Verity Health’s Deep-Pocketed Savior Failed. Here’s Why.

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An ambitious plan to save troubled Verity Health System ended in bankruptcy. Hospital CEOs should see Verity as confirming a trend.

The recent bankruptcy announcement by Verity Health System should worry CEOs and boards at hospitals all over the country that share some of the same characteristics, because they could be the next to fall, one analyst says.

The financial troubles of Verity are part of a trend in healthcare, and the health system’s experience shows that the dramatic arrival of a savior with deep pockets doesn’t guarantee organizational health and stability.

Verity operates six nonprofit hospitals in California, and citing growing losses and debts for the facilities, it filed for bankruptcy. The hospitals will remain open during the bankruptcy, Verity said.

The bankruptcy filing is a public failure for biotech billionaire Patrick Soon-Shiong, MD, a physician and entrepreneur whose privately owned umbrella company NantWorks in 2017 acquired Integrity Healthcare, the company that manages the Verity health system. Soon-Shiong said at the time that his goal was to revitalize the hospitals and improve the care they provided to mostly lower-income neighborhoods.

Though a surgeon and entrepreneur, Soon-Shiong had never operated hospitals before, as reported by STAT. The Verity system’s woes apparently were more than he could fix, with more than $1 billion of debt from bonds and unfunded pension liabilities.

The Verity CEO said at the time Soon-Shiong entered the picture that the system also needed cash to make seismic repairs to aging facilities and also needed hundreds of millions of dollars’  worth of new equipment such as imaging machines and neonatal intensive care units.

A Definite Trend

Verity’s overall experience is part of a trend in U.S. hospitals, says Ilyse Homer, JD, a partner at the Berger Singerman law firm with experience in hospital bankruptcies.

“There are hospitals all over the country that are not dissimilar in what happened to Verity—large debt, an aging infrastructure, an inability to negotiate contracts,” Homer says. “They have trouble with maintaining pensions and that is very typical in filings in other districts. There are some commonalities throughout the industry, and I can’t say I’m surprised that Verity came to this.”

Nantworks provided more than $300 million in unsecured and secured loans and investments, the Los Angeles Times reported. The money went to operational costs, pension obligations, and capital improvements, and only a third of it was secured by property.

The management company deferred most of the $60 million in management fees Verity was expected to pay over the last year.

Industry Ripe for Restructuring

Some criticism has been directed at financial decisions by Soon-Shiong’s team, such as providing millions of dollars to health IT vendor Allscripts rather than spending that money on capital improvements. Soon-Shiong has a financial stake in Allscripts. Fully implementing a new Allscripts health IT system could cost from $20 million to more than $100 million, according to estimates from different sources, as reported by POLITICO.

Even without any questions over Soon-Shiong’s strategy, saving Verity would have been a tall order for any investor, Homer says. The challenges were so great that it might have been too late to simply infuse cash and hope for the best, she says.

Once a hospital or system becomes weak in so many areas, it is hard to recover and gain strength again, Homer says.

“What happened to Verity is happening, to some extent, to a significant number of hospitals in the country. They have costs that are rising faster than revenues, and they’re being downgraded by financial analysts,” Homer says. Moody’s recently downgraded the entire hospital sector to negative, which suggests that there could be more bankruptcy in the future, she says.

“I absolutely expect to see more of this down the road,” Homer says.

Big Promises Are Tempting

The healthcare industry, in general, is in flux and the insurance industry uncertainty plays a part in that, Homer says. Struggling hospitals and systems are looking for ways to survive and the siren song of a billionaire like Soon-Shiong can be irresistible.

“I think this case shows that while you will have individuals and groups that want to come in and save or fix these hospitals, particularly nonprofits, it’s not necessarily as easy as adding a flush of cash when you have all these other issues that aren’t going away,” Homer says.

Healthcare CEOs should look at Verity for lessons in how much financial pressures can mount up, Homer says.

“My hope would be that they are looking at these issues as early as possible – renegotiating contracts, upgrading systems, ensuring pensions are funded – before they get to a crisis point,” Homer says. “Clearly this case is a reminder that this can happen, this can be the end result for your hospital system. [CEOS] need to be cautious and act on these issues before they get so far that even a huge influx of cash won’t solve their problems.”



