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The Power of Strong Financial Risk Management in Healthcare

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The Power of Strong Financial Risk Management in Healthcare The Power of Strong Financial Risk Management in Healthcare Organizations Joe Guarracino Mark Johnson Ronald Knaus Dan Moncher John Orsini Kerri Schroeder Steve Campisi Senior Vice President & CFO Senior Vice President & CFO Senior Vice President & CFO Senior Vice President & CFO Senior Vice President & CFO Senior Vice President & Director of Institutional The Brooklyn Hospital Center UnityPoint Health Spectrum Health Firelands Regional Medical Cadence Health Specialized Industries Credit Thought Leadership Center Products Executive U.S. Trust Bank of America Merrill Lynch The Power of Strong Financial Risk Management in Healthcare Organizations s healthcare moves away and two healthcare finance ex- Credit Products Executive at from a fee-for-service perts discuss the challenges and Bank of America Merrill Lynch; payment environment to solutions around risk manage- and Steve Campisi, Director of Aone that encourages reimburse- ment, how trends like consolida- Institutional Thought Leadership ment for quality and value, chief tion and health IT spending fit in at U.S. Trust. financial officers face a damning and how other finance executives reality: Revenue and income will should manage risks in their bal- The essence of risk man- be strained as hospitals make a ance sheets and portfolios today. agement in healthcare push to keep patients out of their The participants included: Joe four walls when necessary. When asked what risk manage- Guarracino, Senior Vice Presi- ment meant for their hospitals This type of seismic shift natu- dent and CFO of The Brooklyn and health systems, the CFOs rally exposes any organization to (N.Y.) Hospital Center; Mark agreed on several core compo- increased risks. For hospitals and Johnson, Senior Vice President nents. Risk management solu- health systems, how will they be and CFO of UnityPoint Health tions for providers today must able to offer high-quality care in West Des Moines, Iowa; involve an enterprise-wide effort, with fewer dollars? How can they Ronald Knaus, Senior Vice not just a priority in the C-suite, make investments for the future President and CFO of Spectrum they said. For instance, Mr. with restrained capital? How can Health in Grand Rapids, Mich.; Guarracino said his organization they retain a diligent, hardwork- Dan Moncher, Executive Vice engages and educates physicians ing staff as expenses rise? What President and CFO of Firelands to create a culture that will lead if another economic collapse like Regional Medical Center in San- to the best possible outcomes. 2008 occurs and decimates the dusky, Ohio; John Orsini, Exec- “We’re trying to engage our clini- investment portfolio? utive Vice President and CFO of Cadence Health Risk management has become in Winfield, Ill.; one of the most important issues “Our clients are Kerri Schro- of the day for healthcare provid- managing risks that are eder, Senior ers, and CFOs sit in the hot seat. multidimensional...” Vice President In an exclusive roundtable, five and Special- Kerri Schroeder, Senior Vice President and Specialized Industries hospital and health system CFOs ized Industries Credit Products Executive at Bank of America Merrill Lynch The Power of Strong Financial Risk Management in Healthcare Organizations cians to be partners in this,” he physicians and having internal and you know what the balance said. processes, people and systems sheets are going to look like. You to manage all of the operational do your financial due diligence In addition, risk management aspects of the hospital.” and forward-looking conditions, must factor in the organization’s so you can model to expect what overarching goals of care quality, Consolidation: Why inte- the balance sheets are, and what patient safety and patient/em- gration is key the synergistic opportunities are. ployee satisfaction. The bigger issue in a merger is The term “risk” was also de- Hospital mergers and acquisi- how you approach the integra- tions have un- tion work.” “The biggest risk is doubtedly been more operational on the rise in Mr. Knaus has also been in- and cultural than the healthcare since volved with M&A activity at Spectrum. Last year, the system balance sheet...” 