HFM - From the Chair - May 2019

Reflections on a Year of Imagining a Better Tomorrow

“Imagination is everything. It’s a preview of life’s coming attractions.”

KB_Headshot_2018.JPG

Kevin F. Brennan

FHFMA, CPA

CHAir, HFMA

A year ago, I challenged all of us to Imagine Tomorrow and to pursue opportunities to achieve the Triple Aim with hope, optimism and an innovative American spirit. I pledged to govern with humility and give back to HFMA with all my heart, soul and time. As with other lessons learned through HFMA over the years, I received more than I gave. I never imagined how rewarding serving as HFMA Chair would be, and as I approach the end of my term, I want to share some parting words of encouragement.

At a time of so much negative rhetoric in our public discourse, reflect on the miracles occurring in healthcare every day. I heard exemplary stories all year long as I visited HFMA Chapters across the country. Scientific advances have made the impossible of yesterday routine today. New technologies are making a real difference in our lives. We are living longer and replacing despair with hope. There is so much to be proud of.

Remember the story of the Golconda Diamond Mine. Poor Al Hafed pursued a fruitless search for diamond riches elsewhere, failing to discover the largest mine beneath his own abandoned property. The lesson is simple. Opportunities for innovation are closer than you think — perhaps as close as your own backyard. Pursue them!

The Triple Aim goals are worthy of your time and attention. We know we can, and must do better to promote improved population health, ensure patients receive the highest-quality care every time and make the cost of care more affordable. Our patients and communities are counting on us. The finance professional is ideally suited to help. The changes necessary to respond to this more complex, challenging environment begin with each one of us, and HFMA can help. Adopt and promote best practices, and inspire your team to learn, experiment and volunteer. No organization is better prepared to meet our needs than HFMA.

As my year winds down, I want to extend my heartfelt appreciation to my family, my 40,000- plus HFMA colleagues, my fellow Board members, Chapter and Regional leaders, staff and all who have helped me along the way. Your support and hospitality have been greatly appreciated, but most of all, the friendships developed will never be forgotten. You are the HFMA secret sauce! This journey has truly produced the best days of my life. May you reach your true potential and discover the role you can play in writing the next great chapter in America’s story. Imagine Tomorrow!

HFM - From the Chair - April 2019

Imagining Tomorrow Involves Risk

“You must lose a fly to catch a trout.” –George Herbert

KB_Headshot_2018.JPG

Kevin F. Brennan

FHFMA, CPA

CHAIR, HFMA

As someone who loves fishing, I am well acquainted with the truth behind that quote. It also resonates for me as a healthcare finance professional.

Whenever I have the opportunity to share my “Imagine Tomorrow” theme with HFMA colleagues and others, I acknowledge that imagining a better tomorrow certainly involves some risks and even a willingness to fail. Taking on risk, however, can be the first step toward realizing our vision for what the future could be.

The same holds true for us as healthcare finance leaders managing enterprise risk for our organizations. If we want to reduce costs, provide better health outcomes, and improve patient satisfaction, we must simultaneously seize opportunities and manage risks. It’s a tall order, and this issue of hfm provides a look into how some of our colleagues are approaching that challenge.

My Geisinger teams and I did our fair share of managing risk during the 23 years I served as the health system’s CFO. One particularly memorable example was initiating sponsorship of a Medicare Advantage HMO plan in the 90s. We leveraged our experience with commercial lines but accelerated our innovations in management of chronic conditions. Regulatory risks remained. Not everything worked as planned, but we had lots of success and outperformed our Medicare fee-forservice results.

If you’re looking for cutting-edge information and inspiration to address risk-management challenges, you’ll want to attend HFMA’s Annual Conference June 23-26 in Orlando. This year’s program includes a variety of educational sessions designed to provide attendees with information and tools to successfully assess and manage risk. Examples include a three-hour workshop on building a blueprint to support risk-based contracts and breakout sessions on topics such as driving optimal performance in a risk-based world, ensuring cybersecurity, and becoming risk-ready with ACOs. There’s also a case study on “Positioning Physician Leaders to Promote Patient Safety and Mitigate Risk.”

For more information on these programs and others addressing the issue of enterprise risk, please visit the Annual Conference 2019 website at annual.hfma.org. This year’s event has been designed to inspire attendees to boldly act by providing the tools needed to lead change and deliver on the promise of transformation. I hope to see you there.

Meanwhile, keep imagining that better tomorrow. Just like fishing, the rewards far outweigh the inherent risks.

