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

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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



We can’t afford to hire you

Abstract:  This article looks further into the value proposition of a sophisticated Interim Executive.

I have become accustomed to being ruled out of a beauty pageant for an Interim Executive consulting position based on rate alone.  In most cases, I am told by the decision maker about this problem after the fact.  It is common for the decision to be made without consulting me or giving me a chance to negotiate.  While I could have been flexible, my flexibility is limited by the opportunity cost of existing or potential competitive opportunities.  When I talked with the decision makers, they were frequently operating from the assumption that the gap was too big to close.  Instead, they lost an opportunity to get a resource with my background and experience while settling for an alternative solely based on cost.  It is clear that these decision makers severely discounted the potential value of engaging a more experienced resource.  Or, I could have simply been beat on price by an equally or better-qualified competitor but I doubt it.  I have seen too many cases of decision makers making what could be a critical decision based on the hourly rate alone.  Lest this come across as bitter, I have not failed to end up with a desirable engagement and I am generally happy with the outcome.  I have learned that as Mick Jagger said, “You can’t always get what you want.  But if you try sometime (sic), you find you get what you need.”  I cannot help but wonder how things are going in the organizations that passed me by.

What would some of the common excuses for a supposedly otherwise intelligent decision maker making a choice solely on rate?

We are in financial distress.  Interim Executive Services typically price on the experience and relevance of a proposed interim to a specific situation.  This is analogous to hiring a lawyer.  One of my friends liked to say that one of the worst things that can happen to you is to end up with the second best attorney in a critical situation.  To gain access to the best and most experienced talent in a law firm, you must be willing to pay the firm’s highest rates.  The reason that older, more experienced law firm partners’ rates are higher is that the market will bear their rates whatever they are because their time and expertise are in very high demand.  For those of us that make a living selling time, you are limited as to how much you can sell.  A firm in financial distress can end up in bankruptcy.  Another bad outcome for a firm in distress is to default on debt obligations that can result in the Board and leadership team losing control of the organization.  Banks and bondholders can and will accelerate the debt and take other actions to preserve their interests.  The pertinent question for the decision maker to make in this situation is what is the best resource available to avoid the undesired outcome regardless of cost because the cost of failure is infinitely higher.  If you think an Interim Executive is expensive, check the rates of bankruptcy attorneys and debtor in possession consultants.

I can get someone else for less money.  Inexperienced or ignorant people do not understand the differences between physicians.  They assume a doctor is a doctor is a doctor.  They do not understand the difference between a pathologist and a proctologist.  This is the kind of logic used by a decision maker that assumes that there is no difference in interim executives and places the first and/or cheapest resource they can find in an effort to get someone, anyone with a heartbeat into a position.  The pertinent question in this situation is what is the cost of failure and how small is this cost as a percentage of the cost of the cheapest resource available vs. a competent, experienced advisor.  I followed an interim CFO in a hospital that had somehow managed to miss a growing over-valuation of accounts receivable that ultimately led to a write-down of A/R in excess of $50 million and a number of executives including the CEO of the place losing their jobs.  Maybe the CEO should have looked at my article on how to avoid getting whacked.  In my experience, hiring decision makers rarely account for the personal career risk they may be taking by thier involvement in bringing an interim aboard.

We can absorb the workload.  This is one of my favorites.  Really?  Are you telling me that the departed executive did so little that a potentially prolonged vacancy of their position will not be missed and there is no risk in not having the role filled?  If this is the case, the decision maker should eliminate the position.  Just because the departed executive may have not been meeting the organization’s needs does not translate to their role not being worth filling with someone that knows what they are doing.  As a matter of fact, putting an experienced interim into a key role say CEO or CFO, might go a long way towards demonstrating to the organization how the role should be filled and carried out.  If you engage a sophisticated interim, there is a very good chance that the permanent executive you hire to ultimately fill the position will not come close to the value-adding potential of an experienced interim executive.  On this point, it is not a good idea nor is it fair to candidates to benchmark them against an experienced interim.  This makes it hard on everyone by unnecessarily delaying the recruiting process in some cases and potentially creating unreasonable expectations for a permanent candidate when there is a successful recruitment.

These are but a few of the excuses I have heard as reasons to rule me out of an Interim gig.  I am sure my readers can contribute others possibly spawning a series of articles on this topic.  One of the key things to remember if you are an interim executive as I said in my article about the value proposition of interim executives is what Zig Ziglar said, ‘You cannot control what someone else is going to do.  All you can control is how you respond.”  Don’t take rejection personally.  Remember, in baseball, a hitting failure rate of 70% or more is considered to be an excellent performance.  Another thing to think about is you never know what you may be saved from.  I can say from experience that I have been fortunate on more than one occasion to not get something I desperately wanted at the time.  You may never know the degree to which fate or divine intervention may be bearing on the outcome of one of your proposals.  If you are a decision maker, you owe it to yourself and those around you whose fate may be tied to yours to undertake the most objective, evidence-based decision-making process you are capable of whether the decision has to do with engaging an interim or any other key decision for that matter.