2009, and these transactions acquired two hospitals — Me- John Orsini, Executive Vice President costa County Medical Center in and CFO of Cadence Health bring their own sets of risks. Big Rapids, Mich., and Luding- ton (Mich.) Hospital. The two fined in several ways. When it Mr. Orsini, who hospitals were very different: comes to the balance sheets, is working through a merger MCMC was a county-owned the panelists all agreed several between Cadence and North- hospital with a weak balance metrics best encompass risk for western Memorial HealthCare sheet, while Ludington had a hospitals: days cash on hand, in Chicago, said financial issues more solid financial foundation. debt-to-capitalization, debt are generally ironed out during As health systems continue to service coverage, funded status the evaluation process. But grow, knowing how the next of the pension plan, risk-based cultural issues take more time hospital will fit into the portfolio capital. On a broader level, risk and nuance to handle. Therefore, is essential, he said. also permeates financial execu- he advised the tives’ day-to-day tasks. leaders of hospi- “We try to make sure tals and health “Our clients are managing risk systems going we look at every project that are multidimensional: They through mergers that comes before the have to manage strategic risk, to ensure their senior management which is having the ability to management team...” respond to changes in the ex- teams share the Dan Moncher, Executive Vice President and ternal environment, whether same culture CFO of Firelands Regional Medical Center those challenges are regulatory and agree on or competitive, market risks strategies and tactics. “In both cases, it’s a lot of work that might impact the balance to integrate the organizations,” sheet,” Ms. Schroeder of Bank of “The biggest risk is more op- Mr. Knaus said. “One is an hour America Merrill Lynch said. “It’s erational and cultural than the away, and the other is an hour also operational risk, including balance sheet,” Mr. Orsini said. and a half away. So we just have the alignment of objectives with “The balance sheet is fairly static, to look at the balance sheet that The Power of Strong Financial Risk Management in Healthcare Organizations is coming in and their financial cifically electronic health records capital is limited,” said Mr. Guar- performance.” — continue to absorb a higher racino of The Brooklyn Hospital share of capital dollars, meaning Center, an independent hospi- In addition, different types of the appetite for new projects is tal that predominantly serves transactions bring about differ- still there. The key to tackling the low-income patients. “I always ent risks for all parties involved. risks surrounding today’s capi- joke around: We have to make “Consolidation in healthcare is tal spending involves thorough our investments like we’re the taking place in a variety of mod- evaluation, the panelists said. Tampa Bay Rays, not like we’re els today, from the more infor- the New York Yankees. And I’m mal affiliations to full-on merg- “We try to make sure we look a Yankees fan. If you have the ers and the creation integrated at every project that comes wherewithal, you can take a little health systems,” Ms. Schroeder before the senior management bit more risk for more return. said. “The complexity and risk of team, especially the significant Unfortunately, we can’t do that.” the transaction increases along dollar projects that continuum.” like IT, capital renovations “By being aware, However, hospital and health or buildings,” getting up, talking to system leaders can advance their Mr. Moncher overall goals through transac- people in the other of Firelands tions, given that they keep their parts of the org ...” Regional said. objectives in mind, Mr. Campisi Steve Campisi, Director of Institutional “We do an ROI: Thought Leadership at U.S. Trust said. “It’s a lot of flux, but it’s an What’s the long- opportunity,” he said. “It’s the term benefit? Do they enhance Overall, Mr. Guarracino echoed opportunity to see it as an op- patient care? Do they enhance Mr. Moncher in saying the solu- portunity.” quality? Do they potentially en- tion is to invest wisely and be The rise of new capital hance reimbursement? We try to thoughtful in selecting vendors. strategically place capital dollars “We’re trying to make sure we spending initiatives where we’re going to get some choose our partners correctly,” Expansions and new construc- longer-term benefit.” he said. tion projects are less common UnityPoint, Spectrum, Cadence The nuances of today’s in- today for hospitals and health and other multihospital systems vestments and long-term systems, as their strategies shift often have few problems ac- away from large inpatient hubs cessing the capital markets, but assets to more community health facili- smaller, independent organiza- In 2008, the financial collapse ties. However, health IT — spe- tions have seen significantly impacted numer- some speed ous healthcare organizations bumps as of “It’s a challenge for us. across the country. Mr. Moncher late. Our access to capital is said Firelands Regional realized limited...” “It’s a chal- some losses because the markets Joe Guarracino, Senior Vice President and lenge for us. forced the hospital to be in a CFO of The Brooklyn (N.Y.) Hospital Center Our access to collateral posting position. Mr. The Power of Strong Financial Risk Management in Healthcare Organizations Orsini was at San Diego-based liquid bonds, having diversifica- have also considered monetizing Scripps Health at the time, and tion in the growth piece through assets, such as medical office he said the system “had tremen- balanced exposure to both tradi- buildings or selling underuti- dous unrealized losses.” tional equity and alternatives is lized real estate.” important.” “Our investment committee got Mr.
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