Scale: blessing or burden for statewide ACOs?

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Scale can smooth out quality variation and assuage providers’ fears of taking on risk. But it’s not a catch-all solution.

A handful of accountable care organizations are moving to cover an entire state, but not everyone thinks bigger is better when it comes to population health management.

Caravan Health, a company that works with ACOs, last week announced the launch of its second statewide program, this time in Florida. In the model, any of the 200-some Florida Hospital Association facilities that want to participate can join together to provide coordinated care.

The bid is meant to bolster care quality for Medicare beneficiaries while lowering costs and risk for participating facilities. But some experts say the larger scale, like rampant consolidation, could be more like an anchor weighing down an ACO instead of a beam propping it up.

“At the end of the day, success or failure is based on success in managing the quality of care,” Michael Abrams, partner at Numerof & Associates told Healthcare Dive. “While there may be some bigger numbers involved, I think the safety angle that they’re selling may not be all it’s cracked up to be.”

Caravan has no plans to back down on the model, however, and plans to roll out two more statewide ACOs in the next couple of weeks.

ACOs existed before the Affordable Care Act, but in 2011 HHS released new rules under the landmark law aimed at helping providers coordinate care through the population health management programs. Since then, the number of ACOs have grown dramatically, from an estimated 32 to more than 1,000 in 2018, according to Leavitt Partners.

A statewide all-payer ACO in Vermont has seen some success, but Caravan’s model and its efforts are some of the first to leverage the programs over a much larger population.

The business model

The Florida ACO, created in partnership with the FHA, is the second from Kansas City-based Caravan. The first, in Mississippi, was launched in January. Under the program, hospitals have access to Caravan’s population health management model to build primary care capacity and monitor quality results.

Mississippi currently has 29 providers participating in the program, managing care for roughly 130,000 Medicare patients in 22 locations. Its operations include hiring and training population health nurses throughout the state, annual wellness visits, chronic care management and more.

It’s potentially a good business playbook for both parties. The hospital association captures a revenue stream that’s not dependent on their membership — increasingly important in these days of sharp provider headwinds — and Caravan is granted access to the Medicare lives of a couple hundred hospitals in the state.

The need for population health management is especially acute in Mississippi, which ranks last or close to last in every leading health outcome, according to the state Department of Health. Florida and Mississippi couldn’t be farther apart when it comes to their primary care infrastructure, a factor linked to ACO success. According to the NCQA database, Florida has 894 patient-centered medical homes. Mississippi has 74.

“With population health, we improve the health of our state so it’s a win-win all the way around,” Paul Gardner, the director of rural health at the Mississippi Hospital Association told Healthcare Dive.

And Caravan, which currently works with more than 225 health systems and 14,000 providers, touts its track record with its programs. In 2017, its ACOs beat nationwide ACO performance with savings of $54 million and quality scores of 94%, a spokesperson said.

By comparison, studies have yielded mixed results when it comes to ACO success elsewhere.

An April report from Avalere found the Medicare Shared Savings Program, a CMS model to foster ACOs in Medicare, missed federal cost-savings projections from 2010 by a wide margin and raised federal spend by $384 million.

But a National Association of ACOs analysis retorted that MSSP ACOs saved $849 million in 2016 alone, and a whopping $2.66 billion since 2013 (higher than CMS’ $1.6 billion estimate). And an early 2017 JAMA Internal Medicine analysis found ACO savings only increase with time.

Scale: protection or illusion?

The threat of financial loss is a leading obstacle to participation in ACOs. Smaller ACOs are more likely to experience widely variable savings and losses simply due to change, Caravan representatives say, while larger ACOs deliver more predictable and sustainable results.

“The only way we can create certainty around our income is to have processes and accountability and the infrastructure, but you’ve also got to have to scale,” Caravan CEO Lynn Barr told Healthcare Dive. Barr said that since Caravan’s 2014 inception, the company has found having 100,000 Medicare lives or more in an ACO yields larger savings than the roughly 80-85% of ACOs with only 20,000 lives or fewer.