HFM - From the Chair - March 2019

The Value of Financial Analytics

KB_Headshot_2018.JPG

Kevin F. Brennan

FHFMA,CPA

CHAIR, HFMA

When it comes to imagining a better tomorrow in our industry, financial analytics are essential. They can move us from where we are to where we need to be.

Analytics don’t simply help us better understand current and past performance. They also can predict future performance. In short, financial analytics can lead us toward smarter decisions.

Over the course of my career as a health system CFO—including my time at Geisinger in Danville, Pa.—my teams and I regularly turned to the insights provided by data analysis to address challenges and improve performance. One such situation was in conducting sophisticated balance sheet analytics, incorporating historic and forecasted information, while testing the impacts of a variety of scenarios and stress tests. This effort helped Geisinger preserve balance sheet strengths by minimizing risks and investing appropriately. It also helped maintain a AA bond rating for more than 20 years.

HFMA understands the value of analytics for today’s healthcare finance professional. In response, the Association launched the Financial Analytics Leadership Council this past summer in partnership with Kaufman Hall. Composed of the heads of decision support, chief analytics officers, and operational finance executives, the Council meets at least quarterly to address its charge: to drive change in the healthcare industry’s approach to financial decision support. To learn more about the Council, check out the article on page 24 of this issue of hfm.

As the Council works to lead change in this area, HFMA also will provide educational programs and resources for finance professionals looking to harness and use data today. The 2019 Revenue Cycle Conference occurring this month will tackle the topic. Speakers will address how to leverage predictive analytics to anticipate issues negatively impacting the revenue cycle and how to tap into the power of data to make community health efforts more effective.

Then, in June, at the 2019 HFMA Annual Conference in Orlando, attendees will have the opportunity to spend an entire day in a cohort focused on business intelligence, data management, and return on analytics. Stand-alone sessions also will address similar topics.

HFMA also offers on-demand webinars for healthcare finance professionals looking to up their data analytics game without leaving the office. Check out current offerings, including “How Analytics Is Transforming Healthcare Financial Management,” at www.hfma.org.

There’s no doubt that analytics are increasingly important in managing financial performance today. They’re also key to imagining how things could be better tomorrow. HFMA can help you meet the challenge on both fronts.

HFM - Reconciling Charges and Pricing through Charge Description Master Design - November 2018

Providers should restructure pricing schedules to bring charges into better alignment with the actual cost of services, developing a long-term pricing model that is attractive to both patients and employers.

In its 2014 report Price Transparency in Health Care, the HFMA Price Transparency Task Force set out to determine the industry’s consensus on the distinctions among charge, cost, and price, and to recommend a way forward in building “price transparency frameworks for different groups of care purchasers.” ‘a’ These groups include patients, providers, employers, and referring clinicians. The growing disparity between hospital charges and what patients end up paying is eroding consumer confidence while at the same time challenging finance leaders to cope.

In recent years, and especially since the report’s release, many hospitals have expressed a desire to dramatically reduce their charges—some by as much as 70 to 80 percent. Some have an interest in reducing charges for targeted patient services (e.g., outpatient imaging, surgery, and therapy), while others are attracted by the idea of lowering charges across the entire hospital. Although many hospital finance leaders would like to be able to implement such a policy, they have a fiduciary responsibility to ensure it would not negatively affect net patient revenue.

There are, of course, many good reasons for hospitals to want to lower charges. Hospitals now realize that a dramatic reduction in charges may be necessary to remain competitive, especially with respect to freestanding outpatient services. Hospitals also have been accused of being complicit in driving up the cost of health care by setting unreasonably high charges.

Further, in its recently issued 2019 final rule for the inpatient prospective payment system (PPS) the Centers for Medicare & Medicaid Services (CMS) discusses its continuing effort to improve the transparency of hospital charges. CMS requires, effective Jan. 1, 2019, that hospitals make available a list of their current standard charge via the internet in a machine-readable format. Although the final rule leaves unanswered many questions and is not necessarily directly affected by a hospital’s overall charge level, CMS’s increasing focus on hospital charges underscores the need for hospitals to look for ways to reduce their patient charges.

Anyone who works in the healthcare industry knows this is a complicated issue with many contributing factors. However, a hospital that voluntarily reduces its charges dramatically would be considered to be part of the solution rather than part of the problem.

Historical Perspective: Factors Driving the Need for Change

Hospital charges and the hospital charge description master (CDM), along with their roles in healthcare financing, have evolved significantly over the past several decades. In the pre-Medicare era, insurance and patient payments for healthcare services were based primarily on charges. During that time, most physician and other outpatient services were a fee-for-service cash business. Insurance coverage focused primarily on inpatient care and catastrophic coverage, with payment rates also based primarily on charges.

