CFO Roundtable: Finance challenges in Kentucky’s changing environment

Medical News recently spoke with local healthcare finance experts to learn about the challenges they face in the changing healthcare environment in Kentucky. The executives were Holly Hodge with Bluegrass Care Navigators, Jim Mattingly with ResCare, Samuel Riddick with Family Health Centers and Christopher Roszman with Centerstone Kentucky. Below are highlights from our conversations.

Medical News: As the healthcare landscape continues to evolve, how do you help your organization strengthen its financial health?

Holly Hodge, CFO & VP of Finance, Bluegrass Care Navigators

Holly Hodge, Bluegrass Care Navigators: Data collection plays a primary role in strengthening our financial health. We leverage data collection to make financial decisions and to identify the value we provide our partners in addressing the unmet needs of the aging population. Determining what is important to our partners helps us to determine what data to collect, how to provide services that meets their needs and how to use the data to position us to participate in alternative payment models as opportunities arise.

We have multiple lines of business and constantly examine the data we collect as we know one framework does not work for all lines. For example, what may be most important for our transitional care program where we transition patients from the hospital to home with the goal of preventing hospital readmissions is different from what is important to demonstrate with our palliative care program. Identifying what is important to both external and internal users, whether it is an existing program or a new one, ultimately strengthens our financial health.

 

Jim Mattingly, CFO, ResCare

Jim Mattingly, ResCare: ResCare’s financial strength is critical in our transformation as we evolve with the changing healthcare industry landscape. A company’s financial health has many meanings, including its balance sheet, earnings trend and potential, efficiency of its operations and its investment in people.

ResCare has made significant strides in each of these areas, specifically making investments in multiple enterprise technology systems and new digital assets, including websites; investments in new processes driving efficiencies and lean practices; strengthening relationships with key payors (including Medicare, Medicaid, and private insurers); and identifying efficiencies through improvements in billing, collections and cash management operations.

We are diversifying our business mix through new development and acquisitions, along with organic growth, and have invested in training, pay and collaboration tools to benefit our employees. Through an aggressive year of related activities, ResCare is poised for rapid growth and diversification to support a community-based continuum of health services businesses.

 

Samuel Riddick, CFO, Family Health Centers

Samuel Riddick, Family Health Centers: Downside pressures on primary care providers are accelerating, after a period of strong and steady recovery from the recession and financial crisis of 2008 and the enactment of the Affordable Care Act. The negative outlook is due to a multitude of factors, including: top-line revenue constraints leading to operating margin compression; Medicaid reform; and the emerging changes in the payment environment to value-based payments from traditional fee-for-service payments.

The role of finance leaders now centers on promoting and fostering organizational agility, while concurrently preparing for ever evolving conditions.  For safety net providers like the Family Health Centers (FHC), a significant increase in the number of uninsured individuals as a result of Medicaid reform can have an adverse financial impact. The most recent decision by the US District Court to vacate the KY HEALTH program and return the Section 1115 Waiver back to Department of Health and Human Services for further review, continues to drive financial uncertainty for the organization. The KY HEALTH plan as designed is highly complex and an administrative burden for the Medicaid population, therefore many of FHC’s and Louisville’s most vulnerable patients will be “at risk” for losing coverage. By the state’s own estimate, nearly 100,000 Kentuckians will lose Medicaid coverage as a result of the waiver over the next five years.

As the CFO at Family Health Centers, it’s never been more important to promote and be a catalyst of change to improve financial viability.  A few initiatives that we have undertaken as an organization follow:

  • Partner with functional departments and senior leaders to improve health care delivery at lower costs
  • Improve educational opportunities for financial concepts and ideas at all levels of the organization
  • Leverage data and analytics to improve strategic decision making and forecasting
  • Promoting and facilitating health management to the next level to prioritize a number of capital investments within the primary care setting to improve social determinants of health, mitigate patient financial risk and support population health management initiatives
  • Building an integrated revenue cycle management program across all clinical areas and front office administration as a way to streamline operations, build efficiencies and leverage synergistic opportunities which in turn facilitates longer term sustainability and viability
  • Act as catalysts for partnership and collaboration with community organizations and public health agencies to improve the health and wellbeing of Jefferson County’s most vulnerable citizens which in turn reduces costs throughout the healthcare network

Christopher Roszman, Senior VP & CFO, Centerstone Kentucky

Christopher Roszman, Centerstone Kentucky: Over the past few years, the healthcare industry has experienced the most challenging and fluid period since the introduction of Medicare in 1966. Various initiatives such as the Affordable Care Act, governmental budgetary pressure, aging baby boomers and improved technology have all effected the financial health of healthcare organizations.