As the owner of the ACOs, Caravan assumes 75% of the financial risk for providers. Barr said that evens out to a maximum risk of $100 per patient.

By comparison, in the basic track of the Medicare Shared Savings Program, the maximum risk for providers is $400 per patient. In the enhanced model it’s $1,500. “With our model, if people follow it and have 100,000 lives, there’s no reason they would ever write a check,” Barr said.

That is one of the selling features of the statewide ACO: It can be a mitigating factor for hospitals that might feel too exposed on their own, Abrams said.

But the threat of risk could still prove too much. CMS finalized new rules for shared savings ACOs in December, shaving down the amount of time they had before they were forced to assume downside risk from six year to two years for new ACO participants or three years for new, low-revenue ACOs.

And some critics say it’s a safe bet that the losses incurred by any one organization are not going to be spread across the other parties in the ACO, especially given the shortened timeline. As the deadline for assuming more risk approaches, Caravan could see attrition among providers who don’t feel ready.

“I think this is very, very, very challenging,” nonprofit primary care advocacy Patient-Centered Primary Care Collaborative Director Ann Greiner told Healthcare Dive. “Most of the hospital leadership has not been working under these kinds of conditions.”

And ACOs are all about a connection to the community, which might prove difficult to foster across an entire state.

“You’ve got to leverage people at the community level and have those relationships with the patient and, in the ideal world, know where to refer,” Greiner said. “At the state level, that’s pretty far removed.”

Unified governance, heterogeneity pose problems

The scale of large ACOs makes them much more difficult to manage, experts say. ACOs have a single set of policies that, in an organization involving more parties, needs to be adopted in one form or another that’s acceptable to all participating providers.

That’s done by majority, Barr said. Each participating provider has a single vote and the overall vote binds the ACO board’s decision on waiver approval, discharge standards, shared savings distribution plans and more.

But in an ACO with a lot of differently cultured and structured providers — academic hospitals, teaching hospitals, acute care, research, small, medium, large etc. — it can get a lot more complicated, Abrams said. For example, if 100 FHA hospitals opt into the new Caravan Health model, that’s 100 variations in acute care policy, physician compensation and all else involved in managing cost and quality operations, and 100 different voices strongly advocating to keep doing things the way they’ve always done them.

“Some issues are just working through the details,” Gardner from the Mississippi Hospital Association said. “In some of your larger systems, that’s getting the medical staff all pulled together and singing off the same sheet of music.”

The more homogeneous the ACO organizations are, the easier it will be to get them to buy in to the various policies and procedures that need to be put in place for operations to flow smoothly. “You can’t outsource that,” Abrams said. “The most you can do is get guidance from someone who’s perhaps been around this block about how to handle it.”

Barr maintains Caravan standardizes the most important factors.

“Nurses are critical to this model,” Barr said. “That’s what everyone’s doing the same.” Caravan has found that after nurses are trained in population health management over three to six months, each dollar the company spends on that provider produces two dollars in savings.

And, after Caravan puts the population health management infrastructure in place, the providers themselves helm the ship with a steering committee, leveraging data to see what differentiates them from the next community and making slight adjustments to course-correct.

Challenges for hospitals

Hospitals will face two challenges: taking in the coordinated framework given to them by Caravan and translating it into behavioral change, Abrams said. The success of the overall ACO will depend on the latter as “those who can’t do that successfully will probably self-select out when it comes time to take on risk.”

The question is whether Caravan can really deliver on some of the promises it’s explicitly making.

“The truth is that hospitals who haven’t had the infrastructure to manage their cost and quality are not better off in terms of consolidation and a position in a larger ACO,” Abrams said. “So an ACO comprised of multiple small hospitals and independent hospitals can’t expect savings proportionate to their aggregate size.”

With more statewide ACOs on the way, it’s important Caravan (and partnering providers) work out any kinks in the model sooner rather than later.

“This is not like bringing in a plumber to fix your faucet,” Abrams said. “At the end of the day, an organization stands on its own.”



New Lease Accounting: Top 10 FAQs Surrounding ASC 842

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What seemed like a topic that was always in the distant future is now upon us: accounting standards update (ASU) No. 2016-02, Leases(ASC 842). 