Upon the inception of Medicare, hospital payment for the 65+ age cohort involved interim Medicare payments based on a percentage of charges, but with a year-end settlement based on reimbursable costs determined by the Medicare Cost Report. Charges were used in the Medicare Cost Report as a component of cost-to-charge ratios to determine total reimbursable costs and ultimately Medicare’s share of those reimbursable costs.

After the 1983 implementation of the Medicare PPS, fixed DRG inpatient payments initially—and, later, fixed outpatient PPS payment rates—became the dominant payment mechanisms, and the gradual movement away from cost-based payment was initiated. However, charges continue to be used in developing cost-to-charge ratios and remain a significant factor in determining inpatient DRG outlier payments.

In theory, when Medicare payment was cost based, hospitals generally received the full cost of delivering patient care. Although Medicare PPS payment rates initially were determined based on those full costs, over the three decades since, the inflation update factors have not kept pace with medical cost inflation.

Medicare high utilization rates—along with cost increases due to the proliferation of expensive technology, information systems, and clinician shortages—have long produced Medicare budget constraints that have continually required adjustments. As a result, limiting hospital and physician Medicare payment rates has been the political fix of choice.

The Medicare Payment Advisory Committee (MedPAC) recently reported that, in 2015, hospitals nationally incurred Medicare margins averaging –7.1 percent. ‘b’ MedPAC also estimated 2015 combined losses from Medicare and Medicaid payers to be almost $58 billion.

Conversely, MedPAC reported that 2015 total hospital all-payer margins averaged 6.8 percent, the highest in 30 years. This level means the commercial sector was contributing about 14 percentage points to hospital margins in 2015 through payment rates that significantly exceeded governmental rates.

The Medicare PPS also has had a major impact in influencing Medicaid plans and commercial payers to adopt similar fixed payment methodologies. Large commercial payers and managed care plans now almost exclusively use DRG, per diem, outpatient fixed payment, or capitation payment methodologies (although many of these agreements continue to include outlier or stop-loss provisions as well as provisions regarding the lesser of charge or agreed-upon fixed payment). Consequently, the use of charges or a percentage- of-charges as a basis for setting payment amounts has been left to patients who are uninsured, out of network, or enrolled in small payer plans.

A study published in the April 2017 issue of Health Affairs examines both California and national hospital charges from 2002 through 2014 and concludes that “high list prices causally increased payments from the uninsured.” ‘c’ This scenario continues to be problematic and may be a greater issue going forward if the ranks of the uninsured begin to rise again. It also has influenced state legislation, such as the California Hospital Fair Pricing Act and rate regulation in both Maryland and West Virginia.

The Health Affairs study also concludes that “list prices varied predominantly across hospitals and within markets, were well predicted by observable hospital characteristics, and were positively related to prices actually paid by patients and their insurers.” It appears, therefore, that although most commercial payers now use fixed payment methods, the negotiated rates have been influenced by the hospitals’ charges.

In theory, hospitals and insurers also may have employed unique price negotiation strategies that, over time, have resulted in wide variations in charges and fixed negotiated rates for specific services. One consistent trend, however, has been hospitals’ reliance on revenue from ancillary services—particularly outpatient services, which tend to have a more favorable payer mix. This trend has led the insurer Anthem to institute a policy, over hospitals’ objections, that precludes coverage for most advanced imaging performed in hospitals on an outpatient basis. ‘d’

These pricing strategies were acceptable in an era of low-deductible/coinsurance health plans, when patients were shielded from high out-of pocket payments. However, with the advent of much higher deductible and maximum out-of pocket plans, hospitals and insurers that lack a strategy to redesign their pricing structures now run the risk of losing considerable market share. In effect, with the high deductible/co-insurance plans currently offered, outpatient services are now to a large extent uninsured and sensitive to price.

Hospitals and insurers have worked within a fee-for-service “system” that really hasn’t changed much in more than 30 years. Given the new realities of the healthcare insurance market, they both should have a mutual incentive to find common ground and develop the next generation pricing methodology.

Kevin Brennan, the current Chair of HFMA’s Board of Directors, has characterized this matter as “one of the most intractable issues facing healthcare financial leaders today.” Brennan also notes that redesigning the pricing model will not be easy, but it can be accomplished. “I think it is doable if we can identify and reduce the cross subsidies within the current system,” Brennan says. “The key will be to identify those services that have been historically under priced and are currently being subsidized by other profitable services. To eliminate the cross subsidies in the system, the market will need to acknowledge that pricing will need to increase for those types of services.”