At Centerstone Kentucky, we closely monitor these changing and emerging trends and try to stay one step ahead of threats and opportunities in our industry. For example, we recently took advantage of new technology and started using Enlightened Analytics to monitor clinical productivity to ensure we are maximizing the hours of care provided to clients across our community.

 

 

Medical News: How is consolidation in healthcare affecting the healthcare system? Does it affect your organization directly?

Holly Hodge, Bluegrass Care Navigators: Consolidation can enable healthcare entities to expand to areas along the continuum of care by acquiring existing operations in areas where they aren’t currently established. Following consolidation of this nature, we generally see the learning curve is minimized while efficiencies are created through economies of scale and the coordination of care can improve as well.

Certainly, we are affected directly as consolidation occurs among our partners, as we must make sure we can demonstrate the value we can bring to their patients with the various services we provide.

Jim Mattingly, ResCare: Consolidation, and more broadly, the mergers and acquisition space within healthcare, is quite active, and ResCare is part of that activity. From our perspective, we are exploring acquisitions focused on businesses that are extensions of our existing channels in new geographies or with new payors. We are also exploring complementary service lines that are aligned around similar patient and client populations, while caring for different needs.

We have found, during our recent acquisitions, that ResCare can offer cost efficiencies and automation of processes, while benefitting from the clinical and operational expertise from the companies that we partner with or acquire. In all cases, ResCare aims to create go-forward businesses that serve patients and clients with extremely high-quality care, in a highly efficient manner.

Samuel Riddick, Family Health Centers: Yes, I believe the healthcare system is at a significant inflection point.  Both horizontal and vertical mergers are creating disruption and synergistic opportunities across subsectors of the healthcare industry.  The latest round of proposed acquisitions between CVS-Aetna, Cigna-Express Scripts, Walmart-Humana are predicated on the notion of leveraging health insurance, pharmacy and urgent care within a conglomerated model. The phenomenon of urgent care clinics supplanting primary care visits in an on-demand world provides patients and payors with alternatives to traditional primary care.  However, some research has evidenced adding retail clinics may increase, not reduce the overall direct costs of care. The notion of  payors leveraging primary care providers and their corresponding suppliers within a vertically-integrated conglomerated model may provide cost savings.  However, by reducing supply and limiting patient choices could potentially bend the overall health spending curve upwards.

FHC provides primary care services via a patient-centered medical care model.  This model helps patients manage chronic conditions, as well as actively coordinating care across provider specialties. We believe the model facilitates the communication of information for shared patient populations while reducing costs by preventing expensive and avoidable hospitalizations and emergency room visits especially for patients with complex chronic conditions.  This collaborative model provides personalized, comprehensive coordinated care with the necessary systems and infrastructure to allow clinical staff to work more efficiently.

Christopher Roszman, Centerstone Kentucky: Consolidation is affecting the healthcare system by creating new, different and larger organizations across communities. Within the hospital sector, for instance, nonprofits are merging, for-profits are merging, and for-profits are buying nonprofit organizations. The goal of many mergers remains to be the improvements larger economies of scale can often bring.

At Centerstone Kentucky, we affiliated with Centerstone of America, based in Nashville, Tennessee in 2016. Centerstone of America is a nonprofit corporation that operates Community Mental Health Centers in Tennessee, Kentucky, Indiana, Florida and Illinois. The goal was the achievement of economies of scale that small community mental health centers could not achieve on their own.

More recently at Centerstone Kentucky, we are in the middle of another consolidation as we complete a merger with Uspiritus. Our two organizations, merged under the Centerstone Kentucky flag, will add 300 staff, residential and foster care programs to our Child & Family services line and will allow us to better serve children in need across Kentucky with seamless integration.

 

Medical News: The healthcare sector is experiencing diminishing revenue while experiencing growing expenses. Is this true for your organization? How are you working to address this?

Holly Hodge, Bluegrass Care Navigators: Yes. To address this, we continually look for ways to control expenses such as entering into new agreements through our group purchasing organization, evaluating vendor options for both patient related and administrative expenses and establishing compensation models that reward for performance.

Additionally, our workforce is mobile, and we want employees to have reliable technology systems in place such as laptops, cell phones and Electronic Medical Record (EMR) systems to support the patient care we provide. With systems that are easy to use, we can focus more time on improving the patient experience of care and less on getting the systems to work. This will create efficiencies that help us both improve staff satisfaction and manage personnel expenses.