Contact me to discuss any questions or observations you might have about these articles, leadership, transitions or interim services.  I might have an idea or two that might be valuable to you.  An observation from my experience is that we need better leadership at every level in organizations.  Some of my feedback is coming from people that are demonstrating an interest in advancing their careers, and I am writing content to address those inquiries.

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How U.S. Hospitals and Health Systems Can Reverse Their Sliding Financial Performance

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Since the beginning of 2016, the financial performance of hospitals and health systems in the United States has significantly worsened. This deterioration is striking because it is occurring at the top of an economic cycle with, as yet, no funding cuts from the Republican Congress.

The root cause is twofold: a mismatch between organizations’ strategies and actual market demand, and a lack of operational discipline. To be financially sustainable, hospitals and health systems must revamp their strategies and insist that their investments in new payment models and physician employees generate solid returns.

For the past decade, the consensus strategy among hospital and health-system leaders has been to achieve scale in regional markets via mergers and acquisitions, to make medical staffs employees, and to assume more financial risk in insurance contracts and sponsored health plans. In the past 18 months, the bill for this strategy has come due, posing serious financial challenges for many leading U.S. health systems.

MD Anderson Cancer Center lost $266 million on operations in FY 2016 and another $170 million in the first months of FY 2017. Prestigious Partners HealthCare in Boston lost $108 million on operations in FY 2016, its second operating loss in four years. The Cleveland Clinic suffered a 71% decline in its operating income in FY 2016.

On the Pacific Coast, Providence Health & Services, the nation’s second largest Catholic health system, suffered a $512 million drop in operating income and a $252 million operating loss in FY 2016. Two large chains — Catholic Health Initiatives  and  Dignity Health — saw comparably steep declines in operating income and announced merger plans. Regional powers such as California’s Sutter Health, New York’s NorthWell Health, and  UnityPoint Health, which operates in Iowa, Illinois, and Wisconsin, reported sharply lower operating earnings in early 2017 despite their dominant positions in their markets.

While some of these financial problems can be traced to troubled IT installations or losses suffered by provider-sponsored health plans, all have a common foundation: Increases in operating expenses outpaced growth in revenues. After a modest surge in inpatient admissions from the Affordable Care Act’s coverage expansion in the fall of 2014, hospitals have settled in to a lengthy period of declining hospital admissions.

At the same time, hospitals have seen their prices growing at a slower rate than inflation. Revenues from private insurance have not fully offset the reductions in Medicare payments stemming from the Affordable Care Act and federal budget sequestration initiated in 2012. Many hospitals and health systems strove to gain market share at the expense of competitors by deeply discounting their rates for new “narrow network” health planstargeted at public and private health exchanges, enrollments from which have far underperformed expectations.

The main cause of the operating losses, however, has been organizations’ lack of discipline in managing the size of their workforces, which account for roughly half of all hospital expenses. Despite declining inpatient demand and modest outpatient growth, hospitals have added 540,000 workers in the past decade.

To achieve sustainable financial performance, health systems must match their strategy to the actual market demand. The following areas deserve special management attention.

The march toward risk. Most health system leaders believe that population-based payment is just around the corner and have invested billions of dollars in infrastructure getting ready for it. But for population-based payment to happen, health plans must be willing to pay hospitals a fixed percentage of their income from premiums rather than pay per admission or per procedure. Yet, according to the American Hospital Association, only 8% of hospitals reported any capitated payment in 2014 (the last year reported by the AHA) down from 12% in 2003.

Contrary to widely held belief, the market demand from health insurers for provider-based risk arrangements has not only been declining nationally but even fell in California where it all began more than two decades ago. This decline parallels the decline in HMO enrollment. Crucially, there is marked regional variation in the interest of insurers in passing premium risk to providers. In a 2016 American Medical Group Association survey, 64% of respondents indicated that either no or very limited commercial risk products were offered in their markets.

The same mismatch has plagued provider-sponsored health-plan offerings. Instead of asking whether there are unmet needs in their markets reachable by provider-sponsored insurance or what unique skills or competencies they can bring to the health benefits market, many health systems have simply assumed that their brands are attractive enough to float new, poorly configured insurance offerings.

Launching complex insurance products in the face of competition from well-entrenched Blue Cross plans with lavish reserves and powerful national firms like UnitedHealth Group, Kaiser, and Aetna is an extremely risky bet. Many hospital-sponsored plans have drowned rapidly in poor risks or failed to achieve their enrollment goals. A recent analysis for the Robert Wood Johnson Foundation shows that only four of the 37 provider-sponsored health plans established since Obamacare was signed into law were profitable in 2015.

The regular Medicare and commercial business. Most hospitals are losing money on conventional fee-for-service Medicare patients because their incurred costs exceed Medicare’s fixed, per-admission, DRG payments. Moreover, there is widespread failure to manage basic revenue-cycle functions for commercial patients related to “revenue integrity” (having an appropriately documented, justifiable medical bill that can be  collected), billing, and collection. All these problems contribute to diminished cash flows.

