UPMC CFO Edward Karlovich advises peers to ‘look beyond the challenges of today’

David B. Yoffie Quote: “The first rule demands that CEOs and entrepreneurs look  beyond the immediate

Edward Karlovich serves as the executive vice president and CFO for UPMC, a $23 billion provider and insurer based in Pittsburgh. 

Since joining UPMC in 1990, Mr. Karlovich has served in several financial leadership roles. Most recently, he was vice president, CFO and chief of staff for UPMC’s Health Services Division. He became CFO of the entire integrated system with 40 hospitals in October 2020, after serving on an interim basis for about a year. 

Here, Mr. Karlovich shares with Becker’s the skills he thinks CFOs need to succeed today, some key capital projects in the works at UPMC and his organization’s top financial priorities. 

Editor’s note: Responses were lightly edited for length and clarity. 

Question: What is the most pressing issue facing hospital CFOs due to COVID-19?

Edward Karlovich: I would say the most pressing issue for me is disruption. COVID-19 has done many things to disrupt the way we think about our organization and business. Some disruptions we faced in the last year include staffing and supply chain challenges. UPMC did a great job weathering through the supply disruptions and labor challenges. We always had adequate personal protective equipment for our folks here. We also really made a conscientious decision last year to keep our workforce intact; we didn’t lay off workers, and we took care of people who needed time off because of COVID-19. We also made sure employees knew they had the support of our executive leadership team. In summary, COVID-19 has created a disruption, and we must think about how things are different now coming out of the disruption. 

Q: What are some things you are doing to work through the change/disruption?

EK: From an organizational perspective, we embarked on what we call the “UPMC experience” a few years ago. We looked at the way we are doing things to understand the experience of our employees and patients. This prepared us to be more creative in our thinking as to how we address challenges and disruption. We also learned through this the importance of interdependencies. Our business, both provider and insurance side, discussed a need to tackle the disruptions in an integrated way and discussed a need to communicate changes effectively. This year, we provided about 40 news conferences to get the standard message out across all of our regions. We also have a 90,000-plus employee organization which allows you to move around resources to deal with some challenges and disruptions. 

Q: What are UPMC’s top financial priorities for 2022?

EK: From a financial perspective, we want to maintain a positive margin to support our capital investments and employees. To do this, we are focused on a few things. First, supporting our operating employees to ensure they can perform to the best of their ability. They are the ones who make the difference each and every day. Second, we want to make sure we, as a finance team, can provide the things that the organization needs to be successful. This includes, but is not limited to, making sure supply chain folks can get all needed supplies and ensuring we have the cash collections needed to fund our organization. Another priority is making sure we provide the advice and guidance needed to invest our dollars effectively so we can prepare for the next challenge.

Q: What are a few key capital projects UPMC has in the works?

EK: UPMC is a premier provider in our community, and we operate a number of specialty hospitals in the area. We are the primary pediatric, psychiatric, women’s health and oncology provider in the region. Over the past couple of years, we’ve embarked on a journey to provide new facilities in western Pennsylvania for these major programs. We are also investing heavily in a vision and rehabilitation institute, which is a $500 million project that will put our clinicians, researchers and other providers together to drive breakthroughs in vision care and rehabilitation.  

We also are going to embark on a new tower for UPMC Presbyterian Oakland Campus [in Pittsburgh]. It is going to be the largest capital project we’ve embarked on since I’ve been here. This project will be more than $1 billion and is so important to the community. 

The third thing we are looking at is enhancing our oncology services and product at UPMC Shadyside [in Pittsburgh]. What we’ve recognized is that we are the provider and insurer of choice in western Pennsylvania, and we have to invest in this community for the next 50 to 100 years. 

Q: What skills are essential for hospital and health system CFOs to thrive in today’s healthcare landscape?

EK: The technical skills are given as CFO. To get in that leadership position, you have to be able to perform the necessary tasks. However, to make your organization better, I could boil it down to four things. First, you have to be a partner to your other senior leaders. Finance doesn’t exist in a vacuum. You have to be in the room with those folks, helping them manage and drive the business. The second thing is flexibility. If you think about what we experienced as an industry over the last two years, if you weren’t flexible, you were going to be seriously challenged.  Flexibility is such an important attribute because the pace of change is going to accelerate in our industry. Third, I’d say talent recognition is a key skill. It is important to be able to find talent as well as mentor and develop them as employees who can provide a great service to the organization. Fourth, you have to embody integrity. There is no doubt in my mind that integrity is a core value that is essential to everything you do as a finance leader. You have to maintain your integrity at all times. Those are essential skills. If you’re going to be a successful CFO now, you have to have those skills outside of the technical.