Jim Mattingly, ResCare: In a word, no. ResCare’s businesses provide affordable care for must-serve populations, including seniors, individuals with intellectual or developmental disabilities, children, those receiving neuro-rehabilitative therapies, home health and hospice, among others. We serve these individuals because they deserve high quality care and, as a business, we have been successful because we deliver great care in a cost-efficient manner. All payors across the healthcare landscape should gravitate toward companies that focus on quality care and do so in an efficient manner.

To highlight some of what we are doing to further improve our services, ResCare is focused on innovation and technology to streamline processes and increase efficiencies across all operational platforms.

We are deploying three new Electronic Medical Record (EMR) systems across different businesses, updating our finance, payroll, HR and revenue cycle systems and are in the process of creating a new Enterprise Resource Planning (ERP) system to drive efficiency and data analytics. We’ve invested heavily in infrastructure with new hardware and software systems, electronic pharmacy management capabilities and telemonitoring capabilities.

Samuel Riddick, Family Health Centers: Kentucky is leading the way in Medicaid reform. In January 2018, Governor Bevin received federal approval of a Sec. 1115 Medicaid Waiver demonstration project to transform the Kentucky Medicaid program, for adults who gained coverage under the ACA.  Although the waiver was recently vacated by the US District Court, Adam Meier, Secretary of the Cabinet for Health and Family Services has stated the state will work with CMS to resolve and address barriers to implementation. The Kentucky HEALTH program as currently designed, will require many adults to pay monthly premiums, eliminate dental and vision services for adults, and require co-payments and coverage lock-out penalties for up to six months for failure to pay premiums or re-enroll on an annual basis.

If applied, the proposed changes will undoubtedly reduce the number of FHC patients with Medicaid coverage, will decrease FHC Medicaid revenues and increase uncompensated care to the uninsured.  We estimate that between 8,000 and 10,000 current FHC Medicaid patients may be impacted by the waiver.   The full financial impact on FHC is difficult to accurately project at this time, although a 20 percent loss of Medicaid expansion patient visits could result in a six figure loss of topline revenue on an annual basis.

FHC is working to address and mitigate growth in uncompensated care by hiring additional temporary “navigators” and “assistors” to help patients retain their Medicaid coverage under the highly complex Kentucky HEALTH program.  The temporary staff will help Medicaid patients set up internet “citizen connect” accounts to track their “my rewards” credits, submit work/community engagement reports, and take online “health literacy” and “financial literacy” courses.  It’s a persistent challenge to contain growth in operating expenses with upward pressure on wage costs and medical inflation.  Because of this, FHC continues to pursue revenue growth opportunities outside of traditional Fee For Service billing arrangements via Value Based Care incentives along with applying for additional state and federal grant revenue opportunities to achieve financial stability and long term viability.

Christopher Roszman, Centerstone Kentucky: Healthcare has always remained a challenging, fast-paced industry–and I do enjoy a good challenge.

However, in my nearly 30 years of healthcare work, I find the challenges today surpass anything I could have imagined even a decade ago. This is especially true in the community mental health and addiction services industry, the majority of which, in Kentucky, is funded with state Medicaid dollars and some federal funds.

Community Mental Health Centers (CMHCs) are one of the few operations that must make a margin on Medicaid consumers to continue operations as a safety net provider. Most of these organizations function with a margin of less than two percent.

What has challenged me the past three years is a trend of dramatically reduced reimbursement rates, significantly increased administrative burden and strong upward pressure on clinical employees’ salaries.

Over those three years, Centerstone has dramatically changed the way we do business through innovations and dramatic improvements in efficiency, which allows us to continue to serve as a safety net provider across our community. We are also venturing into value-based contracts as to improve efficiency and outcomes.

 

Medical News: Do you expect the changes in Kentucky’s Medicaid system to affect your organization financially?

Holly Hodge, Bluegrass Care Navigators: Yes, if the proposed changes are implemented, we may see an increase in patients without insurance coverage. Although all hospice patients should be considered medically frail which would exempt them from the work requirements, patients that aren’t identified as medically frail and are billed for premiums they cannot or do not pay, could be locked out of the Medicaid system and be without coverage.

Jim Mattingly, ResCare: Maybe. ResCare is watching developments with the 1115 Medicaid waiver reforms closely. But unless public Medicaid reforms, notably a redesign of the state’s Long Term Supports and Services (LTSS) waiver programs, this could have greater impact on our company and the people we serve.

Done right, Kentucky’s proposed LTSS waiver reforms can not only improve outcomes for its most vulnerable populations, but also serve as a national model for other states. For that to happen, the product must balance choice for individuals receiving services with the tools (more utilization of technology) and funding (regular review of provider rates) to drive sustainability.

