Focused and Optimistic - second annual Non-Profit Investors' Conference

Healthcare Financial Management, July, 2001 by Richard L. Clarke

"Focused" and "optimistic" is how I would characterize the healthcare system presentations made during the second annual Non-Profit Investors' Conference held in New York City in May. The system executives who made presentations focused on core operations and the basics, while outlining their optimistic plans for the future.

The conference, cosponsored by HFMA, Health Forum/AHA, and Solomon Smith Barney, provides an opportunity for not-for-profit healthcare systems to discuss financial and strategic issues directly with municipal bond investors, analysts, and insurers. The conference is similar to those held for investor-owned entities related to equity transactions. As such, it allows for a more active dialogue between the not-for-profit health systems and these other stakeholders regarding important issues affecting system financial performance and strategic direction. This year, 36 major not-for-profit healthcare systems made presentations to approximately 200 investors, analysts, and insurers.

For most systems, financial results had improved; for others, additional work will be needed to perform at expected levels. However, this conference demonstrated the value of looking beyond the financial results of the most recent quarter toward what health system executives are doing to position their organizations for the future. During the past two years, many major healthcare systems experienced a downturn in financial performance. This downturn was attributed to Medicare payment cuts effected by the 1997 Balanced Budget Act, restrictive managed care contracts, and investments in diversification strategies that resulted in substantial losses. These factors, and the bankruptcy of the Allegheny Health, Education and Research Foundation (AHERF), caused significant concern among investors in the healthcare sector. Rating agencies acted to downgrade the debt of some of these systems, and interest rates started to rise as a result of a confidence crisis. The Non-Profit Investors Conference was created in respo nse to these concerns.

The healthcare executives presenting at this year's conference used the word "focus" perhaps more than any other word to describe their activities, particularly with regard to ensuring that their energies and resources are expended on mission-critical activities. In many cases, these actions were focused on the basics of the core business of the enterprise, primarily, hospital care. Issues the presenters discussed with regard to this back-to-basics approach included:

* Improving patient care through systematic improvements in training, staffing, internal processes, investments in technology, and customer service;

* Improving net revenue by better management of the revenue cycle, more aggressive managed care contracting, and reduction in accounts receivable;

* Improving operating income by reducing costs, especially in the supply chain through such activities as supplies standardization and inventory management;

* Monitoring performance against credible benchmarks and learning from best in class; and

* Creating a better work environment to attract and retain employees, and paying increased attention to employee development and training.

The system executive presenters also were very optimistic about the future. They believed that Medicare payments, while still inadequate, at least had stabilized and become more predictable. They also noted that a new relationship was developing between providers of care and managed care companies, resulting in better terms and rates of payment.

Several executives identified significant wins related to the back-to-basics activities noted above which improved net revenue and/or reduced cost. Finally, many of these executives noted they were divesting noncore, nonperforming assets, such as health plans or physician practices, which improved overall profitability In the short run, these activities improved financial performance for most of the systems represented.

In the long run, these executives articulated an overall vision for their organization and tied that vision to the mission and capabilities of their system. This vision reflects not only what is being done by these systems, but also identifies what can be done-to benefit their communities.

The message delivered by system executives attending this year's conference, I believe, was received in a positive manner by the stakeholders present. I am pleased that HFMA helped to develop an event at which that message could be delivered.