Many forces influence a hospital or health system’s bottom line. When it comes to shoring up a healthcare organization’s finances, executives usually come back to two principles: cut costs or expand revenue.
Outsourcing and transactions fit into both of those categories, and both financial strategies have been front and center in the hospital sector this year.
In a webinar on April 3, Scott Becker, JD, CPA, publisher of Becker’s Healthcare and partner with McGuireWoods in Chicago, moderated a panel discussion with five healthcare leaders: Todd Mello, partner and co-founder of HealthCare Appraisers; Nader Samii, CEO of National Medical Billing Services; Stuart Hanson, director of healthcare solutions for Citi Enterprise Payments; Jim Bohnsack, vice president of business development for TransUnion Healthcare; and Larry Hertzler, vice president of operations support for Aramark Healthcare Technologies. Together, the panel hashed out some of the biggest trends that have emerged today within hospital finance, outsourcing and transactions.
In March, Minneapolis-based Fairview Health Services and Fargo, N.D.-based Sanford Health said they were exploring a potential merger. This has been one of many major deals within the merger and acquisition market in the past two-plus years, and these types of deals are so prevalent because of the economies of scale gained in supply purchases, payor contracts, and other areas.
“Everybody is looking at ways to lower their cost position,” Mr. Hertzler of Aramark said. “The large systems that are able to leverage system-wide deals are able to get significantly better deals than smaller ones. There are savings to be had.”
Mr. Mello of HealthCare Appraisers said from his experience, hospitals are getting involved in the M&A market in three common ways. The most common is hospitals or systems acquiring other hospitals or systems. Another area, which Mr. Mello said has especially heated up in the past 30 months, is hospitals acquiring physician practices. Finally, many hospitals are acquiring independent practice associations. This is especially prevalent in California.
Even though the hospital M&A market has led to many standalone hospitals affiliating with larger organizations, many independent hospitals can still keep their independence. However, it’s mostly a case-by-case basis.
Mr. Mello said it’s more common in rural communities for independent hospitals to still be unaffiliated. Mr. Samii of National Medical Billing Services also added that there are many joint ventures and loose affiliations between providers instead of full balance sheet mergers.
Outsourcing certain services, such as the revenue cycle, food or environmental services, is a decision that takes a lot of thought and foresight. Mr. Bohnsack of TransUnion said hospitals that outsource successfully are first looking at their core competencies to see what they do well.
“If a hospital knows the revenue cycle isn’t a core competency, then it can leverage the scale of a large for-profit system to grow,” he said. “Hospitals can lower costs going forward, and in turn, [they] can focus on delivering high-quality care to [their] patient population.”
Mr. Hanson of Citi said he has seen a tremendous rise in how much patients have to pay for their bills, mostly due to the rise of high-deductible health plans and health savings accounts. This is creating new challenges for hospitals, which now need to focus on collecting more from patients or suffer lost revenue or increased bad debt.
Mr. Hanson said many hospitals are looking to “digital wallet” based Web and mobile payment options that make it easy for patients to see what they need to pay and how to pay it. These options, similar to PayPal, can reduce late or missed payments and increase revenue.
The panelists said many of the top hospital leaders today — such as outgoing Kaiser Permanente CEO George Halvorson and Cleveland Clinic CIO Martin Harris, MD — are successful because they find best practices and share them with the industry. In addition, great healthcare leadership relies on people who prepare for change in advance as opposed to reacting after the fact, Mr. Mello said.
Mr. Hertzler added that visionary healthcare executives today can decipher what the truly wasteful initiatives are and how patient care is impacted by every major decision. “[Successful leaders are] looking beyond the commodity portion of costs and understanding the tradeoff between costs and clinical care,” he said. “Spending a little amount of money on something you don’t need is still wasting money.”
Some hospitals and health systems are gradually turning to private equity firms for access to capital and innovative joint ventures.
“When it’s been successful, private equity firms have brought best practice approaches from outside of healthcare, and it’s a fresh perspective,” Mr. Samii said. “Some of the things I’ve seen them do are getting the right people, aligning them, focusing them and rewarding them.”
When asked what are the best initiatives hospitals have undertaken in the past 12 months, panelists said new outsourcing ventures and operational efficiency strategies sit above the fold.
Mr. Hanson, Mr. Bohnsack, and Mr. Hertzler said many of the big for-profit hospital operators have begun maximizing their revenue cycle strengths. For example, Nashville, Tenn.-based Hospital Corporation of America has started Parallon Business Solutions to enhance business capabilities at HCA hospitals as well as at other hospitals. In addition, Dallas-based Tenet Healthcare has continued to build upon its outsourcing firm Conifer Health Solutions, which focuses on revenue cycle, compliance, and other back-office hospital functions.
Mr. Samii noted that Six Sigma and Lean — management approaches that focus on employee-driven solutions to eliminate wasteful processes — continues to become a more prominent management mantra for hospital CEOs and CFOs as well.
“It’s very powerful in terms of eliminating excess waste and creating very efficient organizations with low error rates,” he said. “Reducing administrative waste is one of the most important things from the healthcare perspective right now.”
Mr. Samii concluded that the transition from ICD-9 to ICD-10 is going to be a “dramatic” challenge for providers, vendors and software systems, yet conversation around ICD-10 remains idle. He said with 18 months to go until ICD-10’s go-live date — Oct. 1, 2014 — providers will need to become more aggressive in pursuing ways to handle the transition.
Listen to the webinar by clicking here.
Ref. Becker’s Healthcare
This post was first published April 5, 2013 and was updated July 29, 2020.