Physician employees. For many health care system, physician “integration” — making physicians employees of the system — seems to have become an end in itself. Yet many hospitals are losing upwards of $200,000 per physician per year with no obvious return on the investment.

Health systems should have a solid reason for making physicians their employees and then should stick to it. If the goal is control over hospital clinical processes and episode-related expenses, then the physician enterprise should be built around clinical process managers (emergency physicians, intensivists, and hospitalists). If the goal is control over geographies or increasing the loyalty of patients to the health care system, the physician enterprise should be built around primary care physicians and advanced-practice nurses, whose distribution is based on the demand in each geography. If the goal is achieving specialty excellence, it should be built around defensible clusters of subspecialty internal medicine and surgical practitioners in key service lines (e.g., cardiology, orthopedics, oncology).

To create value by employing physicians, health systems must actually manage their physicians’ practices. This means standardizing compensation and support staffing, centralizing revenue-cycle functions and the negotiations of health plan rates, and reducing needless variation in prescribing and diagnostic-testing patterns. Health system all too often neglect these key elements.


If health systems are to improve their financial performance, they must achieve both strategic and operational discipline. If they don’t, their current travails almost certainly will deepen.

For a modest personality trait, ‘intellectual humility’ packs a punch

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“Intellectual humility” has been something of a wallflower among personality traits, receiving far less scholarly attention than such brash qualities as egotism or hostility. Yet this little-studied characteristic may influence people’s decision-making abilities in politics, health and other arenas, says new research from Duke University.

In a time of high partisanship, intellectual humility — an awareness that one’s beliefs may be wrong — is nonpartisan. Researchers measured levels of the trait, and found essentially no difference between liberals and conservatives or between religious and nonreligious people.

“There are stereotypes about conservatives and religiously conservative people being less intellectually humble about their beliefs,” said lead author Mark Leary, a professor of psychology and neuroscience at Duke. “We didn’t find a shred of evidence to support that.”

As defined by the authors, intellectual humility is the opposite of intellectual arrogance or conceit. In common parlance, it resembles open-mindedness. Intellectually humble people can have strong beliefs, but recognize their fallibility and are willing to be proven wrong on matters large and small, Leary said.

The researchers, whose work is featured in the March 15 issue of Personality and Social Psychology Bulletin, conducted four separate studies to measure the trait and learn more about how it functions. In one study, participants read essays arguing for and against religion, and were then asked about each author’s personality. After reading an essay with which they disagreed, intellectually arrogant people gave the writer low scores in morality, honesty, competence and warmth. By contrast, intellectually humble people were less likely to judge a writer’s character based on his or her views.

People who displayed intellectual humility also did a better job evaluating the quality of evidence — even in mundane matters. For instance, when presented with arguments about the benefits of flossing, intellectually humble people correctly distinguished strong, fact-based arguments from weak ones.

Root Out Bias from Your Decision-Making Process


We’ve all experienced the disappointment of an important decision not going our way. The feeling is far worse when you feel that the decision was somehow “rigged” against you — that you never had a chance, that your input wasn’t given its fair due, or that only some of the data was considered. You can accept a fair decision that goes the other way, but a rigged decision feels much worse. And the ill will festers.

Poor decision making happens in our business, civic, and personal lives. But often we are perpetrators, participating in or making rigged decisions, even if we may not realize it.

Rigged decisions are all too frequent, and while they come in many forms, the most virulent feature the following steps:

  1. Make the decision based on some or all of the following: ego, ideology, experience, fear, or consultation with like-minded advisers.
  2. Find data that justifies your decision.
  3. Announce and execute the decision, and defend it to the minimum degree necessary.
  4. Take credit if the decision proves beneficial, and assign blame if not.


To Improve Medicaid, Measure Everywhere

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“In God we trust. All others must bring data.”

So said W. Edwards Deming, a management consultant widely regarded as one of the most influential figures in quality management of the 20th century.

One would think that in the data-driven 21stcentury, we’d have come a long way in applying that dictum to health care. To some degree, we have—Medicaid and CHIP programs that contract with managed care entities include provisions around quality measurement and reporting in state contracts and make use of the Healthcare Effectiveness Data and Information Set. This reporting serves as the foundation of targeted quality improvement projects in states and helps inform consumer choice through products such as the state-published report cards and annual rankings of health insurance plans set out by the National Committee for Quality Assurance.

But this kind of systematic, comprehensive reporting is largely and notably absent from fee-for-service Medicaid and CHIP. We can’t afford to go without it. It’s imperative that we know what works well in Medicaid and CHIP and what areas of the program need attention or improvement. These programs combine to cover more than one in four Americans and command more than half a trillion dollars in federal and state spending per year.

With this in mind, Safety Net Health Plan members of the Association for Community Affiliated Plans (ACAP) have come together to support a suite of legislation on Capitol Hill. This legislation would extend the benefits of quality measurement and reporting to all Medicaid and CHIP delivery systems—including areas such as fee-for-service that have typically not provided regular, systematic quality data.

The good news is that lawmakers in Washington have taken the first steps toward bringing quality measurement forward into the 21st century by introducing two bills.