Ann Pumpian is the CFO of Sharp HealthCare in San Diego, Calif. This is the second part of our two-part interview with her about her system's decision to leave the Pioneer ACO and how she mentors and educates her team to understand the implications of SharpHealthcare's financial strategy.
Q: As patients are entering into a world where they are making these premium payments only to be shocked by the size of the deductible, those premium payments go to the insurance plan and then you get stuck with the utilization costs. Does that push you to own more of the premium dollar just to make the economics work?
Pumpian: The financial equation must include the bad debt risk associated with enrollees not paying their deductible. Individuals who have not previously had insurance are surprised about the deductible level. They did not necessarily calculate that additional cost in their budget plans. Many of these plans have very high deductibles so bad debt continues to be a concern.
Q: Given your long and successful experience with capitation and risk, a number of providers were shocked you decided to withdraw from the Pioneer ACO program. We understand that the cost targets and shared savings methodologies were not particularly favorable for all providers, but could you comment on the factors that drove your decision to both participate and withdraw from the program?
Pumpian: For two-and-a-half years, Sharp HealthCare ACO worked with CMMI to pilot a program for Medicare beneficiaries to enhance the engagement between patients and providers in the coordination of care and for all aspects of their health care. We had 28,000 aligned Medicare beneficiaries and offered seven care management programs to these beneficiaries, at an annual cost to SharpHealthCare ACO of $3.4 million.
The care management programs reported great success. In 2013, Sharp ACO’s readmission rate decreased from 14.8% to 13.1%, nearly meeting our goal of 13.0%. Bed days per 1,000 beneficiaries decreased 17% from January 2013 to December 2013. And, Sharp ACO scored 84% on its 33 quality indicators, representing not only Sharp’s compliance but also its aligned beneficiaries’ compliance with the program’s quality measures.
By all indicators, we met the Triple Aim—better health, better care, and reduced expenditures for our aligned Medicare population. However, despite these utilization and quality improvements, the Pioneer ACO financial model calculated breakeven performance against CMMI’s calculated financial benchmark for Sharp ACO for 2013, which was substantially similar to reported performance in 2012.
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There are numerous issues inherent in the Pioneer model, two of which significantly harmed us: how financial benchmarks are calculated, and the inclusion of Medicare disproportionate share payments (DSH) in the Pioneer financial model.
First, the Pioneer model uses national rates instead of regional rates to set financial benchmarks, so Sharp ACO’s 2013 benchmark did not reflect the actual rates paid to providers in San Diego. The Pioneer financial model uses historical beneficiary costs for aligned beneficiaries (2009 to 2011) and national trend factors to estimate a Pioneer ACO’s Medicare cost-per-beneficiary in today’s dollars.
The problem is that national trend factors do not account for geographic variances in costs stemming from Medicare and other regulations. This results in actual ACO performance that differs substantially from Pioneer ACO benchmarked performance, which can help or harm an ACO depending upon its geography, without regard to actual performance. Second, unlike ACOs under the Shared Savings Program, the Pioneer ACO program includes Medicare DSH payments in the financial model. With the expansion of Medicaid (Medi-Cal) under the Affordable Care Act, hospitals that accept Medi-Cal patients receive higher Medicare payments for treating a disproportionate share of patients for which Medi-Cal reimbursement does not cover patient costs.
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As a result, ACOs in states like California are harmed under the Pioneer ACO model due to the expansion of Medicaid within their state. To date, only 27 states and the District of Columbia have agreed to expand Medicaid eligibility. As a result, the national benchmark formula understates Medicare costs for ACOs in Medicaid expansion states, and with the Pioneer ACO at risk for shared losses, the benchmarking model results in a Pioneer ACO’s financial responsibility for Medicaid expansion.
CMMI understands the numerous challenges of the Pioneer ACO financial benchmarking model and is moving to a new model in 2015. While we support the proposed changes to the 2015 model, we were unwilling to be subject to the potential of a shared loss payment to CMMI for Sharp ACO’s performance in 2014 based on calculations resulting from a faulty financial model.
Q: CFOs are generally charged with putting together the capital plan for the next three years. What are the big investments you are considering?
