-19 or digital disruption or any other impact on the business, please remember that the board still wants to sleep at night, and when the details are lost, the board will be much less forgiving of CFOs than of CEOs. Don’t forget that part of it. Particularly in this challenging economic environment, it is very important. Chairs and boards? We like to sleep soundly at night.
Congress headed toward unemployment showdown
A debate over whether to extend enhanced unemployment benefits is emerging as a significant obstacle to getting a deal on another round of coronavirus relief legislation.
With the national unemployment rate expected to creep toward 20 percent in the months ahead, the fight over whether to boost benefits for Americans who lose their jobs or to keep benefits lean to motivate laid-off employees to rejoin the workforce is set to become a defining issue ahead of the election.
Senate Majority Leader Mitch McConnell (R-Ky.) says that Senate Republicans don’t have any interest in extending the $600 federal increase to state unemployment benefits that was a core component of the $2.2 trillion CARES Act.
The enhanced benefits are due to expire at the end of July, making them a principal topic of the upcoming negotiations.
McConnell told House GOP lawmakers in a conference call Wednesday that the Senate will not extend the beefed-up federal unemployment benefits, which GOP senators say has become a disincentive for middle- and lower-wage workers to return to the job.
But not all Republicans are on board with McConnell.
Sen. Pat Roberts (R-Kan.) said “my inclination would say that that’s going to have to continue for a while.”
“I get it, I talk to a lot of business people in Kansas — and South Carolina — about that and the disincentive if you continue to pay it to work. So I say it’s a tough a choice. But I think under the circumstances it should be continued in some form,” he added.
The employment picture grew darker on Thursday after the Labor Department announced that another 2.4 million Americans filed unemployment claims last week, bringing the total for the past nine weeks to 38 million new claims.
Sen. Thom Tillis (R), who faces a tough reelection race in North Carolina, said he wants to wait and see how the unemployment numbers play out.
“I think a lot of it really depends on how well the business openings go. I for one think that anything we do has to be tailored to where we’re not in the situation where the benefit’s greater than the salary it was replacing,” he said.
Other Republicans, however, say there is strong support for shutting off the federal boost to unemployment insurance after July.
“They think it is a huge disincentive to get the economy back and growing again. They’re not happy it was done in the first place,” said Sen. Rob Portman (R-Ohio), who helped craft the unemployment benefits section of the CARES Act, referring to complaints he has heard from GOP colleagues about the beefed-up benefits.
Sen. Rand Paul (R-Ky.) on Thursday warned: “When the government wage exceeds the market wage you’ll get institutionalized unemployment.”
“It was a mistake to make it so high to begin with. It would be a mistake to extend it,” he added. “If you favor extending it, basically you’re favoring institutionalized unemployment.”
Other Republicans are raising concerns that adding $600 in federal assistance to weekly state unemployment compensation creates a benefit that exceeds the hourly wage for many jobs in their states.
“I think it needs to end,” said Sen. John Boozman (R-Ark.). “Hopefully the economy will start to be getting back on track and we’ll be able to get rid of it.”
Portman has proposed a bill that he hopes will give laid-off workers incentive to give up their enhanced benefits and look for new jobs before the July 31 expiration of the $600 federal add-on.
His legislation would let these workers continue collecting $450 of the $600 weekly benefit if they find work in the next nine weeks.
This sets up a major fight with Democrats, who see expanded unemployment benefits as the most effective way to help Americans hit hardest economically by the pandemic.
Speaker Nancy Pelosi (D-Calif.) and House Democrats have passed a $3 trillion coronavirus relief bill that would extend the $600 federal add-on to state unemployment benefits through July.
Sen. Sherrod Brown (D-Ohio) said Democrats “absolutely” will insist on extending the federal increase to state unemployment benefits.
“It’s been a longtime Republican plan to reduce the amount of UI to workers, to shrink the number of weeks and to make fewer people eligible. In Ohio, only a quarter of unemployed workers are eligible for Ohio unemployment,” he said.
He said Democrats will make extending the program a top priority.
“Democrats are the party of workers, clearly, and they aren’t,” he said of his GOP colleagues.
The debate is just beginning, but it will grow heated in the weeks ahead as both sides begin to negotiate in earnest the size and scope of the next relief bill.
Senate Democratic Whip Dick Durbin (Ill.) predicted: “Republicans will catch … hell back home when they try to explain cutting off unemployment.”
He also predicted fallout for not reforming the Small Business Administration’s Paycheck Protection Program or providing more aid to state and local governments.
Durbin warned that failing to extend enhanced unemployment benefits would be a “disastrous mistake.”