Q: What is one piece of advice you would offer to another healthcare CFO, and why?

EK: I’d say, look beyond the challenges of today. It’s not just about what you can actually see and envision in front of you. Try to look at the implications that are not necessarily top of mind. What the future holds is uncertain for all of us in healthcare now. You need to be thinking about what things might be coming down the road that will change our business and commitment to our communities dramatically. Try to brainstorm around that. Trying to think forward and speculate about what might happen is very valuable.

As CEOs push for office returns, CFOs don’t mind staying put

The past year and a half has brought prolonged hand-wringing from executives about whether working from home is sustainable over the long-term. 

Perhaps no voice on the issue has been louder than that of Jamie Dimon, CEO of JPMorgan Chase, who is against working from home as a new standard. 

Remote work, Dimon has said, could hurt company culture and prevent some employees from advancement, especially younger bankers who may lose out on mentorship and training opportunities. 

Working from home “doesn’t work for those who want to hustle. It doesn’t work for spontaneous idea generation. It doesn’t work for culture,” Dimon said in May, according to Banking Dive.

David Solomon, CEO of Goldman Sachs, believes the same. Remotely onboarding new analysts is “an aberration that we are going to correct as quickly as possible,” he said in February. “For a business like ours, which is an innovative, collaborative apprenticeship culture, this is not ideal … and it’s not a new normal.”

No concerns 

The same sentiments have not held true on the finance side. CFO Dive has spoken with finance chiefs working at mid-size and large companies throughout the U.S., Canada and Oceania, who reported no problems with remote work, maintaining the trend has not materially impacted their bottom lines. 

With the advent of technology that allows for bridging the gap between remote and in-person work, most agile companies, particularly those who invested in digital before the pandemic made it an imperative, the finance team’s ability to accomplish tasks has remained largely uncompromised. 

Some CFOs have even said that the migration to digital-first has come as a welcome respite from unnecessary meetings or in-person commitments.

“I’m a convert to remote work,” Justin Coulombe, CFO of Momentive, formerly known as SurveyMonkey, said. “Pre-pandemic, I believed teams worked best in the office, but I’ve come to realize that point of view was more shaped by my preferences and leadership style [rather than] our team’s actual ability to work effectively.”

Flexible working arrangements bring great value to Coulombe’s finance team, which spans beyond the company’s traditional geographic hubs. 

“My current working theory: generally, the teams that may find in-office work more effective are those with heavy business partnering roles, like procurement and FP&A,” he said. “We’re a service function, so many times we’ll align to where our partners are and how they work.” 

The world’s largest brewery, AB InBev, which owns Corona, Modelo, Stella Artois and Budweiser, currently operates in a flexible hybrid environment, its CFO, Fernando Tennenbaum, said, but he sees pros and cons to all approaches. 

“Probably, in the future, there will be some combination of remote and in-person work,” he said. “Definitely, sometimes meeting in person is valuable, but it’s also possible to work remotely.”

At the start of the pandemic, when AB InBev was forced to close the books remotely for the first time, Tennenbaum was worried about everything coming together. But because his team paid a great deal of attention to the quarterly close process, on account of it being the first time they’d done it, everything went smoothly, which he took as “a great sign.”

Even so, Tennenbaum wouldn’t be able to pinpoint one role over another that would be best suited to return to in-person work permanently. “It’s more about maintaining people’s interactions than about any specific task,” he said. 

“If anything, the pandemic proved remote work is essentially just as good as in-person; all jobs got done on time without sacrificing quality,” Kirsty Godfrey-Billy, CFO of New Zealand-based cloud accounting company Xero said. “Cloud accounting [allows for] pretty much all finance-related tasks to be done anywhere, anytime on a single, up-to-date general ledger.” 

But in order to keep evolving and thriving as a profession, accountants must truly embrace technology and the changes that come with it, Godfrey-Billy added.