Under previous rules, lessees typically accounted for lease transactions as off-balance sheet operating leases or on-balance sheet finance leases. Under the new standard, lessees will have to recognize nearly all leases on the balance sheet. 

ASU 2016-02 comes on the heels of Revenue Recognition (ASC 606) and presents another wide-reaching and major change to the accounting world. Under ASU 2016-02, balance sheets will swell as nearly all leases will now be capitalized. Overall the ASU is very complex; however, below are some frequently asked questions that we are seeing from our clients and the industry. Like most things, the devil is in the details, but the below Q&A can provide high-level answers to these burning questions.

1. When is the standard effective?

ASU 2016-02 is effective for public companies in 2019 and private companies in 2020.

2. What are the changes to how capital leases (now known as “finance leases”) are presented?

The general accounting for finance leases remains largely unchanged compared to the legacy presentation of capital leases.

On the balance sheet, the finance leased asset is typically recorded as part of property, plant and equipment (PP&E), and the lease liability is recorded as funded debt. From a profit and loss perspective, the leased asset is depreciated over the shorter of the term or asset’s useful life, and interest expense is front-loaded as the lease obligation is amortized.

3. How will operating leases now “look” on the balance sheet?

Operating leases take on an entirely new look under ASC 842 in that a right-of-use (ROU) asset and liability are recorded by calculating the present value (PV) of the lease payments using the appropriate discount rate.

Balance sheet presentation of a ROU asset is classified as a long-term asset on a separate line item outside of PP&E. Furthermore, the ROU lease obligation will need to be separated into short-term and long-term liabilities that are aside from funded debt. The profit and loss components of a ROU asset and corresponding liability are amortized under the straight-line method and presented together as rent or lease expense.

Under ASC 842, neither amortization of the ROU obligation nor the ROU asset is considered interest expense or depreciation expense, leaving EBITDA unchanged from accounting for operating leases under the prior lease standards. 

4. Does the standard change the way we determine which type of lease we have?

There will continue to be two types of leases: finance (formerly known as capital) and operating. However, both will require recognition of an asset and a liability on the balance sheet. The differentiation between the two types of leases will play a significant role as to balance sheet classification but does not come without significant analysis in determining what type of lease it actually is.

Finance leases will no longer be evaluated using the “bright-line” tests. Rather, they will be evaluated using principles-based criteria, which aim to evaluate the underlying substance of the lease. The principles-based criteria certainly involve a level of subjectivity; however, the finance lease classification applies should any of the following be met:

  • The property transfers to the lessee at the end of the lease.
  • The lessee is reasonably certain to exercise a purchase option.
  • The lease term is for a “major” part of the asset’s economic life.
  • The present value of lease payments equals or exceeds “substantially all” of the fair value of the asset (undoubtedly the most subjective — more on this later).

If the lease does not meet the above criteria, it will be considered an operating lease. 

5. What changes for lessors vs. lessees?

From the lessor’s point of view, not much changes. In contrast, lessees will now be required to capitalize all leases with terms greater than 12 months.

6. Why is the FASB doing this?

Think about this: Prior to this standard, airlines had not been recording their airplanes on their balance sheets! The standard provides better clarity to users of the financial statements via recognition and measurement of a company’s leased assets and associated liabilities that have historically been tucked away in a footnote disclosure.

7. How do I determine the discount rate?

This is where things can get tricky! To determine the PV, lessees should use the implied rate in the lease contract (if known) or the company’s incremental borrowing rate. This rate is based on what rate the company would obtain if financing 100% of the underlying asset using similar terms and pledging the asset as collateral. 

Knowing that this is often difficult to determine, private companies are afforded an election to use the risk-free rate (e.g., Treasury bill). However, this comes with caution as it typically results in a higher PV, leading to a larger corresponding asset and liability to be booked.

8. Are there new disclosures required?

The footnote disclosure under current standards doesn’t afford financial statement users with many details on either type of lease; however, this is changing. Under ASC 842, the disclosure will provide the reader with both quantitative and qualitative information as to how the lease classification was determined. This information will help the reader comprehend significant judgments and assumptions that were used in evaluating leases under the principles-based criteria.