“The economists tell us it is probably the single best stimulus that we can put into this economy,” he said
Durbin said if McConnell blocks extending beefed-up unemployment benefits past July 31, there will be hardship across America and in the commonwealth of Kentucky that “he doesn’t even begin to contemplate at this moment.”
Sen. Bernie Sanders (I-Vt.), who was a competitive candidate in the Democratic presidential primary and whose support is seen as crucial to turning out voters in the fall, also weighed in Thursday.
“Republicans are going nuts about the $600 per week expanded unemployment benefits that workers now receive. Imagine that! Americans not forced to live on starvation wages. What a frightening precedent. What will they want next? Health care as a human right?” Sanders tweeted Thursday afternoon.
Some Democratic moderates, however, have signaled in private talks that they’re open to negotiating with Republicans to scaling down the $600 in additional weekly assistance after July.
A Republican source familiar with the preliminary talks said that moderate Sens. Christopher Coons (D-Del.), Bob Menendez (D-N.J.) and Joe Manchin (D-W.Va.) have expressed interest in finding a compromise.
Sen. Michael Bennet (D-Colo.) has also signaled a willingness in reviewing the impact of the generous federal payment on people rejoining the workforce.
Advocate Aurora reports Q1 operating loss, gets $328M bailout
Advocate Aurora Health saw revenue increase year over year in the first quarter of this year, but it ended the period with an operating loss, according to recently released unaudited financial documents.
Advocate Aurora Health, which was formed in 2018 and has dual headquarters in Downers Grove, Ill., and Milwaukee, reported revenue of $3.1 billion in the first quarter of 2020, up from $3 billion in the same period a year earlier. Patient service revenue climbed 3.5 percent year over year, while capitation revenue dropped 13.2 percent.
The health system said it began postponing or canceling elective procedures on March 17 due to the COVID-19 pandemic, and the public curtailed visits to physicians, clinics and emergency rooms for fear of contracting the virus.
“These actions have served to decrease revenues from non-COVID-19 patients while driving up costs to prepare for and care for COVID-19 patients with minimal additional revenues from these patients,” Advocate Aurora said.
To help offset financial damage caused by the COVID-19 pandemic, the health system implemented cost-reduction measures. Since April 1, it has also received $328 million in grants made available through the Coronavirus Aid, Relief and Economic Security Act and about $730 million in advance Medicare payments, which must be paid back.
Advocate Aurora’s expenses were up 9 percent in the first quarter of this year compared to the same period of 2019. The increase was due in part to it acquiring the remaining 51 percent interest in Bay Area Medical Center in Marinette, Wis., in April 2019.
Advocate Aurora posted an operating loss of $85.6 million in the first quarter of this year. That’s compared to operating income of $112.8 million in the same period a year earlier. Excluding nonrecurring expenses, the health system posted an operating loss of $49.3 million in the first quarter of this year and operating income of $131.2 million a year earlier.
The 26-hospital system reported a nonoperating loss of $1.23 billion in the first quarter of this year, which was largely attributable to investment losses. Advocate Aurora ended the first quarter with a net loss of $1.3 billion, compared to net income of $596.8 million a year earlier.
As of March 31, the health system had 229 days cash on hand, down from 274 days in December 2019.
HCA asks union to abandon wage increases this year
A union representing more than 150,000 registered nurses in hundreds of U.S. hospitals is disputing with Nashville, Tenn.-based HCA Healthcare regarding pay and benefits.
National Nurses United said HCA is demanding that the union choose between an undetermined number of layoffs and no 401(k) match for this year or no layoffs and no nurse pay increases for the rest of the year, according to ABC affiliate Kiii TV.
HCA Healthcare, which to date has avoided layoffs due to the pandemic, told Becker’s Hospital Review it is asking the union to give up their demand for wage increases this year, just as nonunion employees have. HCA executive leadership, corporate and division colleagues and hospital executives have also taken pay cuts.
The union said it takes issue with having to make this choice given HCA’s profits in the last decade, the additional funding the for-profit hospital operator received from the federal government’s Coronavirus Aid, Relief and Economic Security Act, and additional Medicare loans.
“It is outrageous for HCA to use the cover of the pandemic to swell its massive profits at the expense of its dedicated caregivers and the patients who will also be harmed by cuts in nursing staff,” Malinda Markowitz, RN, California Nurses Association/National Nurses United president, said in a news release.
HCA pointed to the pandemic pay program it implemented and recently extended through at least the end of June that allows employees who are called off or affected by a facility closure and cannot be redeployed to receive 70 percent of their base pay.
