Hospital Finance Revealed by a Hospital CFO

Summary

In this video, Dr. Eric Bricker discusses the candid insights of Steve Phebus, CFO of Pullman Regional Hospital, who reveals the financial realities of hospital management. Phebus explains the challenges of operating a small, critical access hospital with a tight profit margin, emphasizing the importance of outpatient services and the paradox of 'healthy patients being bad for business' in a fee-for-service model. He also addresses the impact of expensive technology on healthcare costs, the necessity of price adjustments in response to patient shopping, and the staffing dilemmas that affect profitability. The talk highlights the complexities of balancing financial sustainability with patient care in the healthcare industry.

Takeaways

• 🏥 The video features Steve Phebus, CFO of Pullman Regional Hospital, discussing the realities of hospital finance with transparency.
• 📊 Pullman Regional Hospital is a small, critical access hospital with 25 beds, generating around $117 million in charges and about $1 million in profit annually.
• 💰 The hospital's profit margin is less than 2%, indicating that hospitals are not excessively profit-driven but rather operate on slim margins.
• 📈 Revenue is primarily from outpatient services (66%), followed by inpatient care (23%), and medical professional groups (11%), highlighting outpatient services as a major income source.
• 🤔 The business model of hospitals is paradoxically dependent on patient volume; healthy patients, therefore, equate to less business.
• 🛠️ The hospital invested in a da Vinci robot to attract and retain urologists, illustrating how expensive technology can be a recruitment tool, driving healthcare costs.
• 💡 Price transparency and patient shopping led to Pullman Regional Hospital lowering its MRI prices after realizing they were the most expensive in the area.
• 🔄 There is service duplication with a competing hospital just 9 miles away, reflecting inefficiencies in the healthcare system.
• 👩‍⚕️ Hospitals staff for maximum occupancy regardless of current patient numbers, leading to fixed staffing costs and inflexibility in labor expenses.
• 🏢 The hospital acts as a major employer in the area, suggesting that much of healthcare spending is tied to job creation within the industry.
• 💭 Hospital prices are considered meaningless by the CFO himself, emphasizing the complexity and often arbitrary nature of healthcare pricing.

Q & A

Who is the speaker in the video transcript?

The speaker in the video transcript is Dr. Eric Bricker.

What is the main topic of the video?

The main topic of the video is the confessions of a hospital CFO, based on the presentation by Steve Phebus, the CFO of Pullman Regional Hospital.

What is the significance of the video by Steve Phebus?

The video by Steve Phebus is significant because it provides a candid and transparent look into the financial operations and challenges faced by a small rural hospital.

What type of hospital is Pullman Regional Hospital?

Pullman Regional Hospital is a small, critical access hospital with a maximum of 25 beds.

What is the annual revenue and profit of Pullman Regional Hospital?

Pullman Regional Hospital has an annual revenue of approximately $117 million and makes about $1 million in profit.

What percentage of the hospital's revenue comes from outpatient services?

66 percent of the hospital's revenue comes from outpatient services.

Why does Steve Phebus say healthy patients are bad for business?

Healthy patients are considered bad for business because a fee-for-service model relies on patient volume; without it, the hospital's revenue decreases.

Why did Pullman Regional Hospital invest in a da Vinci robot for robotic surgery?

They invested in the da Vinci robot to attract younger urologists, as it is a technology many are trained on during their residency.

How did the hospital respond to patients shopping around for cheaper MRIs?

The hospital lowered the prices of their MRIs to compete with a nearby hospital offering them at a lower cost.

What is the impact of staffing for high volumes regardless of the hospital's census?

Staffing for high volumes regardless of the census means that the hospital's labor costs are not variable, which can impact their profit margins and pricing strategies.

What does Steve Phebus suggest about hospital prices?

Steve Phebus suggests that hospital prices are not fixed and can be adjusted based on market pressures, such as patient shopping behavior.

Outlines

00:00

🏥 Insights from a Hospital CFO's YouTube Video

Dr. Eric Bricker introduces the topic of a hospital CFO's perspective, highlighting a YouTube video by Steve Phebus, the CFO of Pullman Regional Hospital in Washington. The video, which has gained significant attention, showcases Phebus's candid discussion about hospital finances, revealing that despite being a small critical access hospital with only 25 beds, they have a significant profit margin of nearly 2%. The hospital's revenue is primarily from outpatient services, which is common among hospitals. Phebus candidly addresses the paradox of healthy patients being bad for business in a fee-for-service model and emphasizes the hospital's efforts to keep people healthy despite the financial implications. The video also touches on the necessity of expensive technology, like the da Vinci robot, for recruiting physicians and the impact of high deductible health plans on service pricing.