9. How will this impact my loan covenants?

With operating leases now on the balance sheet, various financial metrics, including those commonly used in loan covenants, are sure to change. The measures of working capital, quick ratio, current ratio and any metrics related to debt (i.e., funded debt) will need to be reviewed carefully to understand how newly capitalized leases will influence results.

In calculations involving EBITDA, the change should not impact results as interest and depreciation (associated with finance leases) are added back, and operating leases (presented as rent or lease expense) are commonly excluded from the benchmark.

Needless to say, it will be imperative to be proactive with your banker. Covenants should be analyzed to determine the impact of the new standard. Some lenders are changing agreements to use updated metrics, while some are simply adding wording to the covenant calculation that says, “Under GAAP in place as of the date of this agreement.” That may seem to simplify things; however, it may also require you to keep two sets of books and records, which can get complicated.

10. How do I prepare for these changes?

The first step is to digest the change in standards and the ripple effect that will come from capitalizing substantially all leases. This will involve an evaluation of the appropriateness of systems, procedures and controls necessary to accumulate and track pertinent lease information. Determination will need to be made as to adoption of ASC 842, which is available on a modified retrospective basis or through a cumulative effect adjustment as of the beginning of the year of adjustment.

A proactive approach to the change in lease accounting is certain to help reduce the burden and headaches of another significant change in accounting standards. If you haven’t done so already, you should start your process in a variety of ways, including knowledge transfer sessions, the evaluation of lease contracts and interpreting the impacts on financial statement presentation and disclosures.



Montefiore Health System CFO Colleen Blye on her daily mantra and facing today’s healthcare challenges

Colleen Blye serves as executive vice president and CFO of New York City-based Montefiore Health System.

Before joining the system in January 2016, she was executive vice president and CFO of Catholic Health Services of Long Island, an integrated healthcare delivery system based in Rockville Centre, N.Y.

She was also executive vice president for finance and integrated services at Englewood, Colo.-based Catholic Health Initiatives.

Here, Ms. Blye shares her proudest moment as Montefiore’s CFO, discusses her daily mantra and reveals the revenue cycle tools she’s most excited about.

Question: Since joining Montefiore, what has been one of your proudest moments as CFO?

Colleen Blye: When we restructured the balance sheet last year and [pursued] public financing. This was the first time in Montefiore’s history that we went for a public rating. As a result, this refinancing provided much needed liquidity for our system, and it allowed us to level debt service. We now have a solid baseline going forward which offers us access to additional financing, as needed. That was a big deal and positions our organization with a debt structure appropriate for a system of our size and scale.

Q: What is the greatest challenge you faced as CFO in 2018? Do you expect this to be your biggest challenge in 2019 as well?

CB: One [challenge] is shifting the finance culture overall from one of financial reporting to one of analytics, and being a business partner. In today’s healthcare world, I think this is imperative, and Montefiore has embraced this culture. I think businesses separate from the healthcare environment operate this way, and we need to be responding and shifting so that finance is a true business partner throughout the organization.

The other aspect that I think is increasingly challenging for all of us in financial healthcare is trying to understand how to diversify our shrinking revenue base. There’s been a lot of revenue compression by governmental payers and the market in general. Therefore, it is imperative that we continually think about how we’re going to diversify that revenue base and bring in new revenue streams to facilitate growth.

Q: What is a daily mantra that informs your leadership decisions?

CB: I always use the concept, “Leave an organization better than you received it.” That doesn’t always mean having absolute analytics or support. Seasoned CFOs understand [that] you must use your experience and other intellect, in addition to data and supporting analysis, to determine whether the risk of any given business decision is worthwhile going forward.

Q: Montefiore Health System has 11 hospitals and serves 3 million people in communities across the Bronx, Westchester and the Hudson Valley. How does the system’s financial strategy differ by location?  

CB: At the highest level, we are one system. However, every market has different opportunities, and it’s imperative that we find those opportunities and capitalize on them to benefit the patients, providers, communities, and therefore, the system overall.

Q: The system is bringing specialty care expertise in areas including cancer, advanced imaging, neuroscience, transplantation, musculoskeletal and heart and vascular care to new markets in its service region of four counties. How does this play a role in the system’s financial improvement plans?