“It is surprising and frankly disappointing that unions would demand pay raises for their members and may reject the continuation of a generous pay program that is providing continued paychecks for more the 100,000 colleagues,” HCA said in a statement. “The goal of HCA Healthcare’s pandemic pay program is to keep our caregivers employed and receiving paychecks at a time when hospitals throughout the country are experiencing significant declines in patient volume and there is not enough work for them.”
HCA said more than 16,000 union members have participated in the pandemic pay program, even though it is not part of their contract.
Congress Should Redirect The Medicare Shared Savings Program To Address The COVID-19 Emergency
The COVID-19 virus has unleashed a rolling series of crises among fee-for-service providers. First, and most directly affected, providers in areas with major outbreaks have suffered extreme personal hardship and risked infection themselves with inadequate equipment and protective gear when treating patients. Second, everywhere in the country, physician practices and hospitals have seen revenue drops from 20 percent to 60 percent due to the need to follow social distancing practices to minimize infection. This revenue collapse has perversely resulted in staffing reductions that are likely to accelerate unless Congress provides further assistance to the industry. Third, and only partially observed so far, there is a pending “second wave” of health crises discernible in the “missing heart attacks” and reports from nephrologists and oncologists of patients making difficult decisions about whether to continue necessary care. In some cases, emergency care has shifted out of the hospital, and some triage is conducted on the street to avoid risk of COVID-19 infection.
The COVID-19 public health emergency has generated a massive set of emergency changes in Medicare payment policy, loosening regulation of acute hospital care, dramatically expanding use cases for telehealth and other types of virtual care, and, through the Coronavirus Aid, Relief, and Economic Security (CARES) Act and subsequent relief legislation, releasing a $175 billion pool of money that attempts to prop up Medicare providers dependent on in-person, fee-for-service revenue. Now, with that first batch of changes handled, a debate has started among proponents of value-based purchasing as to the appropriate direction for the Medicare Shared Savings Program (MSSP) and other value-based initiatives during the emergency.
In this context, a number of stakeholders have begun to call on the Centers for Medicare and Medicaid Services (CMS) to modify existing MSSP parameters to maintain the program through the emergency. CMS has responded by eliminating downside risk for accountable care organizations (ACOs) for the duration of the public health emergency and taking COVID-19 costs out of ACO financial calculations. These are welcome changes but don’t completely address the serious problems ACO participants face. We urge a different focus—the federal government should charge these existing networks with addressing the “second wave” of health care needs going largely unaddressed, as patients with serious, non-COVID-19-related chronic conditions see procedures and visits postponed indefinitely. Commensurately, Congress should suspend all financial impacts from the MSSP for the duration of the public health emergency—and consider excluding any data from 2020 for performance years 2021 and beyond. We describe key elements of these changes in this post.
A Growing Call For MSSP Modifications
The Medicare Payment Advisory Commission (MedPAC) issued a comment letter urging CMS to allow ACO providers to focus on COVID-19, rather than shared savings. MedPAC, acknowledging the dramatic shifts in care delivery necessitated by the COVID-19 crisis, made several recommendations about treatment of savings and losses in the MSSP for 2020. MedPAC asked CMS not to use 2020 data for purposes of ACO quality, bonuses, and penalties. MedPAC would also have CMS disregard 2020 claims when assigning beneficiaries to ACOs, since a shift to telehealth, with physicians and patients potentially located far apart, could distort the ACO assignment with unintended effects. Finally, MedPAC recommended extending all ACO agreement periods, keeping everyone in the current risk arrangement for one year, a recommendation CMS adopted.
William Bleser and colleagues recently suggested immediate and short-term actions that could help preserve ACOs through this crisis. Their blog post identifies the decision point, coming on June 30, 2020, for ACOs to stay in the program and be accountable for losses in 2020. The impact of the emergency on ACOs will still be unclear at that time, and the authors recommend that CMS allow ACOs to completely opt out of downside risk for 2020 while accepting a capped amount of potential shared savings. Eliminating the downside and offering a limited upside might just convince ACOs not to leave the program entirely. CMS has taken these concerns seriously and removed all COVID-19–related costs from ACO financial calculations and eliminated shared losses during the public health emergency.
Another recent blog post by Travis Broome and Farzad Mostashari makes the case that the population health focus and financial incentives for ACOs position them uniquely, not just to survive, but to lead the way for primary care during the COVID-19 crisis. ACO participation may protect these practices because of the program’s unique financial metrics. Unlike Medicare managed care, MSSP ACOs are measured against a benchmark that trends forward at actual regional and national spending growth rates. During an unusual spending year, as 2020 is sure to be, those factors are included in the trend, and the ACO is not heavily penalized for the spending pattern. Broome and Mostashari recommend that CMS focus on shielding primary care practices from certain quality reporting and information collection requirements to pave the way for high-quality care and solid financial performance.