Samuel Riddick, Family Health Centers: Yes, reform to Kentucky’s Medicaid system could significantly impact FHC’s financial position.  As previously discussed, CMS approved Kentucky’s Medicaid 1115 Waiver (KY HEALTH) in January 2018, however, the waiver was recently overturned by US District Court.  If KY HEALTH is reconstituted by the state and subsequently approved by CMS, Medicaid recipients who gained coverage through recent expansion efforts; will be adversely impacted.  In 2017 FHC treated approximately 40,000 patients of which 24,000 had Medicaid coverage.  Of the 24,000 Medicaid patients, approximately 8,400 (Medicaid expansion patients) would now be at risk of losing coverage or benefits in the next five years as a result of the implementation of the KY HEALTH program.

The Health Centers is estimating that up to 1,680 (20 percent of the Health Center’s Medicaid expansion patients) could lose coverage and benefits in the first year of its implementation.  Of great concern, is the new requirements will potentially lock patients out of coverage, inflate administrative costs and cause the health center’s uncompensated care burden to increase to pre-ACA levels.  Also, the changes and reforms to Medicaid system are also expected to result in reductions in dental reimbursements and increase MCO claims delays and denials.  Medicaid was designed to provide health coverage to individuals with limited income and resources.  Unfortunately, KY HEALTH as it is currently designed, creates barriers to care with overly burdensome administrative and compliance requirements, which will ultimately lead to additional state administrative expenses and serving fewer of the Commonwealth’s most vulnerable residents.

Christopher Roszman, Centerstone Kentucky: We were very concerned about the proposed 1115 Medicaid waiver / Kentucky HEALTH changes being made on the state level due to the proposed client documentation that would have created additional barriers to care.

Even though a federal judge has placed an injunction on the Kentucky HEALTH implementation, serious questions remain regarding Medicaid expansion and access to both dental and vision coverage.

We are concerned that some Medicaid clients remain confused and are under the impression that they have lost all benefits. We are hoping for a final decision in the coming weeks so that we can quickly and effectively communicate Medicaid changes to our clients, making sure they will still seek treatment as needed.

 

Medical News: What keeps you up at night? What can Kentucky do to create a better healthcare environment?

Holly Hodge, Bluegrass Care Navigators: Lost revenue due to payer system limitations is an ongoing concern. Hospice reimbursement from Medicare is unique in that patients have benefit periods that must be opened by a hospice. When more than one hospice has been involved in a patient’s care, the hospices can impact each other’s billing and ability to successfully collect for services provided.

For example, if a prior hospice provider does not notify Medicare on a timely basis that a patient has been discharged, Medicare will not pay the subsequent provider because the patient is considered to have an open benefit period with the prior provider.

In this instance, the first provider must close the benefit period before the second hospice may bill and to further complicate the process, in these instances, the second provider typically must devote significant staff time to get exception requests honored to pay the related claims. Hospice is unique regarding the benefit periods and this adds a layer of complication to billing that is out of our control which is worrisome when it comes to collections.

Kentucky should promote health and wellness to create a better healthcare environment and not work against this objective. As an example, the newly implemented sales tax requirement which requires fitness facilities to collect sales tax seems to contrast with promoting such an environment.

Kentucky should also work with the Medicaid Managed Care Organizations (MCOs) to ensure healthcare services are readily accessible to patients and work with providers to ensure reimbursement is a routine process and unnecessary barriers are not in place because of programming challenges within the claims processing systems.

Jim Mattingly, ResCare: Workforce. Recruiting and retaining staff to lead our Medicaid-funded community-based services for seniors and people with disabilities is one of our highest priorities. Nationally, this workforce has an average turnover rate of more than 50 percent. In Kentucky, some individual operations in the Commonwealth have turnover rates that exceed 100 percent.

This is not a challenge specific to our company, it’s a crisis-level problem for all providers, and is exacerbated by exploding demand for these types of services. While reimbursement rates are a factor in this workforce crisis, the Commonwealth and providers must partner together to find a package of solutions to a problem that is already impacting service quality and access. 

Samuel Riddick, Family Health Centers: As the CFO of FHC, I’m constantly faced with many external complex and competing forces in the healthcare environment that create volatility within our organization.  In an effort to mitigate this volatility, FHC’s finance strategy is to promote a laser focus on revenue cycle process improvements and technology initiatives to address increases in uncompensated care, bad debt, and collections.  As we continue to see disruption in the healthcare market from a mergers and acquisition, legislative, funding, and technology viewpoint, it will become critical to adapt and focus on the most important and essential component of our mission and vision – the patient. By positioning our revenue cycle to be aligned with patient-centered care, we ultimately believe we will differentiate ourselves as a market and industry leader.