05:02

📊 Hospital Economics and the Reality of Staffing

This paragraph delves into the economic realities of running a hospital, as illustrated by Steve Phebus. It discusses how hospitals, including the small Pullman Regional Hospital, must staff for maximum occupancy regardless of the actual patient count, leading to fixed labor costs. Phebus explains that staffing cannot be variable based on patient volume due to the need to maintain a reliable workforce. This fixed cost structure impacts the hospital's profit margins, which are slim, and raises the question of healthcare as a job creation field. The paragraph also addresses the issue of service duplication with a nearby hospital in Idaho and the implications of high fixed costs on the ability to reduce healthcare prices. Phebus concludes by emphasizing the disconnect between hospital prices and actual costs, suggesting that the listed prices are not necessarily meaningful indicators of true expenses.

Keywords

💡Hospital CFO

A Hospital CFO, or Chief Financial Officer, is the executive responsible for overseeing the financial operations of a hospital. In the script, the focus is on Steve Phebus, the CFO of Pullman Regional Hospital, who candidly discusses the financial aspects of hospital management. His insights are central to the video's theme of understanding the business side of healthcare.

💡Critical Access Hospital

A Critical Access Hospital (CAH) is a rural hospital with no more than 25 beds that provides 24/7 emergency care services. The script mentions Pullman Regional Hospital as a CAH, emphasizing the financial constraints and operational challenges such small facilities face, including a limited number of beds and a focus on outpatient services.

💡Revenue and Profit Margin

Revenue refers to the income generated from a hospital's operations, while profit margin is the percentage of revenue that remains as profit after all expenses are deducted. The script highlights that Pullman Regional Hospital has a profit margin of less than 2%, illustrating the financial pressures of running a hospital and the slim profit margins in the healthcare industry.

💡Outpatient Services

Outpatient services are healthcare services provided to patients who do not require an overnight stay in the hospital. The script points out that 66% of Pullman Regional Hospital's revenue comes from outpatient services, such as imaging, outpatient surgery, and lab work, which is a common trend in hospital financing.

💡Fee-for-Service

Fee-for-service is a payment model where healthcare providers are paid for each service or procedure they perform. The script discusses how a fee-for-service model can create a paradox where healthy patients, who do not require hospital services, are 'bad for business' because they do not generate the patient volume needed for financial stability.

💡Healthcare Technology

Healthcare technology refers to the medical devices, equipment, and software used to provide patient care. The script uses the example of the da Vinci robot, a surgical system, to illustrate how hospitals invest in expensive technology not only to improve patient care but also as a recruitment tool for physicians.

💡Price Transparency

Price transparency in healthcare refers to the availability of clear and understandable pricing information for medical services. The script mentions how Pullman Regional Hospital lowered its MRI prices in response to patient shopping and high deductible health plans, demonstrating the impact of price transparency on market efficiency.

💡Staffing and Labor Costs

Staffing refers to the process of hiring and maintaining a workforce, while labor costs are the expenses associated with employee wages and benefits. The script explains that hospitals must staff for maximum occupancy regardless of patient volume, leading to fixed labor costs that can impact profitability and pricing strategies.

💡Duplication of Services

Duplication of services occurs when multiple healthcare providers offer the same services in the same geographic area. The script discusses the presence of two hospitals within nine miles of each other, both offering comprehensive services like ER and MRIs, which can lead to inefficiencies and increased costs.

💡Hospital Prices

Hospital prices are the costs charged by hospitals for various medical services. The script includes a statement from the hospital CFO that hospital prices are 'meaningless,' suggesting that the complexity and variability of healthcare pricing can make it difficult for patients and providers to understand or negotiate costs.

Highlights

Dr. Eric Bricker introduces the video based on a presentation by Steve Phebus, CFO of Pullman Regional Hospital.

The video has gained significant attention with nearly 20,000 views, highlighting the insights of a rural hospital CFO.

Pullman Regional Hospital is a small, critical access hospital with a maximum of 25 beds.