CB: It’s certainly a big part. This goes back to diversifying the revenue stream and understanding where those opportunities are. Specialty care is a critical element of the future of healthcare. We’ve seen a significant shift from inpatient to outpatient care for the less complex services. But,it’s equally important to understand the more complex care as well, capturing that environment so we can take care of the whole person. From an economic point of view, it typically is that more complex care that produces some of the greater margins for our organization.

Q: What are your top cost containment strategies?

CB: We’re focused on all opportunities. One challenge many organizations have is to maintain a cost-focused culture while you’re trying to support growth to sustain the business. But we look at all aspects — how do we maintain our quality care yet utilize our size and scale to get efficiency? We’re constantly looking at that as it relates to our procurement strategy. We’re constantly looking at our employee and benefit cost structure. We [must] continually look at that resource consumption and make sure we’re spending wisely. As a system, our goal is to make sure that quality care is at the center of what we’re focused on but that we utilize who we are — scale and size — to maximize opportunities.

It’s [also] not just the cost side of the equation that we look at. To grow and sustain, we also have to grow our business. We have to be equally focused on where those growth opportunities lie for us as an organization, maintaining equal focused on our revenue efficiency to make certain we’re collecting every dollar we’re entitled to for the services we deliver.

Q: What new revenue cycle tool are you most excited about? 

CB: The tools we’re most excited about are those that are patient-focused. Consumers, particularly millennials, expect and look for that convenience. We are working with vendors that transition a complex billing and information cycle.  This enables us to communicate with our patients in a far more user-friendly way, We’re excited about these opportunities which are focused on patient-centered communications, allowing us to connect directly with patients, informing them at the earliest point about what their financial responsibilities are, how to interpret that information, and how to make payments on those responsibilities.

Q: If you could pass along one nugget of advice to another hospital CFO, what would it be?

CB: Always keep your eyes and ears open for opportunities and always think about how you can grow and expand your thinking and the perspective you bring to the work that you do.

I would also encourage thinking about how to become partners in the healthcare business. I think we have a calling now as CFOs to be far more involved in operations, rather than just financial reporting, providing data, trends and insight to our internal colleagues. I would really suggest moving from the traditional finance acumen to use those skills and techniques to be a strategic-thinking and better business partner.


Cutting costs top 2019 priority for healthcare finance execs & other survey findings

Click to access 2019-cfo-outlook-healthcare.pdf

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Many senior finance executives are not fully prepared to manage the financial impact of evolving business conditions in today’s healthcare environment, according to a survey by strategic and financial consulting firm Kaufman Hall.

The survey, conducted in September and October, asked CFOs, vice presidents of finance, directors of finance, and other senior finance executives more than 20 questions to gauge performance management progress and trends. Participants represented more than 160 U.S. hospitals, health systems, and other healthcare organizations.

Five findings:

1. Only 13 percent of respondents said their organizations are very prepared to manage evolving payment and delivery models with the financial planning processes and tools now available.

2. Additionally, only 23 percent said they are very confident that their teams can quickly and easily adjust to strategies and plans.

3. Ninety-six percent of respondents said they believe their organizations should be making greater efforts to leverage financial and operational data as part of decision-making.

4. Cost reduction and management is the biggest priority for senior finance executives this year, followed by predicting and managing changing payment models.

5. Along those lines, more than half of respondents cited the following as top improvement priorities for financial planning and analysis:

  • Cost management and efficiency
  • Reporting and analysis to support decision-making
  • Operational budgeting and forecasting
  • Profitability measurement across specific dimensions



Universal Health Services finance chief Steve Filton on cost containment and challenges hospital CFOs face

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As CFO of one of the nation’s largest hospital management companies, Steve Filton understands the challenges hospitals face.

Mr. Filton has served as executive vice president and CFO of King of Prussia, Pa.-based Universal Health Services since 2003.

He  joined the company in 1985 as director of corporate accounting and in 1991, he was promoted to vice president and controller.

Mr. Filton spoke with Becker’s about some of the challenges facing CFOs and his top cost-containment strategies.

Question: What is the greatest challenge hospital and health system CFOs faced in 2018? Do you expect this to be their biggest challenge in 2019 as well?

