The Next Wave in Health Care

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Atlantic Health System’s Kevin Lenahan gets creative as the day-to-day realities of the Affordable Care Act emerge

By Julie Barker

Managing finance in a changing environment is like riding a wave. “You don’t want to hit the wave too soon or too late and get washed out,” says Kevin Lenahan, Atlantic Health System’s vice president of finance and CFO. Amid the opportunities and potential perils facing a large hospital system today looms a large question: just when to take on additional risk in negotiated insurance contracts.

Since the Patient Protection and Affordable Care Act (also known as the Affordable Care Act) was signed into law in 2009, hospitals have been on a journey from the old way of handling patient care and making money to a new way. As Lenahan navigates familiar waters of the fee-for-service model, he is also watching for the right moment to take on the monster waves of risk-bearing contracts. Meanwhile, he’s making deals to share knowledge and costs.

“Regardless of any changes that may happen to the law going forward, I think the model is going to change,” he says. “We need to be smarter about how we do things. Size and scale are going to matter, and that’s why we continue to grow.”

Including Morristown Medical Center, Overlook Medical Center, Newton Medical Center, Chilton Medical Center, and Goryeb Children’s Hospital, Atlantic Health System is one of the largest non-profit health care systems in New Jersey, and arguably the best run, having received the highest ratings by Moody’s (A1) and Standard & Poor’s (A+). It’s a testament to Lenahan’s and CEO Joseph A. Trunfio’s leadership that Atlantic Health System has stayed financially strong despite losing about $11 million a year due to Medicare Sequestration cuts. Lenahan, who has been with Atlantic Health System for 18 years and became CFO in 2010, oversaw the various negotiations, two of which led to mergers.

With a close eye on costs and opportunities and the will to eliminate such redundancies as multiple payroll departments, Atlantic Health does make money. Margins, says Lenahan, are 2 to 3 percent, which is “consistent with the major hospital systems in New Jersey.” Every dollar earned is reinvested in the organization. “We spend over $100 million a year in capital, a lot of it going for new technology and upgrading our facilities,” he says. As an example, Lenahan has just approved about $18 million for new electronic medical records (EMR) for physician practices.

Working Smarter

Bringing new physicians into the system is one of Lenahan’s focuses, as the physician practices department reports up through him. “It gives me the complete understanding of how the operations work. I’m not in a finance ivory tower two miles from the hospital. I’m meeting with physicians every day.” He negotiates their contracts, including benchmarks. He aligns physician and hospital incentives. And he keeps an eye on the results. “The value of care will trump the volume of care eventually,” he says.

Through mergers, Atlantic Health System set out to not only expand the organization, but make the care it provides more effective. Big enough now to purchase in bulk, the health care organization is looking to buy direct, cutting out the middleman in many situations. A year ago, it created an off-site central warehouse, which not only freed up space at the individual campuses, but enabled Atlantic Health System to expand bulk purchasing initiatives. “We probably saved about $2 million with that central warehouse,” says Lenahan.

As each acquisition closed — the most recent was the Chilton merger last January — Atlantic Health System’s leadership took steps to reengineer processes. Layoffs are not countenanced, so retooling is the answer.

On the patient-care side, similar scrutiny of processes is resulting in better financial outcomes and better quality of care. Atlantic Health System is set on reducing the overall cost of care for New Jersey’s Medicare population through its Accountable Care Organization (ACO), one of the largest in the country, says Lenahan, who is CFO of that business entity. If Atlantic Health System is successful in this, the government will share some of the savings with Atlantic Accountable Care Organization, which in turn will share the savings with the physicians, who are thus incented to make smart choices. The total spend for Medicare would be reduced by achieving a lower readmission rate, for example. Medicare is not a money-making proposition for the hospital system, paying about 95 to 96 cents on the dollar, and thus, there’s no incentive for providers to try to keep Medicare spending high.

Although it is in name and in fact a hospital system, Atlantic Health System does not need to keep patients in hospital beds to earn income. Atlantic Home Care is the arm that provides follow-up care and, not incidentally, helps keep patient insurance costs down. Atlantic Health System also owns a patient transportation company and a durable medical equipment company providing items such as respirators and oxygen.

In the new environment created by the Affordable Care Act, “your size gives you some ability [to make money], but you have to do something with that ability and I think we’ve been successful at that,” says Lenahan, who credits his mentors Kevin Shanley — his predecessor as CFO — and Trunfio. From the latter, he learned “to try to understand the big picture.”

“Patients have options and choices,” he says, but as the organization moves toward the implementation of electronic medical records, “we can more quickly and efficiently get the health care information to each of their doctors, and to the right specialists.” And after leaving the hospital, patients in Atlantic Health’s system can opt to use Atlantic Home Care, which is aligned with the hospital network’s physicians to ensure a quick recovery and minimize the necessity for readmissions. “So we’re controlling the care continuum.”

