More than any other concept in health care, value has become a guiding principle for health care leaders and stakeholders as they wade into the era of health care reform. To assist health care financial leaders in their drive to value, the Healthcare Financial Management Association (HFMA) launched the HFMA Value Project, yielding a collection of case studies, presentations, and assorted educational resources that can be found on its website. HealthCXO spoke with HFMA’s Richard Gundling, VP, Financial Healthcare Practices, to identify the key financial issues facing hospitals and physician practices in 2013. HealthCXO: What do you see as the key financial issues of 2013 for hospitals and physician practices? Gundling: The biggest issue is the continued implementation of the Affordable Care Act. There are a lot of changes going on that move to value as the payment system begins to change from paying for volume to one in which being accountable for the outcome of the service is rewarded. All of the changes that will be required are going to be top of mind for hospitals and physician practices. As we see large budget deficits continue, both on the federal side and at the state level, I think we are still going to see some draconian rate cuts in the Medicaid and Medicare programs to balance their budgets—and health care is a huge part of those budgets. Physicians and hospitals are going to be working much more closely together as they move toward value: We are seeing a lot of integration—both consolidation with hospitals and integration with physician practices—and expect to see much more blurring of the lines between hospitals and clinics. With accountable care organizations and penalties for readmissions, integrated delivery systems are becoming more prevalent in care delivery. When you can coordinate an episode of care all the way from acute to post-acute, you can align all of those services. There’s the belief that there will be better control over outcomes. As providers are paid based on bundled payments, episodes of care, and, eventually, population health management, coordinating all of that care will be key, and we are seeing a lot of movement in that direction. HealthCXO: With regard to the hospital sector, are the issues different for nonprofits and for-profits? Gundling: They are very similar. The not-for-profits are going to need to spend time describing their societal benefits, their community benefits, making sure that that is well communicated. There is still going to be charitable care and bad debt and that is one part of the community benefit, but there also is a lot of community benefit around medical education, meals on wheels, and all of those kinds of support services that not-for-profits provide. Because of the Affordable Care Act, there will be this common perception: Well, we extended coverage, so why are you tax exempt? There is going to be insurance expansion, but it doesn’t expand to everybody. Even though it expands to cover certain health care needs, the needs are much greater than what an acute hospital provides, and a lot of not-for-profits provide a lot of that type of care. On the for-profit side, they provide quite a bit of community service as well. They will have challenges as they expand their markets. So many are in the rural areas, and they need to get that economy of scale going to make sure that they are providing value not only to the community, but also to their organizations. I think we will see them go into other areas, such as urban areas, where they traditionally have not been. HealthCXO: Which of these issues will present the greatest challenges for health care leaders, and what are the resources they will need to draw upon? Gundling: The greatest challenge will be looking at health care to be more accountable for the care it provides. The private sector is also moving in this direction, and that is the drive to value. These organizations are going to be really challenged to develop the capabilities necessary to move in that way, and there are four that they need to get very good at. One is performance improvement. How do you sustain dramatic quality and cost improvements? How do you drive the organization to get there? The second is business intelligence. How do you have the systems in place to measure these performance metrics and manage that on a real-time basis? Then there’s risk. As we move to value, a lot of risk in these contracts is being pushed onto hospitals and physicians, both from Medicare—we’ve seen penalties for readmission and they also are doing value-based purchasing, both for physicians and for hospitals. The physician programs will begin in October 2014 (federal fiscal year 2015), and what that does is put more of your revenue at risk toward managing these quality improvements. A lot of providers—particularly physician practices and hospitals—aren’t used to managing risk in that way. The last one is developing a people culture—how do you create a culture that supports these changes? Those are the four capabilities that organizations have to have in the future. HealthCXO: What assets will physician practices need to add to their financial armamentarium for success in the new health care paradigm? Gundling: It’s not just hospitals forming accountable care organizations. We are seeing a lot of physician practices forming ACOs, but through consolidation, they have grown into large physician organizations. We do see the physician practices gaining those capabilities to be able to manage risk and contract for risk, because many times they have the capabilities to drive performance improvement and quality metrics. Physicians and practices are well positioned to do that. They will need to become very collaborative. If you are managing an episode of care or population health, the paradigm changes. How do you keep that person well and out of the hospital? How do you manage these chronic diseases? Right now, you are paid to do a surgery. It still takes your professional expertise and medical training to [keep the patient out of the hospital], and you should be rewarded for that. Right now, we don’t pay you for that, you can’t pay your mortgage with that. Hopefully, when the payment system changes, that is what is going to happen. HealthCXO: What specifically will they need: software, actuarials, working with the payors? Gundling: It is going to be all of that. With some of the ACOs or joint ventures, they can manage parts of that process through contracting. A lot of physicians are selling to large health systems to get that capability. I don’t think there’s a one-size-fits-all plan; it depends on your area. Physicians are all going to have to have this capability, but how they get it depends on what is right for them. It could be a hospital, it could be an insurance company. Walgreens is starting to do this. Who will be at the center of accountable care organizations is still playing out. In a population health management scenario, being in an acute care hospital is a high-cost way of doing that, at considerable expense versus the revenue. So, we are still working through that; we are in our infancy right now. HealthCXO: If value is central to the future of health care, what is the best advice you can offer leaders of hospitals and physician practice organizations? Gundling: Stay nimble, we are in this period of experimentation. Look at your organization’s current and desired state in a value continuum: how you provide high-quality, low-cost care. Develop those capabilities for your organization that I just talked about around performance improvement, people and culture, business intelligence, and contracting and risk. Develop a process to measure how you are moving toward those capabilities. Pick where you want to be and start moving your organization toward that. HealthCXO: How is HFMA responding? Gundling: We are doing some of that training, making sure that people are aware of the changes going on, and sharing best practices from organizations as part of our Value Project. Can providers actually do what these payment systems are requiring them to do, and what do they need to get there? We looked at some leading organizations to see what the “secret sauce” was to share that with the rest of the industry. Of all the forces transforming health care, probably the most significant is moving from volume to value. We put together a group of leading stakeholders—government payors, commercial health plans, lawyers, leading health systems, physician practices, the American College of Physician Executives—and we started peeling back the onion to understand what these changes mean. That’s when we recognized the amount of collaboration between finance and clinical that will be required. Value brings both of those expertises together: The physicians and nurses around the clinical and the finance around the cost. You can’t have one without the other. A lot of physicians worked their entire careers and never talked to the chief financial officer—and the other way around, as well. That can’t happen anymore. Cheryl Proval is editor of HealthCXO.