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New Cook County Health CEO must find millions in savings - stat

Monday, July 14, 2014
Crain's Chicago Business
by Kristen Schorsch

Dr. John Jay Shannon was promoted to CEO at Cook County Health and Hospitals System June 27, and he already has been told to find $67 million in savings in four months.

The health system, one of the largest public hospital networks in the country, is responsible for much of a projected $86 million shortfall in Cook County Board President Toni Preckwinkle's year-end budget figures.

Dr. Shannon says the deficit likely will be less than current projections. But he also says it is unlikely to be erased completely in just a few months.

Most of the shortfall is due to the growing pains associated with CountyCare, the county's innovative managed care program for Medicaid recipients. Many of the roughly 95,000 people enrolled have insurance for the first time, which means Cook County Health could get reimbursed rather than having to subsidize their treatment as charity care. But costs have climbed fast, as newly insured patients sought everything from checkups to pricey treatment for chronic ailments.

Dr. Shannon, who was second in command at Cook County Health before being named CEO, must walk a fine line as he gets a better handle on costs while expanding CountyCare to insure even more patients.

“Getting there takes time, and in the interim it's just a very difficult process of allocating scarce resources,” says Duane Fitch, president of Oak Brook-based consultancy Fitch Healthcare and a former hospital chief financial officer.

With a $1 billion budget, Cook County Health provided more than $300 million in free care in 2013. The system, which treated about 320,000 patients last year, includes John H. Stroger Jr. Hospital on the Near West Side, Provident Hospital on the South Side and several clinics.

Like many public hospital systems, Cook County Health frequently operates at a deficit, though the shortfall has narrowed consistently since at least 2011. That shortfall is made up by Cook County taxpayers.

“The county health system has to treat everybody who shows up,” says H. Woods Bowman, a public finance expert in Chicago and former Cook County CFO. “That's a very unpredictable number, and the revenues are very hard to predict.”

A key source of revenue is CountyCare, which began in late 2012 as a pilot program to enroll patients who would become eligible for Medicaid through an expansion under the Affordable Care Act. The provider network has more than 30 hospitals, for the first time giving many patients access to care outside the walls of Cook County Health.

CountyCare generated nearly $118 million in new revenue in 2013 and is estimated to bring in about $655 million by Nov. 30, the end of the current fiscal year. But the program also served up lessons in managing expenses.

Cook County Health anticipates reimbursing the federal government $33.5 million for money it didn't end up spending on CountyCare in 2013. The county fears a $29 million loss due to a lower reimbursement rate from the federal government, though state officials say the loss might not happen. CountyCare likely will be reimbursed at a higher rate than what it's receiving now, based on figures the state submitted to the federal government, pending approval.

“I think people had some unrealistic expectations that this was going to be some kind of profit center,” Dr. Shannon says.

“We fully expect (Cook County Health) to close their budget gap,” Ms. Preckwinkle's press secretary, Karen Vaughan, says in a statement.

To make ends meet, the health system plans to steer high-risk patients toward preventive care and away from costly emergency room or hospital visits. The system also plans to make smarter decisions with pharmaceuticals, such as mailing medications to patients in a three-month, rather than one-month, supply.

And increasingly, the system must be concerned about competition for newly insured low- income patients, trying to keep them within Cook County Health even as they gain access to a broader network of hospitals and physicians, says Laurence Msall, president of the Civic Federation, a Chicago-based fiscal watchdog group. Cook County Health pays a contracted rate to CountyCare providers outside the system, while the system reimburses itself when it provides treatment.

Last year, 68 percent of claims were for non-Cook County Health providers, while 32 percent of claims were for the health system, according to a 2013 audit of the health system.

“The overall strategy is how do we bring as much of the business internally as we can,” says Steven Glass, who oversees managed care for Cook County Health.

This year, CountyCare could double its enrollment to 200,000. That's more risk, but potentially more reward, too.

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