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The basics:

• NJ hospitals are under pressure from rising costs, low reimbursements and possible tariffs
• NJBIZ spoke with some health care insiders to see how they’re meeting the demand for care, given the tight finances
• Virtua Health, Valley Health System and Holy Name Medical Center share insights 

A variety of medical cost increases – coupled with fluctuating insurance provider reimbursement rates and looming tariff hikes – are placing health care organizations under financial strain. NJBIZ spoke with some hospital insiders to see how they plan to resuscitate their revenues.

At press time, President Donald Trump indicated – without getting into specifics – that he would impose tariffs on imported drugs. “It is too early to determine if the current assessed tariffs will have a negative financial impact on medical devices,” observed Virtua Health Executive Vice President and CFO Bob Segin. “More than 70 countries have requested further trade negotiations with the U.S. Tariffs are one of many financial issues. In addition to interest rates, inflation and deficit reductions, that could have a major financial impact on health systems.”

So, is Segin thinking about re-sourcing medical devices? “At this time, Virtua will not deviate from its procurement of medical devices or medical-surgical supplies,” he said. “The COVID pandemic taught us the importance of being adaptive and having contingency plans close at hand. But, at this moment, we need to be watchful and not overly reactive.”

Despite the uncertainties, Segin does not see an immediate effect on pricing for procedures. “Prices are fixed either contractually for commercial insurance or for Medicare and Medicaid,” he explained. “Government payers and commercial insurers will continue to pay their required reimbursement rates.”

But that raises another issue. Even as hospitals face higher costs, they are struggling with “inadequate increases in reimbursement by government payers and increasing administrative burden due to inappropriate commercial health insurer practices,” according to a recent American Hospital Association report. “Taken together, these issues have created an environment of financial uncertainty where many hospitals and health systems are operating with little to no margin, according to the AHA.”

Given the tight finances, how are health care institutions meeting the demand for care while they invest in new and promising technologies and interventions?

“This is a challenging time for the industry, as many health systems operate at a deficit,” Segin acknowledged. “Fortunately for us, Virtua Health has maintained a stable financial performance for the past four years. This is the result of a comprehensive strategy that considers network integrity, greater patient access, and the continuous growth of Virtua Medical Group and our portfolio of joint-venture ambulatory surgery centers.”

In fact, he added, “Fitch affirmed Virtua’s AA credit rating and revised its outlook from stable to positive. Because of this – and our strong commitment to our mission and values – we remain well-positioned to meet the needs of our service area and reinvest in our future ability to provide outstanding care, whether that’s renovating our hospitals or onboarding new technology. The future is unknowable, but we believe we have the vision, resources and incredible workforce to help us face whatever might be ahead.”

Different delivery models

Other hospitals are charting their own path through the turmoil.

“This is an unprecedented time for health care providers, where health systems are experiencing a confluence of challenges, which include labor shortages, increases in commercial health insurer denials, Medicare rate reductions, and skyrocketing drug and supply cost increases,” said Valley Health System Vice President for Payer Strategies Nisha Sikder. “Despite these challenges, Valley continues to pursue its strategy to provide ‘care like no other’ by investing in its clinical services, technology and people to ensure we are delivering the top-quality premier health care services in our market.”

Accomplishing this goal has meant some hard work. “This has required us to really scrutinize our costs and apply rigor around our operational processes to ensure that we are effectively allocating resources and getting an ROI on our investments,” she said, adding that “we just celebrated the one-year anniversary of our new state-of-the-art acute care facility in Paramus, and while the facility offers the latest advances in technology and clinical care, we have come to the realization that we have opportunities to improve the efficiency of the services being delivered to ensure we are optimizing our capacity and patient experience.”

To address this issue, “we are going to be embarking on a workflow redesign to ensure we are maximizing the patient throughput and experience at our new facility,” she detailed. “This is an example of an opportunity that had we not seen under the various environmental and financial pressures I noted before, could have been missed. This type of scrutiny is being applied across the health system to ensure we optimize our margins so that we can continue to invest in the future.”