The hope is that a new methodology could be developed that would provide the runway to a “soft landing” for the existing players in the healthcare market. Otherwise, market disruptors will have ample opportunity to take advantage of an outdated healthcare fee-for-service system.

Reducing Charges in a Financially Responsible Way

Such a strategy can be successfully implemented, but it requires the support of the highest levels of the hospital—that is, from senior management and the board of trustees—and their counterparts at the insurance companies, as well as coordination with governmental payers.

The next generation charge/pricing redesign process should present a value proposition to both hospitals and insurers that includes the following:

>>A long-term pricing model that is attractive to both patients and employers

>>Reduced hospital reliance on ancillary service and procedural profit margins

>>Affordable outpatient services for patients

>>Better alignment between prices and the cost of services

If properly designed and implemented, the new pricing approach would reduce future bad debts and provide better balance and diversification in service line margins. Preliminary, this process should include the following steps.

Conduct an inventory of insurance plan codes. Each insurance plan code should be reviewed to identify those patient classifications and insurance contracts for which payments are affected by charges. Some will be straightforward (e.g., percentage of charge contracts), but others will be more complicated (e.g., outlier payments, stop-loss payments, and lesser of payment or charge provisions).

Build a database of historical patient utilization. This database—consisting of CDM line-item historical utilization and detail on inpatient and outpatient claim-level historical utilization—can be used to model potential changes. Although using historical utilization is probably the best way to estimate the potential future impact of changes in charges, it is important to remember that this is an estimate and that future patient utilization will not mirror historical utilization.

Review current relationships between charges and associated standard costs. This review should encompass both inpatient and outpatient services based on the roll up of charges by service type. Model potential changes in payments. Potential payment changes should be modeled through a series of “what-if” analyses that consider, for example, the estimated impact on payments from each payer if the hospital were to reduce its charges by X percent or Y percent. The purpose of such modeling is to enable the hospital to focus its efforts and continually assess the feasibility of its strategy.

Prioritize and approach payers. Senior management should initially approach payers, as well as board of trustee members, to obtain buy-in on the strategy, both in concept and regarding its potential value for all stakeholders (the insurer, the hospital, the public) were it to be pursued cooperatively.

Continue to conduct negotiations and perform modeling. These actions should be ongoing, to track and assess the estimated impact of various negotiating proposals.

Monitor actual payments. After the contract with revised payment mechanisms is implemented, actual impact of the revised payment mechanism should be monitored, including the comparison of actual payments to anticipated payments using actual patient utilization.

Negotiate a potential year-end settlement. Because transitioning from a payment methodology that is affected by charges to a fully fixed-payment mechanism poses inherent challenges, assumptions about factors such as volume and intensity will be required. Therefore, negotiating a year-end settlement during the initial period(s) of the contract may be advisable to ensure that neither party is unintentionally hurt or advantaged.

Implementation of a next-generation pricing strategy should parallel an information systems installation. It should be designed and piloted in a test environment, running parallel with the existing system for a certain period.

A Practical Methodology-Related Matter

In addition to the forgoing points, a crucial issue remains as to how a hospital can identify the actual revised CDM charges. A hospital’s approach to revising charges in its CDM with the goal of drastically reducing them depends, to a large extent, on the methodology the hospital had used to identify its current CDM charges. If a hospital’s existing CDM charge methodology is thoughtful and meets some of the value proposition described here, then it is reasonable to expect that the hospital will be able to dramatically reduce its overall charge level by implementing an across-the-board percentage reduction.

Generally, a CDM charge methodology can be defined as meeting the value proposition when it is structured with a systematic methodology that identifies each individual CDM line item based on a formula that considers a series of supportable benchmarks, including cost, market, and payment schedules. However, because these benchmarks tend to be inaccurate and are subject to significant variations, it is best for a hospital to use multiple benchmark sources as a means to “smooth over” individual benchmark anomalies.

If a hospital has established this type of charge methodology throughout its CDM, then it reasonable to expect that it could reduce its current CDM charges by an identified percentage applied across the board without disrupting the logic of the current methodology. However, if the hospital has not yet implemented a CDM charge methodology that meets this value proposition, now would be an opportune time to do so.

