For almost 14 years, Stephen Kimmel has led the financial strategies of Hendrick Health System based in Abilene, Texas, a city of more than 115,000 people.
Hendrick is one of the biggest and most stable providers in central Texas. In fiscal year 2011, the health system recorded more than $322.2 million in revenue and profit of $28 million — a margin of 8.5 percent. Mr. Kimmel made the jump from public accounting to the healthcare sphere, and in his decade-plus of working at Hendrick — which includes the 522-bed Hendrick Medical Center, a rehabilitation hospital and several other services — he's learned what it takes to be an effective financial leader today.
"Healthcare is a very people-intensive business, and I actually enjoy working with people," Mr. Kimmel says wryly, adding that a sense of humor helps break many CFO stereotypes as well.
Here, Mr. Kimmel shares his take on how Medicaid expansion would benefit Hendrick in the deeply red state, why communication is the most important trait for hospital CFOs today and why new payment models are like breaking in a new pair of shoes.
Question: What is it like to be CFO of a standalone, 522-bed regional medical center right now? What issues/problems keep you up at night — and what issues make the job worthwhile?
Stephen Kimmel: I don't think it's much different than being a CFO of any other hospital right now. It's extremely challenging, primarily with healthcare reform and all of the changes we're seeing in the industry as a result of healthcare reform. Whether that's reductions in reimbursement, trying to find out ways to pull costs out of the system or improving alignment with physicians, those are the most challenging issues, and those are the same issues that keep me waking up at 5 in the morning.
To be honest, it's those same things that keep me up that make it worthwhile. Challenges always seem to exist in healthcare. In my career, I can go back to the Balanced Budget Act of 1997, or when DRGs were implemented — there's always some significant event. What makes it worthwhile is trying to find solutions to those problems and working with a good team of people to find solutions to those problems.
Q: Since you mentioned healthcare reform, how do you see it playing out? Will accountable care organizations, bundled payments, value-based purchasing, etc., ultimately help the delivery system?
SK: I will say what's different about healthcare reform now is the scope of things that are being affected by it. I do think we need to ask how the various payment systems, whether it's ACOs, bundled payments or value-based purchasing, will work in conjunction with health insurance exchanges. What are employers going to do with their insurance coverage? Will we see, as some people fear, some employers providing payments to employees to go shop on the exchanges? There are so many unknowns with healthcare reform as to what direction the market is going to go.
[Payment models] provide one of the biggest challenges for us. I do think you're going to see those payment systems adopted in some shape. Whether they affect our region because of the demographics and population, I'm not sure how pervasive those will be. In larger areas, those will be very pervasive. But we will have to deal with them to some extent.
I think those changes coming from healthcare reform are forcing us into an area that we're not very comfortable with. And if you're not comfortable, it forces you to adapt. As a result, I don't know which of those payment systems will survive or not, but in the end, we will find ways to reduce costs of healthcare for the patients and people in the regions that we serve — and I think that's going to be the good part of healthcare reform. This is just a difficult period of change to work through.
Q: So these changes like value-based purchasing and ACOs are almost like breaking in a pair of new shoes?
SK: That's a good way to put it. It's tough at first, but eventually, they get comfortable.
Q: You are based in Texas, the state with the highest uninsured rate. Currently, Gov. Rick Perry has opposed the Patient Protection and Affordable Care and the Medicaid expansion affiliated with it. Would Medicaid expansion help your hospital and health system?
SK: The state government has indicated a continued opposition to expanding Medicaid within the state. There's lots of discussion in the state about the position he's taking. Our state is very conservative. But there's also the opportunity, hopefully, that discussions may take place that maybe will break that position.
It would be very important for Hendrick Medical Center for the Medicaid expansion to take place. If you look at our primary market area, the tentative numbers indicate that expanding Medicaid, according to the criteria, would add around 10,000 additional Medicaid lives. These are very rough numbers, but potentially that would add around $7 million annually. What you have to keep in mind is that $7 million offsets roughly $12 million in payment reductions through healthcare reform, the American Taxpayer Relief Act of 2012 and sequestration. When you throw all those things together, we have some significant challenges ahead of us, so it would be nice to have Medicaid to partially offset that.
Unfortunately, for organizations like ours, at least with the current position the state is taking, we will see many negative effects of healthcare reform without receiving all the positive effects. But I have a lot of confidence in the state's leadership, and in the end, they will do what is right for the state of Texas.
Q: What are your thoughts on the healthcare consolidation trend right now? In Texas, for example, there is a pending mega-merger between Baylor and Scott & White. Do you see this as a positive, negative or net-neutral for healthcare?