Pumpian: We do five-year planning, so it’s a slightly longer horizon. For the most part, I don’t think our capital strategy has changed all that much. We have a very significant IT focus, and are seeing a trade-off between new clinics versus expansion of hospitals, so in that regard the plan is driving more of an outpatient focus than inpatient.
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We are very fortunate to have completed the hospital rebuilding that we needed to do for seismic issues. We are now looking at what we need to do to meet the seismic requirements for 2030. We have to start now to do that. As far as growth, it’s mostly in outpatient ambulatory clinic settings.
Q: Switching gears a bit, if you weren’t the CFO at Sharp, what would you be doing?
Pumpian: It’s hard to say what I would be doing if not this. I started my career as a math teacher, 7th-12th grade. I loved teaching, but felt that I was not continuing to create new lesson plans or being particularly innovative. Moving to healthcare finance, the opportunity to be creative and to innovate has been very exciting for me. I love to teach and I view my role as CFO as one of an educator.
Q: How do you educate in a practical manner in your day-to-day role?
Pumpian: Every meeting of our board’s monthly finance committee we hold an education session. It’s important that the board has clarity and understanding for how financial performance as a health care provider differs from what they may be used to.
I think my biggest role is as a mentor to those who report to me and their teams. I make a big point of taking the time whenever I’m interacting with the front line staff to engage and clarify why we are going down a particular path. It’s important they understand the downstream implications of the decisions we are making today.
I also think it’s important to make complex, difficult concepts fun. We’ve created a board game on health care finance, where you have to answer the question right to move ahead. We’ve played the board game with the entire Sharp HealthCare management team. It was great fun. Everything I do is part of driving that education.
Q: A lot of the education you provide is for people who may have come from a different set of financial training. How do you manage the financial infrastructure at Sharp and what’s the biggest challenge of managing people who come from financial backgrounds in a for-profit world. How do you get them over the hump to understand the details of not-for-profit economics?
Pumpian: We hold our FARM—Financial Accounting Review Meeting—to close each entity’s monthly financial statement, over a two day period. I encourage new finance team members to go through the process with us. Then, I meet with them afterwards.
It’s always the revenue variability that surprises them. You break the revenue analytics down—how Medicare pays on a discharge basis, how we calculate the weighted indices, and how Medi-Cal pays on a whole different indices system. It’s an extensive review process. Each of our operating entities looks very different because of the population they care for and the demographic environment.
I always hold two CFO forums per month where we discuss common issues that are operational in nature, and update people on the big questions that need to be answered. I like to think that it’s a process where we open the doors to anyone who wants to come in and chat.
Q: It’s said that the best teachers also learn from their students. How have you learned from board members or those who report to you?
Pumpian: Continuous learning is what makes everything novel and new each year. Board members ask questions that prompt us to revisit our approach to reporting. Our FARM meetings include many of our younger analysts, and often I will ask a question. They may not have the background healthcare financial knowledge, but they bring something new to the table that makes you go, ‘Ah, never thought about it that way. Let’s reframe this and make sure that we have all of our angles covered.’ It’s always a two-way street.
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Q: Clearly, lots of folks look to you and Sharp as a progressive thought leader. Who do you keep an eye on? Who are interesting folks that you learn from or would hope to learn from?
Pumpian: There’s just a multitude both within and external to health care. Within health care: UPMC has a large health plan that drives a lot of their business. We look at them and ask how they achieved that. We look at Cleveland Clinic. We look at other health care organizations within the California marketplace—Sutter, Dignity.
We’ve learned things from outside the U.S. Our EVP, Dan Gross, did a tour of Asia as part of an award from the California Hospital Association. He came home with ideas about some hospitals in Thailand and Indonesia that are pretty fascinating.
All of our leaders participate in group collaboratives. Our affiliated medical group participates in the Clinic Club, which brings together Virginia Mason, Geisinger, Park Nicollet, and others, where there are all sorts of collaborations and discussions. You have to search out the organizations that will put together a group that allows for common interaction and collegiality.
I have a list of large system CFOs that I participate in the Health Management Academy with and I will reach out to that list of CFOs with questions like: How their organizations might approach a specific issue; what they’ve seen in the market, and the funding levels of their retirement plans. It’s amazing how responsive we are because of the relationship we’ve developed through these meetings over the years.