IDS CFOs need to be flexible: an interview with Phyllis Cowling - integrated delivery system - interview with the CFO of Baptist St. Anthony's Health System - Interview

Healthcare Financial Management, Nov, 1999

In most integrated delivery systems (IDSs) today, the CFO plays a major role in managing a broad range of strategic and operational issues that are integral to the success of the overall organization. To gain insight into the types of challenges that typically confront IDS financial managers, HFM spoke with Phyllis A. Cowling, FHFMA, CPA, vice president and CFO of Baptist St. Anthony's Health System, Amarillo, Texas, and a member of HFMA's Board of Directors.

Baptist St. Anthony's (BSA) is a recently formed IDS comprising a full-service hospital with emergency center, four primary care centers, a home health agency, a hospice service, a rehabilitation and skilled nursing facility, a senior health center, an ambulatory surgery facility, and a PPO serving northern Texas, western Oklahoma, and surrounding areas.

BSA also has ownership interest in two provider-based HMOs.

HFM: What are the issues of greatest concern to IDS financial managers?

Cowling: I think the chief concern of a financial manager of any system is the drastic decline in payments we are facing. Because of Balanced Budget Act provisions, the impact is especially severe on an organization like BSA with a high proportion of Medicare patients. We urgently need to determine how to manage our costs yet still provide the high-quality care that patients expect and deserve; for an IDS, at least part of the solution is achieving true integration, and that's the real challenge.

HFM: How do you see the relative merits of true integration, whereby the IDS owns every component required to deliver care across the continuum, versus virtual integration, whereby the IDS contracts with outside entities to provide some types of services?

Cowling: It depends on the organization. I think some organizations do very well at developing comprehensive services for the entire spectrum of care. Other organizations may find it more advantageous to opt for virtual integration. Each organization has to assess its own needs and ask, "What can we do well, and what should we leave to others?" The answer will depend, in part, on the service volume of each area considered. If you want to do something well, you can't just do it occasionally. If you lack sufficient patient volume in a particular area of service to warrant the investment required to do it well, contract with someone who is better equipped to handle it.

HFM: Is BSA pursuing true vertical integration?

Cowling: We're certainly not totally integrated yet, and there are some components of true integration that we may never pursue. For example, BSA has been very selective in the acquisition and management of physician practices. While we employ roughly a dozen primary care physicians, we have largely left that service line alone. Managing physician practices is not our area of emphasis or expertise, so we leave it to others who can do it better. Looking at the larger picture, it remains to be seen where BSA or, for that matter, the healthcare industry as a whole is going with respect to true vertical integration.

HFM: What, besides pursuing more complete integration strategies, can IDSs do to control costs?

Cowling: Unfortunately, when faced with having to reduce expenses quickly, many organizations look first at the largest items on their expense ledgers - salaries and wages. At BSA, we have taken a different approach. We believe it is important to maintain our human resources. In fact, we have increased our staffing in the last couple of years because we recognize that we are a service business and we need people to provide that service. So instead of focusing on human resources for cost-control opportunities, we are looking to other areas, such as increasing efforts to manage supply and utilization costs through standardization and protocol development.

We also are looking at ways to limit the purchase of services from outside the organization, although we are not outsourcing a lot of our functions at this time. For example, dietary services - which often are outsourced - are an in-house function at BSA because we find it to be both effective and efficient. Again, I don't think one size fits all - it depends on the specific organization.

HFM: What results has BSA achieved, and to what do you attribute them?

Cowling: As an IDS, BSA has a relatively short history; the merger that formed the system occurred only three years ago. But we feel we have achieved significant success in cost management since then, based on internal analyses and external benchmarks. That success may be due in part to our good fortune in attracting enough volume to enable us to spread our fixed costs over a large patient population, which lowers costs both for patients and for us on a per-patient basis. Yet, we also believe that key strategic moves we made were important - the speed with which we physically merged our facilities and services, our emphasis on securing managed care lives, and our overall vision and the way our employees support that vision.

Our ability to manage costs is helped by the way we communicate financial results both overall and by department. Most people find it easier to understand a budget target of $5 per test, than an overall budget of $1.2 million. So, every department not only has a budget, but also clearly defined targets we call costs per unit of service (CPUS). These targets are individualized to what makes sense for each department, such as cost per test or cost per discharge, so that staff can relate to them. The key is to make sure everyone knows their department's CPUS target. By doing that, we have raised the level of awareness of the need to provide service cost-effectively.