SK: It's hard for me to answer whether I see that as a positive or negative. I think it's a natural outcome of what we see happening in the industry. With healthcare reform, sequestration and all of these cuts, as in any other business enterprise, hospital systems are going to look at ways to find efficiencies through scale. I think what you see happening with mergers is a natural result of pressure that's being applied through all of the changes.
I would probably say I was somewhat surprised by the Baylor and Scott & White merger. Both are somewhat larger organizations. Typically, I think we're more accustomed to seeing smaller organizations merging with larger ones. To see the scale of Baylor and Scott & White was somewhat surprising to us, but after stepping back and looking at that transaction, it makes a lot of sense for the two systems. They both bring strengths to the relationship. They cover different market areas. It seems to have the potential to be a great system when it's combined. I think that could be good for patients they serve.
There's a lot of unknown about what the ripple effects are of these large mergers. Knowing people from both organizations, their intent is to do the best good for the patients they serve, and the merger will serve them well.
Q: Do you have any anecdotes or stories that exemplify your tenure at Hendrick?
SK: At Hendrick Health System, we serve a unique area of Texas. It's very broad and wide, and we're in open plains, so we cover a lot of territory in our market area.
Hendrick has always been very focused about goals. We set five-year targets, financial and quality-based, and we set increasingly challenging expectations. We stay very focused on information and data, and we have many dashboards we've implemented, so we are very data-driven to achieve those targets. We have great people that respond well to that.
This [answer] is not really related to any individual or me being here. It's about how all of us work together toward common goals that make us a better system, and that's what makes Hendrick great.
Q: What makes a good hospital financial leader, in your book? And what is your relationship like with Hendrick CEO Tim Lancaster and the entire executive team?
SK: To be a good financial leader, you have to have the basic skill set that everyone expects, but you have to be creative and a little more detailed than people may think. But most importantly — and it's a skill set most of us in school didn't have an appreciation for — effective communication skills. That is probably more important than all the other skills, quite frankly.
Everyone brings a different skill to the table. With reimbursement moving more toward quality and value-based payment models, the financial guy can't just sit there and worry about the financial piece. We're concerned about quality and patient satisfaction. We have to work together to hit those goals, and that communication is critical.
I've been very blessed throughout my career. I think Tim and I have a great relationship — you may have to ask him that [laughs] — but so do all of us on the executive team, and I think that's a critical component to success. Not only do we have to communicate well, but we also have to respect each other.
Hendrick is one of the biggest and most stable providers in central Texas. In fiscal year 2011, the health system recorded more than $322.2 million in revenue and profit of $28 million — a margin of 8.5 percent. Mr. Kimmel made the jump from public accounting to the healthcare sphere, and in his decade-plus of working at Hendrick — which includes the 522-bed Hendrick Medical Center, a rehabilitation hospital and several other services — he's learned what it takes to be an effective financial leader today.
"Healthcare is a very people-intensive business, and I actually enjoy working with people," Mr. Kimmel says wryly, adding that a sense of humor helps break many CFO stereotypes as well.
Here, Mr. Kimmel shares his take on how Medicaid expansion would benefit Hendrick in the deeply red state, why communication is the most important trait for hospital CFOs today and why new payment models are like breaking in a new pair of shoes.
Question: What is it like to be CFO of a standalone, 522-bed regional medical center right now? What issues/problems keep you up at night — and what issues make the job worthwhile?
Stephen Kimmel: I don't think it's much different than being a CFO of any other hospital right now. It's extremely challenging, primarily with healthcare reform and all of the changes we're seeing in the industry as a result of healthcare reform. Whether that's reductions in reimbursement, trying to find out ways to pull costs out of the system or improving alignment with physicians, those are the most challenging issues, and those are the same issues that keep me waking up at 5 in the morning. To be honest, it's those same things that keep me up that make it worthwhile. Challenges always seem to exist in healthcare. In my career, I can go back to the Balanced Budget Act of 1997, or when DRGs were implemented — there's always some significant event. What makes it worthwhile is trying to find solutions to those problems and working with a good team of people to find solutions to those problems.
Q: Since you mentioned healthcare reform, how do you see it playing out? Will accountable care organizations, bundled payments, value-based purchasing, etc., ultimately help the delivery system?
SK: I will say what's different about healthcare reform now is the scope of things that are being affected by it. I do think we need to ask how the various payment systems, whether it's ACOs, bundled payments or value-based purchasing, will work in conjunction with health insurance exchanges. What are employers going to do with their insurance coverage? Will we see, as some people fear, some employers providing payments to employees to go shop on the exchanges? There are so many unknowns with healthcare reform as to what direction the market is going to go.