Laura Mineo says the longtime-distributed workforce at Rokt, an ecommerce tech company where she is CFO, positioned it well for the hybrid mode it currently uses.

“In my view, the importance of in-person work isn’t necessarily related to completing certain tasks, but to everything that surrounds those tasks and allows us to complete them more effectively and efficiently as we scale,” she said. “Things like knowledge sharing across functions, onboarding new employees, supporting other departments throughout our organization and maintaining the apprenticeship culture we prioritize are all easier and more effective in person.”

In-person potential

Marten Abrahamsen, CFO of financial services platform Fundbox, agrees. “As a whole, our finance team functions very well remotely,” he said. 

However, Abrahamsen, who joined Fundbox weeks before the pandemic, has found the company’s strategic finance and corporate development teams stand to benefit most from in-person collaboration and discussion. 

“These teams, in particular, engage in frequent white boarding sessions and healthy, back-and-forth debates that are best done in person,” he said.

Vanessa Kanu joined Canadian telecom giant TELUS International as CFO one year ago. In that time, completely virtually, TELUS pulled off the largest technology IPO in the history of the Toronto Stock Exchange, participated in investor roadshows and hosted its first two earnings calls. 

She credits the company’s carrier-grade infrastructure, backed by cloud technologies, with allowing her and her team to simulate an in-office experience from home. 

“That said, I do believe in-person meetings and events are valuable and offer unique moments for team-building and establishing more personal connections,” Kanu added. “Those interactions are especially helpful for new team member onboarding, training, and reinforcing a company’s culture.”

Kaiser, Providence Southern California partner on $750M hospital

Providence St. Mary Medical Center sees 'small outbreak' of COVID-19 among  staff | Coronavirus | union-bulletin.com

Kaiser Permanente and Providence Southern California are working together on a $750 million hospital to replace the aging Providence St. Mary Medical Center in Apple Valley, Calif., according to the Daily Press

Under the partnership, 65-year-old Providence St. Mary will be closed and replaced with a 260-bed hospital in Victorville, Calif., the organizations said June 3. The hospital will be a full-service acute care facility and may include a medical office building and other ambulatory services. Providence would operate the hospital.

Providence St. Mary’s is closing because it doesn’t meet California’s new seismic requirements slated to take effect in 2030, according to the Daily Press. It would cost about the same to retrofit the hospital as it would to build a new one, hospital leaders told the newspaper.

Erik Wexler, Providence’s president of operations and strategy–South, outlined to the Daily Press what the Renton, Wash.-based health system’s affiliation with Oakland, Calif.-based Kaiser will look like. 

“Health care delivery has become very complex, and Providence has found that affiliations truly benefit the communities we serve, particularly areas with significant rates of serious health risks,” he told the newspaper. He added that the partnership with Kaiser will allow the hospital to offer “more high-end acuity level types of care.” 

The new hospital, which requires regulatory review and approval, is expected to open in 2026.

Pandemic propels health systems to mull insurer acquisitions, partnerships

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Nearly a year after the first confirmed case of COVID-19 in the U.S., some of the nation’s largest health systems made a case for the need to accelerate toward value-based arrangements and potentially acquiring or partnering with health plans to become an integrated system.

Amid new records for deaths and cases from the novel coronavirus, executives gathered virtually for J.P. Morgan’s 39th annual healthcare conference, which typically draws prominent healthcare leaders to San Francisco at the start of each year.

The pandemic has been a heavily discussed topic during the digital gathering. One theme has been health systems either acknowledging they are on the hunt for health insurer acquisitions and partnerships or advocating for such arrangements as result of the challenges.

Anu Singh, managing director and the leader of the mergers, acquisitions and partnerships practice at consultancy Kaufman Hall, said it’s a natural migration for health systems, though it does come with some risk.

“If you want to move into the realm of being a population health manager, and take greater responsibility for your patient bases, you’re going to have to be thinking about maintaining their health,” Singh said. “And that’s typically something that, at least traditionally and historically, has been driven a little bit more by the health plan.”

For Utah’s Intermountain Healthcare, the lessons of the pandemic are clear: The industry needs to move away from a system that rewards volume. Intermountain is a fully integrated system that manages both providers and an insurance unit.

“It is becoming increasingly apparent that systems that are well integrated, especially systems that understand how to take risks, have prospered in the face of the terrible burden, caring for people in the midst of the first pandemic in 100 years,” Intermountain CEO Marc Harrison said Monday.

