Paul Gillis, Senior Client Executive, Americas Institutional
Lewis Addison, Senior Vice President and Chief Financial Officer, Centra Health

A CFO's perspective on managing changes in U.S. healthcareEarlier this year, we sat down with Lewis Addison, senior vice president and chief financial officer of Centra Health, a regional non-profit healthcare system based in Lynchburg, Virginia, with more than 6,000 employees serving over 500,000 people throughout the region.

Lewis shared with us his perspective on the evolution of the industry and what he has been doing to address the various challenges. This is part 1 of a 3 part series.  (Read part 2 and part 3.)

How long have you been in your current role, and how long have you served broadly in the healthcare industry?

As CFO of Centra Health, 14 years; and before that, I served as VP of Finance for several years. But I’ve actually been in and around the industry for 41 years, which is kind of scary. After graduating with a major in accounting, I worked as an auditor for a regional public accounting firm that audited various regional hospitals, including Lynchburg General Hospital. I’ve been working in the industry ever since.

“Cost management has become one of the top priorities in today’s environment.”

What major changes have you seen in the last few years that you wouldn’t have expected when you first started in the industry?

When I began, those were the days of cost reimbursement by Medicare, which seems like an alien concept today, but that was the reality back then. To me, as a finance person, this reality meant maximizing reimbursement by making sure every opportunity on the cost report was utilized. It was very regulated, and you needed to take time to know all the rules —so it really had a role in making or breaking the financial success of hospitals. There was also very little computerization, and certainly the use of electronic medical records was unheard of. It’s almost comical now when I think about it—when I arrived at Lynchburg, the accounting records were on a mechanical NCR machine, and I think there was only one person who knew how to operate the machine. And she had to quarrel with it until a trial balance could be produced. If that sounds antiquated, it was. Over the years, automation has played such a major role in evolving the industry, both in terms of how patients are treated and how the business is operated.

What I wouldn’t have expected when I first began in the industry is the major consolidation and integration of hospitals and systems that we see today—very different environment from the days of community hospitals with our own governing boards and integration of physician practices with hospitals. You seldom saw integration with long-term care, and you certainly didn’t see any involvement of insurance vehicles with healthcare organizations of that time.

How have these changes impacted the way you manage Centra finances?

The environment is certainly more complex now, simply because we are doing so many different things. We are an integrated health system; we have an insurance product; we have long-term care; we go from cradle to grave.

There are also so many financing and payment mechanisms that are particular to each of those arenas. The reality is that our processes have improved and become more sophisticated, and this has enabled us to be more effective in managing our finances and more specialized. We’ve come a long way in being good cost managers, but we still have a ways to go. While business operations and care delivery have improved tremendously, due to the changes I mentioned earlier, at the same time we are very much challenged by the costs of doing these things.

Cost management has become one of the top priorities in today’s environment—we have to manage costs, or we won’t stay in the game. Yet this need has to be balanced with ensuring the quality of our services, which are essential to building and maintaining trust within the communities we serve. We can’t focus on one need at the expense of another. Underpinning everything is our ability to recruit and retain good doctors. So many things go together to result in a successful health system these days.

Given all your responsibilities as CFO, how do you think about your multiple asset pools and the investment of those assets, which include the frozen DB plan, the funded depreciation pool and the foundation assets?

These assets are an extremely important part of our financial picture. Health systems are expected to hold and to grow significant cash and investment balances, due to unforeseeable risks. Primary among the risks come from regulatory forces— at any point in time, we could be legislated with a big cut in reimbursement. So we need to build cash reserves up in good times so that we can weather any downs.

The multiple asset pools are very different. Foundation assets are there to grow in perpetuity, so they can provide income to be used for the various charitable needs. The DB plan is managed very differently, simply due to where the plan is in its life cycle, with the goal being to manage it to the point where it’s fully funded.

Our other large asset pools are used for capital investments, and for new hospitals and new healthcare-related projects, which are managed differently. We look at this as a long-term pool of capital with a 6% long-term return target, to help provide the cash flow and liquidity balances Centra needs to execute on its mission.

Read part 2

Read part 3

CORP: 10839
First Use: June 2016