The hospital's annual revenue is $117 million, with a profit margin of less than 2%.

Most hospitals receive about 50 cents on the dollar, indicating a complex financial structure.

66% of the hospital's revenue comes from outpatient services, reflecting a common trend in healthcare finance.

Steve Phebus candidly discusses the paradox of healthy patients being 'bad for business' in a fee-for-service model.

The hospital's financial model is at odds with its outreach and care coordination programs aimed at keeping people healthy.

Pullman Regional Hospital invested in a da Vinci robot to attract and retain urologists, illustrating the role of technology in physician recruitment.

The hospital's high MRI prices led to a decrease in demand, prompting a price reduction in response to patient shopping behavior.

Price transparency and patient shopping around for services are proven to be effective in driving market efficiency.

Duplication of services between Pullman and a competing hospital in Moscow, Idaho, shows inefficiencies in regional healthcare.

Hospital staffing is based on maximum occupancy, regardless of current patient volume, leading to fixed labor costs.

The hospital's profit margin could be influenced by variable labor costs, but staffing practices limit this flexibility.

Healthcare spending is partly a jobs program, with much of the revenue supporting employment in the healthcare field.

Eliminating healthcare waste may involve confronting the reality of job losses in the healthcare sector.

Steve Phebus admits that hospital prices are largely meaningless, echoing a common critique of healthcare pricing.