Steve Filton: I think effectively we’re in an environment where our payers have all concluded that costs and medical spending have to be reduced, and a lot of that burden ultimately falls on providers, like hospitals and doctors. As a [result], I think hospitals are tasked with the difficult goal of continuing to provide the highest quality care in more efficient ways. I think that was the biggest challenge last year and will be the biggest challenge this year. I think, frankly, for the foreseeable future, that’s the challenge of being a provider in today’s healthcare environment.

Q: How do you feel the CFO role has evolved in recent years?

SF: I think CFOs have a particularly challenging role in that our organizations explore the ways to deliver high quality care that’s best for our patients and try to create an environment that is satisfying for our employees. We as CFOs then say, ‘How do we accomplish these things and remain efficient and remain profitable?’ [That way organizations] can continue to do all the things we have to do as far as investing and reinvesting in the business and continuing to be competitive with our labor force and do all the things that allow us to continue to run high quality facilities, which in many cases involve significant expenditures.

Q: What are your top cost-containment strategies?

SF: I think a lot of our cost-containment strategies are focused on what I describe as driving the variability out of our business. I think so many other industries and businesses are accustomed to delivering their products and services in very standardized ways that are determined to be most efficient. I think healthcare has sort of long resisted that, and as a [result], we have lots of variability in the way that we deliver services in our various geographies. Various clinicians will deliver services differently. And I think we could benefit by following the lead of some of our peer industries and becoming much more focused on … delivering all our care and service in that standard way in accordance with best practice protocols. Driving out excess utilization and driving out rework and re-dos and errors — those things I think are a significant focus of getting the hospital industry to be more efficient and cost-efficient.

Question: During your tenure at UHS, what has been one of your proudest moments as CFO?

SF: What I take great pride in is the growth of the company. When I joined the company in the mid-1980s, it had maybe 35 [or] 40 hospitals around the country and maybe $500 million of consolidated revenues. This coming year we’ll have well over 300 domestic facilities and another 100 or so in the United Kingdom and over $11 billion of revenue.  And what I’m proud of is not just the growth of the company, but … the way the company has grown and yet really adhered to its core principles. When I joined the company 30 some odd years ago, it was very committed to high quality patient care and to the satisfaction to our employees. And honestly, if anything, I think the company has recommitted itself to those core principles over the years, and to be a much bigger company [and] not have abandoned our core principles, at least for me, is a source of great pride.

Q: If you could pass along one nugget of advice to another hospital CFO, what would it be?

SF: I tell the folks who work with me and for me all the time that it’s so important to behave every day with the highest level of integrity. I think at the end of the day you can’t replace that. People, I think, will give you a lot of leeway if they trust you, if they believe that you’re behaving transparently and with great honesty. And so I encourage everyone who works for me to do that, and I certainly endeavor to try to do that as best I can. And it’s tough. There are all kinds of pressures on folks in a financial role in this sort of environment. But I think if you behave with integrity, everything else will follow from that.




48% of CFOs don’t have a succession plan

OR Efficiencies

Though CFOs are usually known for their careful attention to detail, 48 percent of them  have not identified a successor, according to a study in The Wall Street Journal.

Robert Half Management Resources surveyed 1,100 CFOs in  various industries. Of those respondents who have not created a succession plan, nearly two-thirds said they had no plan because they did not intend  to step down soon. They also cited the need to focus on other priorities and the absence of qualified candidates.

Jenna Fisher,  head of the global corporate sector at executive search firm Russell Reynolds Associates, said  the percentage of CFOs with succession plans represents a dramatic improvement from five years ago, when she estimated less than 10 percent of her clients had CFO succession plans.

“The role of CFO has become more salient,” Ms. Fisher said.




5 Revenue Cycle Trends to Watch

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When we think of healthcare and hospitals, we primarily think of the patient experience as it relates to individual health and wellness. However, another important part of the patient experience involves the finance and billing departments of healthcare organizations. The moment a patient checks in for an appointment, they enter into this system of payment and processes and the journey ends when all claims and patient payments have been received either from the patient or from their insurance company.  This sounds like a simple, linear process, but it’s much more complicated than that. To help organize these financial processes, organizations rely on healthcare revenue cycle management and software to process this constant influx of important data.

