Believe it or not, the federal government is entering its third fiscal year in which the Patient Protection and Affordable Care Act has been a component.
The PPACA, which has been considered the most significant legislation to the U.S. healthcare system since Medicare was adopted, went through a rigorous Supreme Court review and will now officially give hospitals, health systems, physicians and other healthcare stakeholders large projects — such as value-based purchasing and quality metric monitoring — to tackle.
Greg Damron, vice president for finance and CFO of Georgia Health Sciences Medical Center in Augusta, Ga., shares his thoughts on what the most important healthcare financial topics will be in FY 2013 and what hospitals can do to weather the impending storms from Medicare, Medicaid and other healthcare reforms.
Question: The federal government's 2013 fiscal year just started Oct. 1. There is a slew of big changes coming toward hospitals and their Medicare revenue, such as the readmissions program, value-based purchasing and others. How would you describe this upcoming fiscal year for you and your organization, and is it finally time financial officers can put volume-based care in the rear-view mirror?
Greg Damron: Ultimately, volume-based reimbursement for care will largely be a thing of the past. In the most immediate term, we need to continue to focus on quality metrics, value-based purchasing and, particularly, readmission rates. In the long term, we need more primary care, preventive care and population management. Since we are Georgia's only public academic health center, we have to ask, "How do we get out into the state and reduce the incidence of disease before it becomes problematic and requires acute care?"
For instance, in our most recent negotiations with the managed care plans, insurers have been much more interested in paying for quality instead of having a traditional negotiation over rate. Overall, the work plan is toward more global payments, capitation [fixed payment remitted at regular intervals to a medical provider by a managed care organization for an enrolled patient], accountable care organization models and the like.
Q: You mentioned capitation. Do you see that type of pursuit failing like it did in the early 1990s?
GD: We are in a much more data-rich environment now, and there is a much higher occurrence of hospital employment of physicians. This wasn't the case then. [Hospitals and physicians] were misaligned and literally fighting over that capitated dollar back then. We're beginning to see more alignment through employment or other mechanisms because everyone realizes the old model is unsustainable.
Q: What financial issues worry you most going into the next year, and conversely, what trends are encouraging?
GD: The most immediate danger is the upcoming sequestration, if it goes through. That wasn't part of the healthcare reform conversation, but that will have to be faced first.
Longer term, as an academic health center, we're most concerned about things like reimbursement for medical education.
Another piece that is not [Medicare-related] — Georgia Health Sciences Medical Center is the state's second-highest provider of Medicaid services, and that's a more immediate issue given both the state's fiscal condition, as well as the fact that we are starting at reductions to [disproportionate share hospital] payments due to healthcare reform. And right now, we're in position where the state doesn't seem to be inclined to expand Medicaid, which would have offset some of that reduction through expanded coverage.
This year will be a continuation of trying to take costs out of our system. Last year, at this time, we were uncertain about how the Affordable Care Act would land in the Supreme Court, but you had to anticipate whatever would happen over the long term would require a reduction in payments to providers. Between the federal deficit and state budget issues, there is going to be less money for healthcare services in the future than there is today. We are taking costs out through whatever means we can. We are looking at overhead and supply chain, and we are trying to be as efficient as we can at the highest level of quality — for example, in terms of patient throughput.
In terms of encouraging trends, that's a tough one. [Laughs] While Georgia doesn't plan to expand Medicaid, they are looking to redesign the program. As one of largest providers in the state, we are actively involved in this process. We have the second-largest children's hospital in the state, so there is much work to be done around the pediatric population as well. But those types of changing models and getting everyone aligned are encouraging — they are just very challenging.
Q: Conversations about the legitimacy of tax exemptions for non-profit hospitals and health systems have hit a fever pitch within the past year or so. Do you eventually see tax exemptions fading away for hospitals as more people become insured in the coming years, assuming charity care then goes down?