Kentucky was a leader and pioneer in the implementation of the ACA.  In 2014, with the development of its State-Based exchange (Kynect) and embracing Medicaid expansion Kentucky’s uninsured rate fell 13 percentage points drop from 21% in 2013 to 8% during 2015 as published by The Commonwealth Fund.   There are multiple factors that led to Kentucky’s successful implementation:  resilient leadership and partnership, integrated state based eligibility system for Medicaid and ACA Marketplace coverage coupled with coordinated state and federal supported outreach and enrollment efforts.  Although, the current administration has abolished the state-based exchange and threatened to repeal Medicaid expansion, we believe Kentucky can and will continue to promote responsive health policy.  Several key policy areas that continue to improve the health care needs for Kentucky residents are the following, increasing access to care while strengthening local public health, working collaboratively with social service agencies to mitigate social determinants of health, and improve overall health outcomes.

Christopher Roszman, Centerstone Kentucky: My greatest concern is that we are reaching a point where operational improvements may no longer be able to keep pace with continued reimbursement cuts and increased administrative burdens.

Kentucky could help lessen the burden on providers by decreasing the administrative cost of care for Medicaid recipients. Reducing the number of Medicaid Managed Care Organizations (MCOs) from five to something less, perhaps two or three, would certainly help toward this goal.

Kentucky could also standardize billing, authorization and medical utilization criteria across all MCOs. There is no reason why a provider should suffer through five different criteria sets from five different MCOs.

 

Medical News: What deal or transaction (Kentucky or elsewhere) do you find most interesting? Why?

Holly Hodge, Bluegrass Care Navigators: Humana’s movement into the hospice line of business with its acquisition of Kindred at Home and its new 40 percent minority interest in Curo is very interesting.

Currently, hospice care is carved out of Medicare Advantage (MA) plans which means a patient who has a Medicare Advantage plan reverts to traditional Medicare when admitted to hospice. In the existing healthcare structure, MA plans often benefit from having patients admitted to hospice as hospice saves the MA plan money by reducing expensive end of life treatments.

With the recent acquisitions, Humana MA can continue to encourage hospice appropriate patients to be enrolled in hospice and serve as a referral source for the hospices they own. There has been ongoing discussion nationally about carving hospice into the MA plans as recommended by the Medicare Payment Advisory Commission in 2014.

Humana’s recent acquisitions prepare them for this scenario as well because by operating hospices they will be able to directly control the costs associated with the patients covered under their plans. This may bring benefits to other hospice providers as Humana will continue to develop their understanding of the hospice service and likely have strong processes in place to work with hospices to structure a reimbursement methodology and accurately process hospice claims if a carve in does occur.

Jim Mattingly, ResCare: In our space, it’s more interesting to look ahead to what’s about to happen in mergers and acquisitions, as opposed to what has happened to date. Provider and network consolidation has been a trend across the healthcare spectrum for many years, with exception of Medicaid-funded community-based services for seniors and people with disabilities and a few other outlier segments.

With exploding demand for services and growing pressure to control cost growth, consolidation in community-based services is inevitable. It will be very interesting to see how this plays out, including what role commercial payors will play in the process as Medicaid managed care expands in states. In short, I expect our spaces to be far less fragmented over the next five to ten years.

Samuel Riddick, Family Health Centers: Although, not a deal or transaction per se, the recent Supreme Court ruling on union fees could potentially shift healthcare politics.  I have read recent articles that suggest the ruling could effectively weaken public-sector labor unions and could adversely impact political advocacy for various government social programs, moreover, public health services.  The ruling is a dichotomy of sorts for healthcare administrators, as public system leaders may envision weakened unions and their collective bargaining capabilities as a result of impaired dues/fee revenue, however, unions are staunch advocates for public health initiatives. It will be interesting to monitor the impact of the ruling, to determine if there is a correlation to public sector union weakening to reduced access to public health services.

Christopher Roszman, Centerstone Kentucky: This year, three mergers or possible mergers have the potential to revolutionize how people think of, and access healthcare. The CVS Health / Aetna merger, the potential of Walmart’s pursuit of Humana and Amazon which is partnering with JPMorgan Chase & Co and Berkshire Hathaway to establish an independent company to provide affordable healthcare to employees.

These first transactions of their kind have the size, scale and cross industry integration that may have a dramatic positive effect on healthcare affordability, access and outcome. It will be very interesting to keep a close eye on these deals and others to follow. I expect to see early successes for the consumer in the pharmacy arena. This industry is constantly changing and evolving, and I expect that volatility may be one of the constants in the years moving forward.

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