As the healthcare industry continuously changes, revenue cycle management policies and software are changing with it. Healthcare IT Leaders Revenue Cycle Lead, Larry Todd, CPA, discusses the changes happening in the industry and the trends to watch in 2018 with revenue cycle management.

Mergers driving new implementations

Healthcare systems are getting bigger as more organizations are merging. Many legacy systems are beginning to sunset, and there is a need for organizations to implement a new system to support the growth of the organization. “It’s important for organizations to consider how they will sunset their legacy system and embrace the new system during a revenue cycle implementation,” says Todd. “Organizations need to take a step back before the implementation to consider how to build a holistic system. Without proper integrations, many organizations will be challenged to manage their reimbursement processes.”

Organizations seek to improve denial and reimbursement processes

Claim denials and documentation to support appeals are areas where the revenue cycle marketplace continues to struggle, says Todd. “Organizations are seeking innovative ways to improve these processes and reduce denial rates, through either third-party systems, or, if possible, within the host system.”

CFOs must stay engaged in implementations

“Any implementation will affect the revenue of the organization so it’s very important for CFOs to be involved in the implementation project and to be informed of key parts of the project that could put the organization and its revenue at risk,” says Todd.

As a former CFO and trained accountant, Todd says it’s a mistake for CFOs to disengage once an implementation is underway. “These are highly technical projects, so there is a tendency to hand over the reins to IT or the software vendor, but financial executives need to stay engaged throughout the project, including weekly implementation status updates.”

Clients should form a revenue cycle action team that includes the CFO and puts all of the revenue cycle stakeholders at the table, including clinicians, says Todd. Having the CFO involved in this process ensures critical executive oversight regarding decisions that impact AR and Cash.

User training and adoption are critical

As healthcare organizations transition from a legacy system to a new system, they need to consider how they will handle the change management for their staff. “Some employees have been using these systems for more than 10 years. Properly training employees on the new system is a top concern for executives and managers,” says Todd.

Organizations will rely on outside expertise for implementations and integrations

As organizations integrate their new system and implement changes, a key recipe for success is to hire experts who understand the technical and operational aspects of the the software and organizational processes. “It’s very valuable to work with a consulting firm that employs real consultants – people who have worked in operations for years and truly understand the unique challenges of implementing revenue cycle solutions” says Todd. “At Healthcare IT Leaders, we all have unique perspectives and experiences that we bring to the table thanks to this approach.”



Ex-CFO, 3 surgeons charged in $950M kickback scheme in California

Image result for illegal kickbacks

Federal prosecutors unsealed charges this week against nine new defendants for their alleged roles in a kickback scheme that resulted in the submission of more than $950 million in fraudulent claims, mostly to California’s worker compensation system, according to the Department of Justice.

The nine defendants were charged in relation to the government’s investigation into kickbacks physicians received for patient referrals for spinal surgeries performed at Pacific Hospital in Long Beach, Calif. They are among the dozens of physicians and other medical professionals allegedly involved in the scheme.

Of the nine defendants recently charged, three are orthopedic surgeons. Daniel Capen, MD, agreed to plead guilty to conspiracy and illegal kickback charges. He allegedly accounted for about $142 million of Pacific Hospital’s claims to insurers. Timothy Hunt, MD, who allegedly referred spinal surgery patients to Dr. Capen and other physicians, agreed to plead guilty to a conspiracy charge involving his receipt of illegal kickbacks. Tiffany Rogers, MD, allegedly received illegal kickbacks to refer patients for spinal surgeries to Pacific Hospital.

The other defendants recently charged in the scheme include the former CFO of Pacific Hospital’s physician management arm, George Hammer. He agreed to plead guilty to tax charges based on the fraudulent classification of illegal kickbacks in hospital-related corporate tax filings. Two chiropractors as well as two companies and an individual associated with one of the chiropractors were also charged for their alleged involvement in the scheme, according to the DOJ.

Michael Drobot, former owner and CEO of Pacific Hospital, ran the 15-year-long kickback scheme. He was sentenced to more than five years in prison in January.