There is no "one-size-fits-all approach" for hospital CFOs evaluating organizations interested in partnering, affiliating or merging.
Since 1990, Kanner Tillman, PhD, MBA has held various healthcare industry management roles at both for-profit and nonprofit hospitals, integrated health systems and HMOs.
He currently serves as CFO at Sherman Oaks (Calif.) Hospital and Encino (Calif.) Hospital Medical Center, both of which are owned by Ontario, Calif.-based for-profit Prime Healthcare. Prime Healthcare, the fifth largest health system in the country, has entered into numerous transactions this year, including six deals since October.
Becker's had the opportunity to catch up with Mr. Tillman and get his insight on how hospital CFOs should evaluate potential partners and how to run a finance team.
Question: Do you have any advice for CFOs on how they should evaluate organizations that contact them with interest to partner, affiliate or merge?
Mr. Tillman: Don't just evaluate each case from a local hospital perspective but tie it to the system-wide direction. It's also important to really know the actors. It is the best case scenario when a "test run" is possible, e.g., a shorter contract term at the beginning. Naturally, you want to manage the risk with shorter and smaller commitments at the beginning but that may not always be possible. So there is no one-size-fit-all approach on this.
Q: What are some of the best practices for running the finance team of a hospital or health system?
Mr. Tillman: For one thing, we have been proactive in cross training and preparing for anticipated retirements and absences. This is crucial when you have a lean operation as we do. Second, our system is growing rapidly and adding capabilities that make us more effective and efficient at the local level; whether it is revenue cycle resources, data mining, managed care expertise and so on. We have positioned our local facilities to take advantage of these new synergies. Third, our accounting team now works with supply chain much more closely to ensure precision of accruals, CIPs, credits and rebates.
Q: What is the greatest challenge facing hospital and health system CFOs today?
Mr. Tillman: I would summarize it in two parts: 1) Transforming an essentially inpatient-oriented structure to an increasingly outpatient one without cannibalizing or undermining the inpatient care, 2) Containing costs ever more diligently in the face of stagnant or declining reimbursement. This is becoming more of a problem now as many PPO/HMO contracts adopting Medicare/Medicaid like rates. In many parts of the country, certainly in highly competitive markets like Southern California, cost shifting to non-governmental payers is no longer a viable option. Some hospitals and systems are addressing these two major challenges effectively. Our hospitals, for example, have been able to expand profitable outpatient service lines while simultaneously increasing our inpatient volume. It is certainly doable but it takes strong corporate/local leadership and a clear vision.
Q: In the last year, what has been your greatest accomplishment as CFO?
Mr. Tillman: In a word: Being a strategic partner to the hospital management at all levels.