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Dome - Setting a Course for Financial Health

Dome November 2012

Setting a Course for Financial Health

Date: November 16, 2012

Rich Grossi is helping to lead an initiative to improve the overall financial performance of Johns Hopkins Medicine.
Rich Grossi is helping to lead an initiative to improve the overall financial performance of Johns Hopkins Medicine.

While the media continue to celebrate the Sheikh Zayed Tower and The Charlotte R. Bloomberg Children’s Center as emblems of 21st-century patient care, institutional leaders are confronting the task of how to fund the next chapter of Johns Hopkins Medicine.

What will be the impact of the Patient Protection and Affordable Care Act? What is the future of Medicare and Medicaid? How much will private third-party insurers reduce their reimbursement rates? How will Maryland-based Hopkins hospitals deal with a rate increase of only 0.3 percent from Maryland’s Health Services Cost Review Commission when hospital costs are projected to rise by 2 percent or more?

Tackling such questions is the job of Rich Grossi, Johns Hopkins Medicine’s chief financial officer and a 35-year veteran of institutional number-crunching. He recently discussed some of the financial challenges that lie ahead, as well as ways to address them.

Q. You have called this period for the health care industry among the most financially difficult you’ve encountered. How are you planning for it?

A. The most difficult thing about it is the lack of certainty about what is going to happen. You have the question of what shape health care will take. And then you have the general economy focusing on health care spending as one of the ways to solve the budget deficit.

We are currently engaged in two cycles of planning. One is the strategic planning that John Colmers [JHM vice president for health care transformation and strategic planning] and his team have led. The second is a series of financial action plans, some of which are already under way, now called the “Initiative.” We’re going to use both of these as the basis for our next 10-year plan, which we hope to have out in the first quarter of calendar year 2013.

Q. Increasing efficiency and new sources of revenue are priorities for Hopkins, and so is “pay for performance.” Can you tell us why?

A. We’re going to be challenged with reduced reimbursement in every element of our business: in managed care, home care, hospital care, physician care. We have to look at every potential way to become more efficient and make sure that we’re maximizing every revenue opportunity.

The Office of Johns Hopkins Physicians has a group pursuing ways to improve access for patients who would like to come to Hopkins but don’t because we can’t find a way to get them in. The office is also looking at partnerships across the system so that we can try to maximize the amount of clinical activity that we continue to service. The hospitals in the academic and community divisions are considering how to work together to serve each other’s needs and become more efficient.

Our business development department is exploring ways to take the intellectual property of Hopkins and create partnerships with other businesses. Last year, for example, Hopkins experts began reviewing the treatment protocols used across the country in Walgreens’ Take Care clinics.

Our focus on “pay for performance” requires that we get the entire organization to target the things that we’re being measured by. Whether we’re evaluated by U.S. News & World Report or by the last payer who came into the state, we must perform well by various standards. That means concentrating on health care-driven measurements, safety-driven measurements and service-driven measurements. We need to be able to demonstrate that we’re providing value to people in all of these areas.

Q. How are changes in the health care industry affecting the way we do things at Hopkins?

A. One big culture change has already taken place in the area of patient safety. We need to look at things we would like to change about our current behaviors, such as the siloed approach to health care that happens not only at Hopkins but throughout the field.

Q. Do you think you may need to reduce costs by freezing salaries or cutting benefits?

A. I really don’t know. If Medicare says tomorrow that we have to cut Medicare spending by 10 percent over the next five years, can we support that just by getting more efficient? Or will we have to address the cost of labor? This business is 70 percent driven by the cost of labor, so to say that labor wouldn’t be part of the solution would be crazy.

We still are giving a 1 to 2 percent increase in salaries this year. You can say that’s not very much, but in the hospital industry, that’s significantly more than they’re getting in rates. We’re going to try to maintain the compensation base that we have, be competitive and pay people fairly, and work for other ways to reduce costs or generate revenue.

Q. How do you see our financial future?

A. If somebody asked me where I’d like to be to face these issues, I couldn’t pick a better place than Hopkins. We’ve got the brand, we’ve got the history and I think we have the workforce to take on these challenges. [In our strategic planning], we keep talking about three things: understanding that bad things can happen to good people and that Hopkins is not immune from the overall economy, getting everybody aligned on what we want to achieve and executing that initiative. It’s important to realize that execution happens at the individual level rather than at the leadership level. It’s up to all of us to solve problems and help move us forward.

—Reported by Neil A. Grauer

Getting to Grade-A Performance

Chief Financial Officer Rich Grossi; Joanne Pollak, vice president and general counsel for Johns Hopkins Health System; and Landon King, vice dean for research, are leading an effort to improve the overall financial performance of Johns Hopkins Medicine. The project, known as the “Initiative,” seeks to double the profit margin by June 2014, eventually adding $150 million to $200 million in annual income. Grossi says these funds will cover the cost of implementing the institution’s strategic plan and help to protect JHM from financial pressures brought about by health care reform. The revenue enhancement and/or expense reduction will come from four key domains:

  • System-wide opportunities, such as standardizing clinical protocols, improving timeliness and efficiency in administrative processes and keeping referrals for Johns Hopkins Community Physician patients within the system, will provide an estimated $80 million to $125 million.
  • Entity-specific projects, like supporting the growth of high-demand, high-revenue services within particular areas of the organization, will account for $25 million. 
  • Consolidating operations for shared services, such as credentialing and medical records management, will result in an unknown amount of cost savings.  
  • Seeking out alternative sources of revenue is slated to generate at least $50 million and may include educating faculty on commercially attractive research and increasing patient volumes and management agreements through Johns Hopkins Medicine International.

—Shannon Swiger