Another key strategy “during this tenuous financial environment, is looking to partnerships rather than acquisitions to grow our reach and the breadth of services we offer. We already have very strong clinical partnerships such as our affiliation with the Mount Sinai Health System for oncology.”

Valley has also been “investing in Value Based Care [a health care delivery model where providers are incentivized to deliver high-quality, efficient care based on patient outcomes rather than the volume of services provided] and Population Health Services for close to 10 years,” Sikder said. “While the adoption of value-based payment models in our market has been slower than in other parts of the country, we still think it offers a lot of promise in helping to deliver the best quality and most efficient care for our patients.”

But going its own way has not been easy. “It is challenging to operate in an environment where provider incentives are not totally aligned, which is the case in New Jersey’s pre-dominant fee-for-service environment,” she added. “Valley’s approach to this challenging market dynamic began with a focus on quality, as quality improvement for our patient population is beneficial for all involved — providers, payers and patients. I am proud to say we have been so successful in the quality realm that our clinically integrated network, ColigoCare, was recognized by CMS (Medicare) as the top performing accountable care organization on quality in New Jersey this past year.”

Despite the accolades, Valley Health will continue to scrutinize its model, Sikder noted. “With our strong foundation in quality, we are shifting strategic gears and will be looking to address utilization inefficiencies for our patients in the coming months/years. I would consider utilization management to be the more challenging aspect of value based care, but through the use of data analytics and tighter collaboration with our payers, there are a lot of opportunities to advance strategies, like medication management, improved patient referral navigation and reducing unnecessary emergency room visits, that make sense in both fee-for-service and value based environments.”

An entrepreneurial approach

Holy Name Medical Center continues to navigate challenges “with innovation, agility, and purpose,” said CFO Doug Zehner. “We’ve made strategic decisions to control our costs and maintain high-quality care without compromising our mission. To focus on managing the costs we can control, we’ve built critical infrastructure, which includes the development of our proprietary electronic health record (EHR) and Human Resources Information Systems (HRIS).”

The hospital also recently “expanded our global reach with the opening of Paix Services, a subsidiary based in India that supports our revenue cycle and IT development,” he added. “These efforts not only reduce costs but also allow us to be more responsive and nimble and ultimately improve the patient experience.”

Zehner said a nimble outlook is baked into Holy Name’s culture. “This entrepreneurial approach is embedded in who we are. Our response to COVID-19 is a powerful example: we rapidly scaled capacity, became a regional leader in treatment therapies and vaccine delivery, and led the way in tracking patient outcomes during a time of great uncertainty. That ability to pivot quickly while staying focused on the needs of our community continues to define us and bolster our reputation as a leading provider of care.”

And at a time when many health care systems are turning to M&As to cope with rising costs, “Holy Name’s independence is a source of pride,” Zehner noted. “But it is not the goal—it’s a means to an end. Every decision we make is centered on providing the highest level of care to every patient who walks through our doors. That commitment, coupled with our ability to think differently and act decisively, is what allows us to meet today’s challenges and prepare for whatever comes next.”

Tech helps, but at a cost

“Health care seems ripe for technological innovation and advancements as we have seen an extraordinary number of new entrants into this space over the past several years,” according to Valley’s Sikder. “For a single hospital health system like Valley, these advancements are exciting because we believe we can pivot faster than some of the bigger health systems in adopting new technology.”

She pointed to artificial intelligence as one example. “AI presents tremendous potential in health care but also poses some challenges, so Valley has implemented a governance structure for AI tools to ensure that we appropriately evaluate any AI solutions based on the business need that it is addressing, as well as other factors, such as patient safety, ethics, and data protection/security,” she explained. “At this point, we are evaluating some pilots for deployment of AI technology for virtual nursing, revenue cycle, and patient scheduling, but we intend to be methodical with our governance process and therefore, these may be protracted implementations.”

Remote services are another ripe area. “We do currently use telehealth services in certain areas of the hospital (tele-neurology), medical group and home care service (home bound patients remote patient monitoring),” Sikder asserted.

But there is a caveat. “We will continue to invest in these services for areas where it makes sense,” she said. “But our perspective is still that most patients in our market want to have in-person care with their providers.”