GD: I think there will always be a place for hospital tax exemption. There's more to it than just the provision of charity care. There are a lot of other benefits for communities to have a not-for-profit hospital or health system in their area. As an academic center, there are also ancillary benefits that would not necessarily exist with a profit motive and shareholders. For example, there's involvement with other community organizations, research and the public health aspect. The biggest difference is that we reinvest whatever margins we have back into community benefit programs like these.
Think about it this way: A for-profit entity is going to have facilities in markets where it can be profitable. A hospital can't be profitable in every community. That's part of why having a not-for-profit provider is a plus.
It's getting harder, of course, for standalone facilities to maintain their presence in their communities. There are lots of different combinations, for-profits taking over not-for-profits, for example, and that's a trend that will be interesting to watch.
Q: You said Georgia's Medicaid program is a major part of Georgia Health Sciences Medical Center and other safety-net institutions. What other specific issues in Georgia are you following with utmost attention?
GD: We're sensitive to whatever happens to the Medicaid program in Georgia. That's probably our number one concern currently. As an academic health center, while we're not owned by the university system, we're still a component of it. Other state budget cuts that affect the university will impact us in tangential ways.
The economy and unemployment situation in Georgia is also a concern. At least in our immediate service area, the central Savannah River area, our unemployment rate is still persistently above the national average despite the fact we have many government employers. Many of those employers are military, like Fort Gordon, and assuming sequestration comes to pass, that will adversely affect those organizations. That has obvious impacts on safety-net hospitals having to take care of folks without coverage or those who become unemployed.
Q: Do you have any final thoughts or recommendations on how other hospital CFOs like you can best prepare for the upcoming fiscal year?
GD: You always have to guard your balance sheet. That is key. A strong balance sheet will protect you during a downturn. For example, another major local hospital system with a very strong balance sheet has been able to weather a lot of change due to reimbursement reduction and reinvestment needs — investments into the clinical and financial information systems and a changing reimbursement outlook. They are able to weather that because they have a strong balance sheet. For some, that's one of the many reasons they are partnering [with other organizations] because of a lack of liquidity or access to capital. Those go hand-in-hand.
The PPACA, which has been considered the most significant legislation to the U.S. healthcare system since Medicare was adopted, went through a rigorous Supreme Court review and will now officially give hospitals, health systems, physicians and other healthcare stakeholders large projects — such as value-based purchasing and quality metric monitoring — to tackle.
Greg Damron, vice president for finance and CFO of Georgia Health Sciences Medical Center in Augusta, Ga., shares his thoughts on what the most important healthcare financial topics will be in FY 2013 and what hospitals can do to weather the impending storms from Medicare, Medicaid and other healthcare reforms.
Question: The federal government's 2013 fiscal year just started Oct. 1. There is a slew of big changes coming toward hospitals and their Medicare revenue, such as the readmissions program, value-based purchasing and others. How would you describe this upcoming fiscal year for you and your organization, and is it finally time financial officers can put volume-based care in the rear-view mirror?
Greg Damron: Ultimately, volume-based reimbursement for care will largely be a thing of the past. In the most immediate term, we need to continue to focus on quality metrics, value-based purchasing and, particularly, readmission rates. In the long term, we need more primary care, preventive care and population management. Since we are Georgia's only public academic health center, we have to ask, "How do we get out into the state and reduce the incidence of disease before it becomes problematic and requires acute care?"For instance, in our most recent negotiations with the managed care plans, insurers have been much more interested in paying for quality instead of having a traditional negotiation over rate. Overall, the work plan is toward more global payments, capitation [fixed payment remitted at regular intervals to a medical provider by a managed care organization for an enrolled patient], accountable care organization models and the like.
Q: You mentioned capitation. Do you see that type of pursuit failing like it did in the early 1990s?
GD: We are in a much more data-rich environment now, and there is a much higher occurrence of hospital employment of physicians. This wasn't the case then. [Hospitals and physicians] were misaligned and literally fighting over that capitated dollar back then. We're beginning to see more alignment through employment or other mechanisms because everyone realizes the old model is unsustainable.