Many hospitals started to use more value-based methodologies for identifying CDM line item charges in response to heightened scrutiny on hospital CDM charges, which began to rise in the past decade. Previously, most hospitals would have not been able to articulate their CDM charge methodology, and they likely would have focused more on the anticipated impact each CDM line item charge change would have on the realization of net patient revenue. Although this approach made practical financial sense, it created CDM line item charges that had little or no relationship to the cost of delivering the service.

In short, the test of whether a hospital can reasonably make a simple across-the-board reduction to dramatically reduce its overall charge level is whether, for each charge identified under its current methodology, the hospital always will have a ready and simple answer to the question, “How was this specific CDM line item charge identified?” If the answers to this question are not so simple, a hospital has yet to develop a rational and defensible CDM charge methodology, and it should undertake a process to do so. A

Prospect for Forward-Thinking Leaders

The most challenging aspect of this strategy will be convincing all parties to cooperate. To ease the transition for all parties, each side should focus on “win-win” methodologies that clearly benefit all stakeholders, including healthcare providers, insurers, and their respective patients/members.

We acknowledge that provider-insurer negotiations have not historically been handled in this way. However, with the advent of new low-cost health plans and recent relaxed rules regarding association health plans, the benefits that would accrue to all participants are too critical to ignore. Hospital leaders who are willing to tackle this problem stand to be perceived as forward thinking.

Moreover, if properly implemented, a redesigned CDM and related pricing methodology likely would provide a long-term strategic benefit rather than reduced revenue to those participating. What other business strategy in today’s health care market can result in win-win benefits to all?


a. HFMA Health Transparency Task Force, Price Transparency in Health Care, 2014.

b. Dickson, V., “Slumping Medicare Margins Put Hospitals on Precarious Cliff,” Modern Healthcare, Nov. 25, 2017.

c. Batty, M., and Ippolito, B., “Mystery of the Chargemaster: Examining the Role of Hospital List Prices in What Patients Actually Pay,” Health Affairs, April 2017.

d. Bannow, T., “Hospitals Cry Foul and Sue Anthem over New Policies,” Modern Healthcare, April 21, 2018.


About the authors:

Leonard Brauner, CPA, is senior principal with SunStone Consulting, New York, N.Y., and a member of HFMA’s New York Metropolitan Chapter (leonardbrauner@sunstoneconsulting.com).

Scott Glasrud is president of SAG Enterprises LLC, Overland Park, Kan., and a member of HFMA’s Heart of America Chapter (sglasrud@sag.enterprises).

HFM - FROM THE CHAIR - JUNE 2018

HFMA National Chair Encourages Healthcare Finance Professionals To ‘Imagine Tomorrow’

Kevin F. Brennan

Kevin F. Brennan

FHFMA, CPA

CHAIR, HFMA

Yesterday is forgotten. Today is almost gone. We must look forward to building a better tomorrow.

With so many challenges facing us in the healthcare industry, it is easy to feel overwhelmed. It is important, however, to remember that we are more than capable of addressing these challenges,achieving our goals, and realizing the full potential of the Triple Aim. Although we have the necessary knowledge and skills, it is simply not enough. Effective execution of our vision requires confidence, optimism, and a belief that we can do so much more by working together. Most important, we need to tap into our imaginations.

That is why I have selected Imagine Tomorrow for my theme as HFMA’s 2018-19 National Chair. Over the next year, I hope to encourage healthcare finance professionals and our industry partners to imagine a tomorrow where everyone has access to care when they need it; where care is consistently delivered safely, reliably, and following best practices; and where every man, woman, and child can afford and receive the care they need.

My belief in the power of imagination has deep roots, as I have been privileged to witness its impact both personally and professionally. Chances are good you have experienced it as well. Imagination, for example, led previous generations to board ships to America in pursuit of their dream for a better tomorrow. They had a vision, took risks, and worked tirelessly to overcome every hurdle. Likewise, we have all been encouraged by the success of organizations where bold leadership, teamwork, and inspiring visions have produced boundless imagination and innovation. Thanks to such efforts, we have witnessed administrative, clinical, and scientific advances that have benefited us both as individuals and as a society.

Even with all these advances, however, there is much to be done. That is why we must ask ourselves how we and the teams with whom we work can build a better tomorrow. I believe the answer to that question lies in our ability–and our willingness–to use our imagination and innovation to renew ourselves, inspire our teams, improve our organizations, and leave our communities and the world a much better place.

I look forward to exploring these issues with you in the coming months—both in person and here in hfm. In the meantime, I hope you, too, will commit to making a difference by accepting the challenge to Imagine Tomorrow.