Transcripts

hello this is dr eric bricker and thank

you for watching a healthcare z today's

topic is

confessions of a hospital cfo

now this video is based upon a youtube

video

by a gentleman named steve phebus who is

the cfo of pullman

regional hospital in pullman washington

which is in

far eastern washington it's like right

on the idaho

border now this video has like 17

000 views and like over like 170 likes

so how in the world could a hospital cfo

from rural washington state have a

youtube video

with close to like 20 000 views it's

unreal and i'm going to leave a link in

the show notes

but this video is of mr phoebus

presenting to

hospital board members hospital

physicians other hospital executives i

mean it's a small hospital

so it's in like a small conference room

but

he's just so frank and sincere and look

i mean

stephen he's a good guy and so we can

learn so much

when he talks straight about how a

hospital cfo

thinks now like i said pullman regional

hospital is a small hospital it's a 25

minute hospital which is referred to as

a critical access

hospital and critical access hospitals

they actually max out at 25 beds once

you have more than 25 beds you're sort

of no longer considered a critical

access hospital

okay now he also says they do 117

million dollars a year

and build charges and they make about

one million dollars in profit a year

case very transparent about this

now most hospitals end up getting paid

about 50 cents on the dollar

so they probably make about 60 million

in revenue

which means that that profit margin

there of one million

is a little less than two percent right

one percent of sixty million dollars

would be six hundred thousand dollars so

two percent would be like one point two

million

so it's a little less than two percent

profit margin right so they're not like

rolling over uh in swaths of cash for

profit market

now interestingly he also on one of the

slides he breaks down where that

um revenue is coming from it's 66

percent outpatient

23 inpatient and they own a handful of

small physician groups

so it's 11 from the medical professional

groups okay so notice

again the majority of the revenue for

the hospital is for outpatient services

and this is true for most hospitals so

again when we think about hospitals and

hospital finance

we shouldn't think of them as making

tons and tons of money from their

inpatients

it's actually kind of outpatient stuff

it's imaging it's outpatient surgery

it's

lab okay next up he is very frank about

the business model of the hospital

and he says healthy patients are bad for

business why well listen he calls it

like he sees it

because if you have healthy patients

nobody comes into the hospital

and when you have a fee for service

based organization

if you don't have patient volume then

you don't have a hospital

so at the end of the day he says look

healthy patients are bad for business he

calls it like he sees it

now i will tell you in the same breath

he says look we do things

to we have outreach program care

coordination program etc etc all this

stuff

to try to keep people healthy and keep

people out of the hospital he says we

try to do

the right thing but he says multiple

times in this video

that they have to do the right thing and

yet

that is opposite to the financial model

for the hospital itself which is true

right we all know that

that oftentimes it's the way that

hospitals finances set up

that quote unquote doing the right thing

for the patient

actually ends up financially hurting the

hospital and he acknowledges this okay

next up he says look at this little 25

bed hospital in

rural washington they've got a da vinci

robot they do robotic surgery

why in the world would such a small

hospital in central place why do they

need robotic surgery

why okay he explains because they needed

to attract a urologist they only had one

urologist on staff

he was getting very senior he was going

to retire and the only way that they

could attract

younger urologists coming out of their

training was if they had

the da vinci robot system that a lot of

urologists train on in their residency

program

aha so here you have a driver of

healthcare costs

not being like necessarily like patient

demand but

actually expensive healthcare technology

as a physician

recruitment tool and that's an important

dynamic that i think is is is remiss

on a lot of people and mr phoebus points

this out very specifically how a lot of

times you have to use

expensive technology just in order to be

able to recruit and retain the

physicians

okay next up mri prices

at pullman we're too high and he said

because their patients started having

high deductible health plans he says

with deductibles of fifteen hundred

dollars

that the patient started shopping around

and the orthopedist

came to him and said look we're not

getting as many mris done here

because they can go less than 10 miles

away to a competing

hospital and they can get the mri done

for a lot cheaper there and they looked

around at their prices

and they were like the most expensive

place in the area

for mris and guess what they did they

lowered the prices of their mris okay so

for everybody that says that price

transparency and shopping doesn't work

and make the market more efficient

here is a specific example of how a

specific hospital

in washington lowered the prices of its

mris

because of the pressure from patients

that were shopping

on a high deductible health plan okay

we're not making this up this

literally happened it is not esoteric

academia

it happened okay next up he admits

that there is duplication of services at

a competing hospital

only nine miles away so just across the

border

in idaho it's the town of moscow idaho

i had never heard of moscow idaho it's

where the university of idaho

is okay now pullman's got about the

teleport in washington it's got about 35

000 people and the town of muscle's

pretty soon i think it's like 25 000

people

and both of these hospitals the two

times very close together again less

than 10 miles apart only nine miles

apart

guess what they have full er full um

surgical suite mris and so there was

actually

talk in the past about trying to not

have duplication of services between

those two facilities

and the talks fell apart so he's like

look we've got duplication of stuff

at these places it's true now next up

this is the key here this is probably

one of the most golden things he says he

look look he says look

we staff for high volumes at our

hospital regardless of our census

now he says that look at a 25 bed

hospital he said look sometimes our

census is two

can you believe it there's a hospital

that will have two patients in it

and sometimes they'll have the full

census they'll have every bed booked

at 25 patients he says that they still

pay the nurses regardless

but and i think this needs to be said

i'm not trying to be mean or whatever

but

listen when the hospital census is down

and people are still working

there's a lot of people sitting around

okay so

are there times when it's very busy of

course are there hospitals that are busy

all the time

of course are there hospitals at times

where it's incredibly slow

and people are just sitting there

absolutely

and so and the reason he says they still

have to stop so in other at other places

they might like cancel the nurses and

not pay them oh by the way when they

cancel their shift they don't pay the

nurse

he said look if we did that the nurses

would refuse to work in our place they'd

be like look

we'll go work at a different hospital

where they guarantee our salaries

and they're not gonna you know cut our

shifts

and cut our pay just based upon low

patient volume so from a

staffing standpoint they have to staff

for

the maximum occupancy of the hospital

and their costs are not that

variable when it comes to their staffing

because of that

why is this important i told you earlier

that they only made one million dollars

of profit in other words less than

two percent profit margin okay they

could have made a much

larger profit margin or they could have

lowered their prices if they could have

been more variable in their labor

so again the 617 million of bill charges

the 60 million revenue a lot of it is

going towards

it's a jobs program it is a major

employer

in this town so and i'll leave a link in

the show notes to talk about how

a lot of the spend or the waste in

healthcare is really

job creation for people working in the

healthcare field

now i'm not here to say that that is

good bad or indifferent but i am here to

say that we need to confront that

reality

that if we talk about eliminating waste

and health care then we need to have the

frank discussion of saying look that is

going to eliminate health care jobs

again you know obviously it's a tough

conversation to have but we need to call

spade as bait

okay final point i wanted to make what

is he saying

hospital prices are meaningless you have

a cfo of a hospital himself admit

that hospital prices are meaningless

we've said this over and over again on a

healthcare seat

and here's steve phebus is saying the

same thing so i want to thank steve for

you know making a wonderful presentation

again please watch it

it's like an hour and a half long you

might just want to listen to it in the

car

but that's the point i wanted to make

today and thank you for watching a

healthcare seat