Looking to the Future

A three-year goal of Atlantic Health System, articulated in 2013, was to reach $2 billion in revenue, and according to Lenahan, the organization will likely achieve that goal in 2015, a year ahead of schedule. The purchase of Hackettstown Regional Medical Center, which, if given state approval, should be completed by the end of Q1 2015, achieves that objective in Atlantic Health System’s planned growth.

And what’s the next goal? Because Atlantic Health System has infrastructure in place, a large pool of high-quality physicians experienced with accountable care, and enjoyed good outcomes, Lenahan feels that the time is nearing to become aggressive and negotiate risk-bearing contracts. “My team and I are spending a lot of time analyzing the implications and helping our sites and our operations staff understand the impact of [that] change.”

A risk-bearing contract with a payor, whether Medicare Advantage or a commercial insurance company, would essentially state, “We’ll take upside-downside risk that we can manage the overall cost of care.” Atlantic Health System might have to discount some of its rates in such a negotiation, and “as you do that,” says Lenahan, “you’re going to need a certain amount of volume — new volume — to make up for it.”

Lenahan, who counts as one of his biggest pleasures visits to Long Beach Island with his family (two sons: one in college and one beginning his last year of high school), finds a natural metaphor in ocean waves. “Do you jump in with two feet, or do you ease your way in?” he asks.

Presently, he is anticipating the moment when all conditions are right for a smooth ride on a big wave, ahead of the curl and ahead of the competition.

Francis Shammo, CFO of Verizon Communications, Honored at CFO Studio Reception

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FOR IMMEDIATE RELEASE
December 15, 2014

CONTACT
Lorenz Capalad
(732) 868-0000 x118

SOMERSET, NJ – On December 12th 2014, Francis “Fran” Shammo, CFO of Verizon Communications, Inc. was honored at the CFO Studio reception celebrating the launch of the Fourth Quarter issue of CFO Studio magazine. The event was attended by prominent finance executives and was held at the Westin Governor Morris Inn in Morristown, NJ. Guests enjoyed cocktails, food and a special visit from Santa Claus, who came bearing sweet treats for all.

The evening was hosted by CFO Studio and Real Estate Strategies Corporation and sponsored by Deloitte, JP Morgan Chase, Robert Half International, and Revelwood.

Mr. Shammo addressed the group and spoke about the risks that fueled his professional success. “You can’t have success as a CFO without some failure,” he said. “Because you can’t have success without taking risk.” Fran introduced members of his team and went on to speak about some of the bold moves he has supported at Verizon, including taking aggressive measures to elevate Verizon to become a world-class organization, supporting innovation and investing capital in incubation business.

Mr. Shammo also spoke about the importance of recognizing talent and getting that talent on your team. “I know I’m not the smartest person in the room,” said Mr. Shammo. “But as one of my mentor’s once said to me, you don’t have to be the smartest person in the room. You just have to be smart enough to recognize who are the smartest people in the room.”

To read more about Mr. Shammo’s venturesome risks and management philosophies, visit CFOstudio.com. Francis is featured in the Fourth Quarter 2014 issue of CFO Studio magazine.

The next CFO Studio event will be an Executive Dinner meeting held on January 20th, 2015. Kevin Lenahan, CFO of Atlantic Health System, will lead a discussion on “CFOs, Inspiring Management and Employees to Benefit Under the ACA.” To request an invitation, please contact Lorenz Capalad at Lorenz.Capalad@CFOstudio.com.

We’re Growing

In 2015, CFO Studio and its affiliates will be expanding to serve major markets outside the Tri-state Region. Plans are underway to share information with and facilitate connections between finance executives in more cities across the country.

Actively Seeking a Corporate Board Appointment?

As part of our commitment to helping members of the CFO community find opportunities for career advancement and professional development, CFO Studio is creating a directory to help connect CFOs interested in serving on boards with companies looking to offer finance executives this opportunity. If you or someone you know is actively looking to participate on a board, please contact Lorenz Capalad at Lorenz.Capalad@CFOstudio.com.

CFO Studio Foundation

The CFO Studio Foundation is a non-profit organization founded to raise funds to be donated to various charitable causes. The foundation will begin to fulfill on that mission in 2015. Stay tuned for details about how you and your company can get involved.

About CFO Studio
CFO Studio and CFO Studio Magazine deploy the best of new and traditional media to promote finance executives as business and strategy thought-leaders. Andrew Zezas is the host of CFO Studio and the Publisher of CFO Studio Magazine.

Visit www.CFOstudio.com to watch interviews with New Jersey area CFOs, with new releases every Thursday morning at 10:00 AM EST!

To read stories that have appeared in CFO Studio Magazine, or for subscriptions and advertising opportunities, visit www.CFOstudio.com.

Funding for CFO Studio and CFO Studio magazine is provided by Real Estate Strategies Corporation and select advertisers.

Real Estate Strategies Corporation provides corporate real estate advisory and transaction services to CFOs, General Counsels, Management, and corporate Boards in New Jersey and around North America.

www.CFOstudio.com
www.RealStrat.com
www.TheCFOsGuide.com

 

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The CFO-CMO Relationship

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When marketing relies on data to target campaigns, there is a point of collaboration with finance executives.