A More Focused Re-Envisioning Of The MSSP
Foundational to the MSSP is an agreement between groups of providers and the federal government to align their financial relationship with patient and taxpayer goals: to improve the quality of care for their patients and reduce the growth of health care spending. Both of those elements must take a back seat during a massive public health emergency.
Reducing overall health care costs is not an appropriate consideration for providers today. Even though national and regional growth factors will track actual changes in expenditures and may allow for identification of more efficient providers, this objective is second order to directly responding to the threat of the emergency. Given the overwhelming need to respond to the COVID-19 crisis in their communities, the ability of any health system or ACO to influence costs this year is likely to be dwarfed by factors outside its control. This type of highly infectious, novel pandemic is a risk that can only be properly assumed by the federal government. Neither physician practices, nor hospitals, nor any other ACO participants can realistically budget and prepare for such an event on their own. Congress and CMS should adopt MedPAC’s suggestion to suspend charging penalties or paying bonuses for all of 2020, no matter how long the public health emergency is in effect.
Similarly, while the prevention and care management metrics embedded in the MSSP remain appropriate indicators directionally, difficulties in seeing patients for well visits and new standards for documentation during telehealth visits will make any precise differentiation of quality in primary care practices near impossible. MedPAC is correct that using 2020 data for performance evaluation would undercut the legitimacy of the program, and the commissioners are right to support the call to suspend the use of such data in establishing bonuses, penalties, and benchmarks in 2020 and beyond.
However, many practices have made significant investments in population health technology, staff, and training that remain as valuable as ever during this emergency. And the public has an interest in maintaining those staff and those skills, as the basis for a better health system in the future. All told, like much of the rest of the economy, putting the MSSP and other ACO arrangements “on ice” to allow providers to focus on near-term priorities would best serve the public interest. That includes delaying or freezing requirements to step up to higher-risk tracks in the Pathways to Success program, as well as delaying or canceling quality submission requirements. These delays, however, should be paired with public funding to reflect the work that ACOs have already undertaken, as well as work that they can do to help manage through the crisis, discussed further below.
Taking steps to preserve ACOs through 2020 is a good start, but we believe Congress and CMS should think bigger and empower ACOs to focus directly on the current crisis for the next two years.
Adapting ACOs To Serve The Current Emergency
ACOs are a valuable asset for the Medicare program, reflecting nearly 10 years of work across hundreds of thousands of providers serving tens of millions of beneficiaries. Disbanding them by indifference would be a mistake. The current collapse in fee-for-service volume is a problem of fee-for-service medicine primarily, and ACOs represent an infrastructure for a further step away from volume-focused medicine once the danger from this emergency passes.
Suspending financial considerations and consequences for the duration of the emergency is insufficient. Without the responsibility for managing risk and sharing in any savings, the ACO contract with CMS loses its organizing force, and the program becomes “a solution in search of a problem.”
We see two opportunities for ACOs to redirect their energies productively this year and next. First, ACOs should be directed to follow best practices in testing and public health data collection, in collaboration with local and state officials. Managing the spread of the virus in their communities is already a daily task for these providers; additional surveillance and data collection could be adopted and updated continuously as recommendations evolve. By providing resources to ACOs to support this work directly, CMS would help ensure providers can keep up.
Second, and perhaps more important in most of the country to date, ACOs should be charged with meeting explicit virtual care management requirements to identify, contact, and serve patients in their panel with multiple high-risk chronic diseases. These patients are underserved today, and efforts to address their needs are piecemeal. In place of the current financial incentives, we propose that CMS require ACOs to perform a variety of care management and COVID-19 surveillance functions in exchange for a care management fee. Congress could enable and CMS could specify that ACOs place 10 percent to 15 percent of their patients under virtual care management programs, for example, and require that ACOs maintain regular contact with these patients as well as others at higher risk. The 10 percent to 10 percent figure is a fairly low bar, considering that more than 60 percent of Medicare patients have multiple chronic conditions, according to CMS. Additionally, COVID-19 patients could be offered principal care management, a new service for Medicare beneficiaries with one serious health condition, for a month or more after their diagnosis. New flexibilities for remote patient monitoring and virtual care make this far easier to implement than it had been before the pandemic.
