What Does Financial Success Look Like in the CAH World?

Unlike so many critical access hospitals, Crete Area Medical Center is in great financial shape. CFO Bryce K. Betke talks about the reasons why—and the challenges that could threaten his hospital’s enviable position.

When Bryce Betke joined Crete Area Medical Center (CAMC) as CFO in 2008, the 24-bed critical access hospital (CAH) and physician’s clinic had a new CEO and negative operating margins.

Within a year, the CAH had turned around. For the last five years, the organization—which is 25 minutes from South Lincoln, Neb.—has been running double-digit operating margins most of the time. CAMC has 318 days cash on hand, along with some low-cost debt from the construction of a new facility in 2003. It went live with a new EHR this year, a $2 million project, that it is financing out of cash reserves, which will be repaid in part with meaningful use incentive payments.

Why is CAMC in such good shape financially, compared with many other CAHs?

More than 38 percent of CAHs have negative operating margins, according to an American Hospital Association infographic. Medicare pays CAHs 1 percent above the cost of providing care, but revenues from other payers often don’t cover costs. On average, 60-plus percent of CAH revenue comes from government payers, making the small organizations highly vulnerable to any payment reductions by Medicare or Medicaid.

CAMC runs a very lean and efficient operation, with minimum staffing levels, according to Bryce. People pitch in and wear lots of different hats as needed. Financially, Bryce and his staff work to capture reimbursement for every service provided. Beyond that, he credits four factors for CAMC’s success: affiliation, payer mix, physician employment, and population health.

Affiliation

Many CAHs are struggling to survive on their own, a struggle that will only intensify with the coming of accountable care. They can’t provide everything a rural community needs and will need to affiliate with someone, says Betke.

“Fortunately, we’re part of Bryan Health, which has two hospitals in Lincoln. This gives our patients access to a variety of specialized services, including behavioral health, orthopedics, and trauma.”

Payer Mix

If you look at CAMC’s whole book of business, Betke says, Medicare and Medicaid only account for 50 percent, lower than average. And the bulk of the other half is commercial payers, with just 5 percent self-pay.

“In addition to a college and public school system, Crete is lucky to have a couple of major plants offering good insurance—Farmland Foods with Blue Cross, and Nestle Purina with United Healthcare—that proved to be recession-proof.”

CAMC hasn’t really seen an impact from Nebraska’s statewide health insurance exchange, Betke says.

Physician Employment

CAMC employs the physicians in its two clinics and its ED, which gives the organization a “little better control,” according to Betke.

“We’re able to set production incentives for them, and we’ve focused on building a team of providers. As a result, we’ve had a stable medical staff for the last five years, and I think that continuity helps tremendously.”

Betke points out that physicians are an integral part of the decision-making process at CAMC, which he believes contributes significantly to the hospital’s success.

Population Health Initiatives

There’s one more asset that gives CAMC an edge: its success in “significantly bending the curve in health outcomes and related costs within their community,” as the Nebraska Hospital Association put it in its nomination of CAMC for the 2012 Rural Health Quality Award from the National Rural Health Association. CAMC won that award largely as a result of its population health initiatives.

In July 2010 (and again in July 2013), CAMC was certified by the National Committee for Quality Assurance as a patient-centered medical home (PCMH). This recognizes CAMC’s success in coordinating and tracking patients through the continuum of care, ensuring open access (i.e., same-day availability and nontraditional clinic hours) and complying with quality of care metrics, such as blood pressure and cholesterol screenings, says Betke.

“We’re a data-driven organization, and we measure everything: quality, patient satisfaction. We report our data to Primary [Care] Practices Research Network, which allows us to compare our data on a national level, and we use an internal scorecard to see if we’re making progress internally (see the exhibit below) Physicians also have individual goals for their patients’ compliance that are linked to financial incentives.”

Bryan Health’s regional physician hospital organization is currently working with independent physicians and other CAHs to develop a comprehensive and cost-effective care network that payers will find valuable, says Betke. However, CAMC itself already has a contract with Blue Cross Blue Shield of Nebraska that provides additional compensation for compliance with best practices that foster safety and improved quality of care; the hospital has received incentive payments the last two years.

Where does CAMC find the resources to pay for population health initiatives? Leaders have had to get creative at times.

“For example,” says Betke, “we developed an advance life support intercept program, in which we send a paramedic out to meet volunteer fire and rescue squad ambulances en route to provide Advanced Life Support before they arrive at the hospital. We charge them something for that, and they in turn can bill for that higher level of service, so everybody wins and the patients in our rural locations receive the best care possible.”

Potential Clouds on the Horizon

When it comes to challenges that will test CAMC’s mettle, the organization is more like a typical CAH. More than 800 CAHs would lose that all-important status if the Center for Medicare & Medicaid Services follows the recommendation of the Office of Inspector General’s to decertify CAHs that fail to meet location requirements. Located less than 35 miles from the next hospital, CAMC is one of them, and stands to lose almost 25 percent of its reimbursement.

This is one of the reasons that increased advocacy—with legislative representatives on the state and federal level and with the state hospital association—is on CAMC’s agenda for this summer’s strategic planning retreat, along with ways to respond if the worst happens.

Other concerns for the future are ones shared by a majority of other hospitals, not just CAHs, including the shift from volume-based reimbursement to value-based reimbursement and what that means for revenue.

A Whole New Mindset

“Right now,” says Betke, “we still get paid per click. I praise our department managers for a good month of volume. With value-based purchasing, my expectations will eventually have to change—we’ll all have to adopt a whole new mindset.”

This raises some unsettling questions.

If CAMC continues to boost disease screening and other preventive measures, this will mean fewer inpatients. Occupancy rates have decreased the last several years, and this year, Betke budgeted for it to be flat. Often there are only two or three beds occupied right now. So where will the money come from?

Betke worries that, with little staffing flexibility, CAMC might have to make more permanent adjustments, moving positions from full- to part-time. “But in some ways, we really can’t go any lower because we have to be able to provide basic services in all circumstances.”

In the meantime, he says, CAMC is trying to focus on ways to generate revenue on the outpatient side, via its lab, pharmacy, imaging, emergency, and rehabilitation services, and by expanding outpatient surgeries.

“And, of course, the healthier people are, the less money we’ll have to spend; for example, patients who are managing their diabetes well can be seen in the clinic rather than as inpatients.”

Advice for Other CFOs

For his colleagues in other hospitals, especially small ones like CAMC, Betke has two pieces of advice. First, “know your business—your financials, your operations.”

Historically, he says, finance has been largely retrospective: here are the books, here’s what happened last month. Now finance is playing a bigger role in strategic decision making, and that means having information at the ready when someone asks for it.

“You need to able to answer questions such as ‘Where is the money going? What kind of resources have we got? Is this really a good idea?’ And you need to be able to drill down to determine if something is really profitable or not.”

Betke’s second recommendation: Stay current with what’s going on in the financial and healthcare worlds.

“It’s hard to keep up because there’s just so much. I can’t be an expert in everything, so the other part of that is knowing where to go for help. For me, HFMA has been a valuable educational resource in keeping current and in making connections with peers to say ‘Hey, how are you guys handling this?’ Because so often we’re all going through the same thing.”

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Interviewed for this article:

Bryce Betke is CFO of Crete Area Medical Center in Crete, Neb., and a member of HFMA’s Nebraska Chapter.

Related tool: A CAH’s CFO Job Description