[Payment models] provide one of the biggest challenges for us. I do think you're going to see those payment systems adopted in some shape. Whether they affect our region because of the demographics and population, I'm not sure how pervasive those will be. In larger areas, those will be very pervasive. But we will have to deal with them to some extent.
I think those changes coming from healthcare reform are forcing us into an area that we're not very comfortable with. And if you're not comfortable, it forces you to adapt. As a result, I don't know which of those payment systems will survive or not, but in the end, we will find ways to reduce costs of healthcare for the patients and people in the regions that we serve — and I think that's going to be the good part of healthcare reform. This is just a difficult period of change to work through.
Q: So these changes like value-based purchasing and ACOs are almost like breaking in a pair of new shoes?
SK: That's a good way to put it. It's tough at first, but eventually, they get comfortable.
Q: You are based in Texas, the state with the highest uninsured rate. Currently, Gov. Rick Perry has opposed the Patient Protection and Affordable Care and the Medicaid expansion affiliated with it. Would Medicaid expansion help your hospital and health system?
SK: The state government has indicated a continued opposition to expanding Medicaid within the state. There's lots of discussion in the state about the position he's taking. Our state is very conservative. But there's also the opportunity, hopefully, that discussions may take place that maybe will break that position.
It would be very important for Hendrick Medical Center for the Medicaid expansion to take place. If you look at our primary market area, the tentative numbers indicate that expanding Medicaid, according to the criteria, would add around 10,000 additional Medicaid lives. These are very rough numbers, but potentially that would add around $7 million annually. What you have to keep in mind is that $7 million offsets roughly $12 million in payment reductions through healthcare reform, the American Taxpayer Relief Act of 2012 and sequestration. When you throw all those things together, we have some significant challenges ahead of us, so it would be nice to have Medicaid to partially offset that.
Unfortunately, for organizations like ours, at least with the current position the state is taking, we will see many negative effects of healthcare reform without receiving all the positive effects. But I have a lot of confidence in the state's leadership, and in the end, they will do what is right for the state of Texas.
Q: What are your thoughts on the healthcare consolidation trend right now? In Texas, for example, there is a pending mega-merger between Baylor and Scott & White. Do you see this as a positive, negative or net-neutral for healthcare?
SK: It's hard for me to answer whether I see that as a positive or negative. I think it's a natural outcome of what we see happening in the industry. With healthcare reform, sequestration and all of these cuts, as in any other business enterprise, hospital systems are going to look at ways to find efficiencies through scale. I think what you see happening with mergers is a natural result of pressure that's being applied through all of the changes.
I would probably say I was somewhat surprised by the Baylor and Scott & White merger. Both are somewhat larger organizations. Typically, I think we're more accustomed to seeing smaller organizations merging with larger ones. To see the scale of Baylor and Scott & White was somewhat surprising to us, but after stepping back and looking at that transaction, it makes a lot of sense for the two systems. They both bring strengths to the relationship. They cover different market areas. It seems to have the potential to be a great system when it's combined. I think that could be good for patients they serve.
There's a lot of unknown about what the ripple effects are of these large mergers. Knowing people from both organizations, their intent is to do the best good for the patients they serve, and the merger will serve them well.
Q: Do you have any anecdotes or stories that exemplify your tenure at Hendrick?
SK: At Hendrick Health System, we serve a unique area of Texas. It's very broad and wide, and we're in open plains, so we cover a lot of territory in our market area.
Hendrick has always been very focused about goals. We set five-year targets, financial and quality-based, and we set increasingly challenging expectations. We stay very focused on information and data, and we have many dashboards we've implemented, so we are very data-driven to achieve those targets. We have great people that respond well to that.
This [answer] is not really related to any individual or me being here. It's about how all of us work together toward common goals that make us a better system, and that's what makes Hendrick great.
Q: What makes a good hospital financial leader, in your book? And what is your relationship like with Hendrick CEO Tim Lancaster and the entire executive team?
SK: To be a good financial leader, you have to have the basic skill set that everyone expects, but you have to be creative and a little more detailed than people may think. But most importantly — and it's a skill set most of us in school didn't have an appreciation for — effective communication skills. That is probably more important than all the other skills, quite frankly.
Everyone brings a different skill to the table. With reimbursement moving more toward quality and value-based payment models, the financial guy can't just sit there and worry about the financial piece. We're concerned about quality and patient satisfaction. We have to work together to hit those goals, and that communication is critical.
I've been very blessed throughout my career. I think Tim and I have a great relationship — you may have to ask him that [laughs] — but so do all of us on the executive team, and I think that's a critical component to success. Not only do we have to communicate well, but we also have to respect each other.
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