CMS could quickly adapt existing financial models to support this work, drawing from analysis and design of the Primary Care First, Comprehensive Primary Care Plus, and other care management programs. ACOs are by design collaborative and can rapidly learn and share best practices for establishing virtual care management services. Behavioral health services and outreach, as well as other valuable preventive care, could also be directly funded through this structure. As an alternative to the fee for care management and surveillance, Congress could allow ACOs to receive their 2019 shared savings amounts again for 2020, for ACOs continuously operating in each year.
Looking Ahead
The steps we have outlined here will accomplish several worthwhile ends in this crisis:
- directly funding primary care capacity at a time when volumes are nosediving;
- keeping the nearly 500,000 physician and other clinicians already in ACOs working together, maintaining the infrastructure that has already been built; and
- providing upfront resources to manage patients whose conditions could deteriorate in the coming months, potentially catching them before they do.
These modifications should be executed first by Congress, not CMS, to ensure that such changes to the program do not become commonplace. This would invigorate the ACO programs by focusing them on the unique set of problems of this crisis, unencumbered by requirements better suited to peacetime than wartime. And when the war is over, these organizations can resume their longer-term mission to manage total costs and quality with all of the new tools and capabilities they have acquired during the crisis.
10 hospital deals called off, delayed
Below are 10 hospital transactions or partnerships that have been delayed or called off since Jan. 1, beginning with the most recent:
1. Pandemic delays UMass Memorial’s acquisition of Harrington HealthCare
The COVID-19 pandemic has pushed back UMass Memorial Health Care’s acquisition of Harrington HealthCare, a Southbridge, Mass.-based system comprising a 119-bed hospital, satellite location and three medical office buildings.
2. Jefferson Health, Temple call off cancer center deal
Thomas Jefferson University will no longer purchase the Fox Chase Cancer Center from Temple University due to the “devastating economic impact of COVID-19.”
3. St. Luke’s takeover of Kansas hospital pushed back amid COVID-19 crisis
The date that St. Luke’s Health System will take over Allen County Regional Hospital in Iola, Kan., has been pushed back due to the COVID-19 pandemic.
4. Astria Health cancels sale of hospitals as COVID-19 affects markets
Yakima, Wash.-based Astria Health, which filed for Chapter 11 bankruptcy in 2019, has taken its hospitals off the market.
5. Beaumont, Summa Health delay merger
Southfield, Mich.-based Beaumont Health is delaying its merger with Akron, Ohio-based Summa Health due to the COVID-19 pandemic, Beaumont CEO John Fox said during a news briefing April 21.
6. North Carolina health systems call off partnership talks
Citing uncertainties brought on by the COVID-19 pandemic, Greensboro, N.C.-based Cone Health has ended talks to become a successor to Asheboro, N.C.-based Randolph Health after Randolph emerges from bankruptcy.
7. New York hospital to split with Ascension after 18 years
St. Mary’s Healthcare in Amsterdam, N.Y., became an independent hospital after 18 years as a member of St. Louis-based Ascension.
8. Geisinger, AtlantiCare sever merger
Danville, Pa.-based Geisinger and Atlantic City, N.J.-based AtlantiCare have agreed to part ways, the two health systems announced March 31.
9. Home healthcare providers abandon $1.25B deal amid FTC probe
Two home healthcare providers, Aveanna Healthcare and Maxim Healthcare Services, have terminated their proposed acquisition agreement, the Federal Trade Commission said.
10. FTC sues to block Jefferson Health-Einstein Healthcare merger
The Federal Trade Commission will sue to block the merger of Philadelphia-based Jefferson Health and Einstein Healthcare Network, a deal that has been pending since 2018. The commission said it will seek a temporary restraining order and a preliminary injunction to prevent the deal.
Essentia Health lays off 900 employees
Essentia Health is laying off 900 employees, about 6 percent of its workforce, to help offset severe financial damage caused by the COVID-19 pandemic.
The Duluth, Minn.-based health system is facing $100M in losses due to declines in patient volumes since the beginning of March. Essentia has taken several steps to help offset those losses, including placing 850 employees on administrative leave, reducing physician and executive compensation, eliminating certain leadership roles and limiting capital spending. The health system said it is now forced to permanently reduce its workforce.
“Despite our best efforts, the many cost-reduction measures we’ve taken over the last several weeks are not sufficient to preserve our mission and the health of the organization,” Essentia Health CEO David C. Herman, MD, said in a news release. “This has prompted our leadership team to carefully consider the most difficult decision we’ve faced since I joined Essentia five years ago and move forward with permanent layoffs.”
Essentia said it will continue to provide health insurance for noncontract employees affected by layoffs for the next three months. The health system said the 850 employees on administrative leave will be called back as needed.
Cartoon – I survived the Coronavirus
HENRY KOTULA 