Q: What financial issues worry you most going into the next year, and conversely, what trends are encouraging?
GD: The most immediate danger is the upcoming sequestration, if it goes through. That wasn't part of the healthcare reform conversation, but that will have to be faced first.
Longer term, as an academic health center, we're most concerned about things like reimbursement for medical education.
Another piece that is not [Medicare-related] — Georgia Health Sciences Medical Center is the state's second-highest provider of Medicaid services, and that's a more immediate issue given both the state's fiscal condition, as well as the fact that we are starting at reductions to [disproportionate share hospital] payments due to healthcare reform. And right now, we're in position where the state doesn't seem to be inclined to expand Medicaid, which would have offset some of that reduction through expanded coverage.
This year will be a continuation of trying to take costs out of our system. Last year, at this time, we were uncertain about how the Affordable Care Act would land in the Supreme Court, but you had to anticipate whatever would happen over the long term would require a reduction in payments to providers. Between the federal deficit and state budget issues, there is going to be less money for healthcare services in the future than there is today. We are taking costs out through whatever means we can. We are looking at overhead and supply chain, and we are trying to be as efficient as we can at the highest level of quality — for example, in terms of patient throughput.
In terms of encouraging trends, that's a tough one. [Laughs] While Georgia doesn't plan to expand Medicaid, they are looking to redesign the program. As one of largest providers in the state, we are actively involved in this process. We have the second-largest children's hospital in the state, so there is much work to be done around the pediatric population as well. But those types of changing models and getting everyone aligned are encouraging — they are just very challenging.
Q: Conversations about the legitimacy of tax exemptions for non-profit hospitals and health systems have hit a fever pitch within the past year or so. Do you eventually see tax exemptions fading away for hospitals as more people become insured in the coming years, assuming charity care then goes down?
GD: I think there will always be a place for hospital tax exemption. There's more to it than just the provision of charity care. There are a lot of other benefits for communities to have a not-for-profit hospital or health system in their area. As an academic center, there are also ancillary benefits that would not necessarily exist with a profit motive and shareholders. For example, there's involvement with other community organizations, research and the public health aspect. The biggest difference is that we reinvest whatever margins we have back into community benefit programs like these.
Think about it this way: A for-profit entity is going to have facilities in markets where it can be profitable. A hospital can't be profitable in every community. That's part of why having a not-for-profit provider is a plus.
It's getting harder, of course, for standalone facilities to maintain their presence in their communities. There are lots of different combinations, for-profits taking over not-for-profits, for example, and that's a trend that will be interesting to watch.
Q: You said Georgia's Medicaid program is a major part of Georgia Health Sciences Medical Center and other safety-net institutions. What other specific issues in Georgia are you following with utmost attention?
GD: We're sensitive to whatever happens to the Medicaid program in Georgia. That's probably our number one concern currently. As an academic health center, while we're not owned by the university system, we're still a component of it. Other state budget cuts that affect the university will impact us in tangential ways.
The economy and unemployment situation in Georgia is also a concern. At least in our immediate service area, the central Savannah River area, our unemployment rate is still persistently above the national average despite the fact we have many government employers. Many of those employers are military, like Fort Gordon, and assuming sequestration comes to pass, that will adversely affect those organizations. That has obvious impacts on safety-net hospitals having to take care of folks without coverage or those who become unemployed.
Q: Do you have any final thoughts or recommendations on how other hospital CFOs like you can best prepare for the upcoming fiscal year?
GD: You always have to guard your balance sheet. That is key. A strong balance sheet will protect you during a downturn. For example, another major local hospital system with a very strong balance sheet has been able to weather a lot of change due to reimbursement reduction and reinvestment needs — investments into the clinical and financial information systems and a changing reimbursement outlook. They are able to weather that because they have a strong balance sheet. For some, that's one of the many reasons they are partnering [with other organizations] because of a lack of liquidity or access to capital. Those go hand-in-hand.
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