By Julie Barker

In sports, “The business is changing and marketing is changing,” says Charlie Mierswa, CFO of the Brooklyn Nets and Barclays Center. He and Fred Mangione, chief marketing officer until a July promotion to COO, work together so closely, “we’re in and out of each other’s offices constantly,” says Mierswa. The need for data drives a good portion of their collaborations, and the data is constantly being refreshed, in that every ticket sale helps refine the knowledge both have of the business.

Targeted marketing makes its way to previous purchasers or good potentials on their smartphones and desktop devices, replacing billboards for many types of campaigns. And targeted marketing is highly trackable, so results-oriented CFOs see the value of a spend decision. Using big data means knowing who is likely to respond to a particular message, and that results in better ROI than from a billboard ad.

“If we’re going to spend a marketing dollar,” says Mierswa, depending on the type of spend, it’s got to drive $10, $15, $20, $100 worth of sales. We do try to bring in ROI-type analysis to the equation, and when it doesn’t seem to be panning out, we pull back. But that is probably one of the hardest types of decisions we have to make.”

Compare that to the sort of branding and reputation-building put forth by the marketing department of a law firm or accounting firm, where “not every dollar invested is going to be visibly productive immediately,” says Mark Messing, chief marketing officer at Duane Morris, LLP, a law firm with about 750 attorneys in the United States, United Kingdom, Middle East, and Asia. There are times when a CFO has to look at the investment in a marketing project that builds the firm’s good name, and make a leap of faith that the expected results will occur.

A refusal to take that leap can be a source of tension between a CFO and a CMO. “Where a marketer may want to make a decision based not just on data but on his or her gut feel, or marketing trends, or ‘This is where I feel this is going,’ typically the CFO is more about numbers,” says Rhonda Maraziti, director of marketing & practice growth at WithumSmith+Brown, PC, a Top 10 accounting firm in the Northeast.

But essentially, she says, marketers want the same thing finance executives do: information. “How do you make decisions on marketing strategy if you’re not aware of data on what your big revenue drivers are?” she says.

Marketers Think Big

A lot has changed in this decade for businesses of every type. For law firms, beginning in 2008, says Messing, “Corporate America began a long-term trend of settling cases in the first year of litigation, as opposed to fighting it out over two or three years.”

With his marketing orientation, when Messing came across that particular nugget of business intelligence in an industry report, he realized that a well-designed analytic tool that would give clients the alternatives and odds of various outcomes occurring could provide a unique point of difference for Duane Morris. A collaborative effort involving the CFO, the finance group, two teams of lawyers, Messing and the marketing group resulted in a branded early case assessment tool called Dispute Navigation Analytics, or DNA™.

At the Brooklyn Nets, Mangione, sees the need for analytics too. “I challenge my staff all the time. I say the number-one goal is selling the ticket, but the second, third, fourth, and fifth question I’ll ask is, ‘Where did it come from? Who’s buying it? When are they buying it? What are they doing with it?’ Because the more data I can give the finance department of where it’s coming from, the more money I can spend to [pursue more sales]… Everything’s about return on investment, so for a company to really make its way, the two sides [marketing and finance] have to work hand-in-hand, unlike before.”

Big data is changing marketing, but so is the ability to grab information almost instantaneously. Maraziti says that a business intelligence tool that the accounting firm implemented about two years ago pulls revenue data directly from the time and billing system, almost in real time. Prior to that, using Excel spreadsheets, “I was generating these reports [on what percentage of revenue stems from what industry and industry subset] and the CEO and director of the IT department saw, ‘Hey, this information is really good to have. It’s great intel on the strength of our firm, it’s a great story to tell.’”

The marketing information that Maraziti can now obtain “at the click of a button,” she points out, drives the strategy of the firm, the growth goals, even the geographic goals.

Future Role for CFOs

In most organizations, CFOs are more involved in branding and marketing compared to in the past. But even greater collaboration is desirable. As Mangione says, at Barclays Center, “it’s the old ‘One team, one dream,’” where he and Charlie Mierswa work hand-in-hand to drive sales. He remembers that “when the Nets came to Brooklyn we did a whole campaign… Charlie sat in agency meetings with us. I can’t say every CFO does that.”

Asked about a larger role CFOs could play, both Messing and Maraziti offered suggestions. “The next great challenge for us,” says Messing, speaking for CMOs in general, but especially those in the service and professional industries, is to get more stringent measurement of ROI. CFOs could increase the effectiveness of marketing communication by bringing their analytical tools to help “build an ROI model that has more substance and predictability to it,” he says.

For her part, Maraziti points out that simply by staying alert to activity in a certain market sector, a CFO can play a more important role in marketing communications. “It’s just a matter of keeping in mind as the CFO is going through their weekly or monthly or quarterly data: What trends are you seeing?”

Copyright 2017