From his vantage point, Harrison said it has been interesting to watch the consternation around telehealth visits.

“Lots of folks who are really still caught in the volume-based system are actively switching patients back from tele- or distance to in-person visits so they can maximize revenue,” he said. “I understand that. But that’s a really great example of poorly aligned incentives.”

Intermountain has managed to stay in the black as many other systems have struggled financially as a result of the pandemic driving down patient volumes. It reported net income of $167 million through the first nine months of 2020, compared with $919 million the year prior.

Another integrated system, Baylor Scott and White Health, the largest nonprofit system in Texas, said such diversification has helped buoy its finances as hospital and clinic operations bottomed out in the spring due to the virus.

Baylor Scott and White illustrated this point by showing how operating income for its clinical segment took a nosedive in the spring while operating income for its health plan remained relatively steady.

The theme of integrated health systems also seemed to be on the minds of investors. CommonSpirit Health executives were asked during their presentation if buying or creating a health plan was on their radar as the system has a sizable footprint of 140 hospitals across the country.

“I think this is a interesting question, one that of course we’ve discussed many times strategically,” CFO Daniel Morissette said, noting the system does have a number of regional plans. “At this time, we have no plan of having a national CommonSpirit branded plan.” However, Morissette said the system would consider a partnership opportunity.

On the other hand, Midwest-based Advocate Aurora Health said it is actively on the hunt for a potential insurer deal as part of its long-term strategy.

“We do believe that having health plan capability, not necessarily having our own, but partnering for health plan capability, is going to be critical to our success, and we are taking steps to do that,” CEO Jim Skogsbergh said during the virtual conference.

Kaufman Hall said in its latest report that it expects more payer-provider partnerships as a result of the pandemic. “Limitations on fee-for-service payment structures exposed by the pandemic may increase the number of payer-provider partnerships around new payment and care delivery models,” according to the report.

Singh of Kaufman Hall said it’s not surprising that some may lean more toward a partnership due to the risks of starting a new venture, especially an insurance unit that can have “catastrophic loss”. Systems with less experience of moving toward implementing value-based initiatives may be more vulnerable to such risk.

It’s why he thinks partnerships may be a good fit, at least at first. Payers and providers can work together to improve the health of certain populations and then share in the cost savings.

The role of the modern Hospital & Health System CFO: 3 things to know

https://www.beckershospitalreview.com/finance/the-role-of-the-modern-cfo-3-things-to-know.html?utm_medium=email

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The role of hospital and health system CFO has changed in recent years. CFOs are now change agents within their organizations and are deeply embedded in the day-to-day operations of the business.

Speaking on a panel called “The Evolving Role of the CFO” at the Becker’s Hospital Review 8th Annual CEO + CFO Roundtable in November, a panel of health system CFOs and finance leaders from across the country discussed how the finance chief role has changed and expanded.

The five panelists were:

  • Jeanette Wojtalewicz, senior vice president of Omaha, Neb.-based CHI Health
  • Nicholas Mendyka, vice president of system finance operations at Minneapolis-based Allina Health
  • Doug Welday, CFO of Evanston, Ill.-based NorthShore University HealthSystem
  • Kris Zimmer, CFO of St. Louis-based SSM Health
  • Mike Browning, CFO of Columbus-based OhioHealth

Here are three takeaways from the discussion:

1. CFOs are strategic leaders. The panelists noted that younger CFOs — those in their early 30s — come to the role with a fresh viewpoint. They are strategic and drive performance across the organization. Though CFOs who have been in the role for a decade or two may have a more traditional viewpoint, they’re adapting to the role of the modern CFO and embracing their more strategic position.

2. CFOs need different skills than in the past. The CFO role has expanded beyond traditional finance and accounting, and the skills CFOs need have changed too. When recruiting new members to their teams, the CFOs on the panel said they look for candidates with natural curiosity, data visualization skills and natural leadership abilities.

3. Clinician-finance partnerships are important. New payment models link quality of care to reimbursement, making it vital for CFOs and their teams to develop an understanding of the clinical side of the business. This has caused some health system CFOs to change their approach to training. The panelists said they try to help their teams develop an understanding of each department and learn how clinical and finance are connected.