Talking Healthcare Rolling Forecasting with Hospital CFO

February 25, 2021

In this blog post, we sit down with Chris Pass, CFO of John Muir Health, joined by Strata CEO, Dan Michelson. The two discuss how John Muir is using rolling forecasting and change management in healthcare to respond to COVID-19. Strata is proud to partner with healthcare organizations like John Muir, to fulfill our mission to Help Heal Healthcare.

Dan Michelson: Hey everyone. This is season 1, episode 7, and I have Chris Pass joining, so lucky 7. We’re lucky to have Chris. And Chris is somebody who – Chris we met at… did we meet at HIMMS?

Chris Pass: We did, my first time.

DM: And our first conversation I think was almost like an hour and a half long, you and I just started talking and we realized we had so many common linkages and and things that we were both interested in. So today we’re just gonna have a fun conversation with Chris and also a meaningful one, just to understand how they’re working through all the challenges they need to work through.

Chris is the CFO at John Muir Health, an amazing health system and great customer of Strata. So with that, maybe just tell us a little bit about the organization, Chris, and your background. And then we’ll talk about how you’re working through all the challenges that are in front of you and the team right now.

CP: Yeah, happy to. And thanks Dan, that that meeting at HIMSS, you were the first meeting I had at the first HIMSS I attended and then ended up having to speak, but it was it was overwhelming to see that exhibit hall. I don’t know if you remember or not but you were sharing with me your hacks and you had had a meeting the night before and you were going around with 30 second hacks. And I have found that I have borrowed more of material from you of any other person I’ve met in the industry so thank you for that.

DM: And those were mostly life hacks, right?

CP: That’s correct. And it led me to actually take my son on a one-on-one vacation a couple years afterward, and it was probably one of the best trips of my life. And I need to be a little quiet because my wife’s in the other room. I don’t want her to hear that. Anyway, so yeah.

DM: Good, I’m glad. That’s been a meaningful part of raising our kids is those one-on-one trips that we’ve taken, and now that they’re teen and twenty, it’s kind of hard to get their attention. So I look back on those trips and yeah, they were very meaningful for us, for sure.

CP: Yeah, my dad learned that the nicer the place, the more committed we all were to going as adults. So that’s my hack back to you. How ’bout that.

DM: Exactly.

On the Healthcare Response to COVID-19

CP: So John Muir, we are looking in the East Bay of San Francisco. We have two acute care hospitals, do about 1.8 billion in net revenue a year. We have about 1,200 affiliated doctors in California. We’re not allowed to employ doctors so it’s through a foundation model. Multi-specialty, urgent care centers, surgery centers, joint ventures, sort of the typical collection. What we like to tell everybody is we’re large enough to have to do everything, but small enough to be a little bit nimble. So we service about 250,000 patients a year pretty much spread out and affiliate with UCSF, Stanford Children’s Health, Tennant and then a partnership with Optim.

DM: Got it, yeah, so you guys have been really creative and innovative and you especially are pushing the edge as the CFO, and we’ll get a little bit more into that in a second. But you know the world has changed pretty dramatically over the last few months and just maybe you could speak to personally and professionally how you’re working through it with COVID-19.

CP: Yeah, you’re right. I mean it’s it’s, and I call this the most overused word right now, unprecedented. And we actually had patients on the cruise ship that from the very early stages of this actually came to California when they they finally let them off that cruise ship off of the coast of of Asia.

DM: That seems like it was three years ago at this point.

CP: Exactly, and so we were ready for patients. They ended up dispersing the patients throughout Solano County, which is a county to the north, and then we got a fateful call on a Saturday and they said, you know, we’re sending a patient and they have COVID. So we fortunately had about two weeks of being able to prepare. We had always prepared prior to you know, once we learned of it because typically we have a lot of travel on the west coast back and forth to China.

And so we started to see our first patient and we implemented what’s called an enterprise command center and its sole purpose early on was just to communicate. There was so much swirl going around about this and people coming out on the news saying, we don’t have patients, we have patients. And we were really fearful to what happened when the Ebola cases came to the United States and you know everyone evacuated because they were scared frankly of Ebola. So our governor shut down the state really early, the five kind of contiguous counties around the Bay Area shut down even earlier than he did, and you know I’ll talk to colleagues around the country and they’re somewhat still open. We’ve been shut down so our mantra at home was my wife literally was flying home from New York with a new Great Dane puppy the day the lockdown happened.

DM: Wow. The timing.

CP: Yes. We saw that happen and then when it looked like it was going to go on for a while and school was closing, we sort of said okay what could we do in our home to make this fun so I think we’ve gotten a foosball table, an air hockey table, we had ping-pong, everybody has a new bike and so we’ve been searching for these things that we can all do as a family and so the exciting thing that I’ll say about that –

DM: And you can do that under the umbrella of, oh this is for the kids, when in reality the foosball table that was pretty much for you and you know, we know how this works.

CP: That’s right and the further we go with this side the more I think I maybe should have gone into the office because I know I’m going to get in trouble because I talk too loud. Anyway and I probably say the most beneficial part of this for me is I’ve become a novelty again for the family, because my wife and two kids are homeschooling and home all day with just the three of them. So when I walk in the door at the end of the day, I’m like something new that they haven’t seen for eight hours and so they’re just fascinated. So it’s been really interesting too, not that I haven’t had a great relationship with my kids, but it’s just been fun because I am that, “Daddy come do this with me, come do this with me.” So it’s been a good time.

On Healthcare Costs and Advanced Financial Planning

DM: Yeah, for sure, for sure. You know I mean, you’ve always been a creative guy and a bit of a contrarian and there was a recent article where you made the statement, “frankly healthcare is just too darn expensive.” And you don’t hear that from a lot of CFOs. And in the second part of that discussion, you outlined how you felt Strata was really part of the fix, so could you unpack that a little bit and just give us a little bit of your thought process on both parts of that.

CP: Yeah you know, you don’t, I’m sure you find this, your customer base, they all care much and you know they all want to do the right thing. And I’ve had doctors and nurses come to me and compliment the skillset of being able to talk “clinical,” and that translation of clinical to financial is very difficult for many people to make. And so, the thing that we liked about Strata was we could take an arcane six-month process of a budget, that people were entitled to, that, “Hey, we’re gonna put all this money in your bank account and you just go spend it during the year” to “You know it’s not, you can’t really control a lot of your business. Let me have you manage what you can control.” And for a nurse who can manage a patient that they can see in front of them or a floor of patients or whatever, that all of a sudden resonated with them.

On Engaging Clinicians with Healthcare Finance

And so now, we put tools in their hands that they can actually look at. They know how to use it, they’ve become advocates. And we actually created a Pied Piper of Finance program. So all of the departments have a Pied Piper that they go out and speak about the financials and they explain financials in the terms that their colleagues can understand. And so the Strata tool, we give them things that they can control: labor cost per unit, supply cost per unit. And we have targets and we can essentially force the cost down and everybody can improve a percent here or 2% there. Improving 10% is very scary. Improving 1% to quarter, that’s kind of easy and over three years, you take 15-20 percent out of the cost of healthcare. So, your tool enables us to do that in a way that is not scary, frankly.

DM: Yeah, but you know what is scary to a lot of people, a lot of CFO’s, a lot of your colleagues, is making the transition that you speak now that sounds so simple when you talk about it the way that you do. So maybe you could talk about what kind of what went into that decision to shift away from the traditional budgeting process, how did that all come about and how did you bring that, how did you pull that for it?

On Shifting from a Traditional Healthcare Budget to Advanced Financial Planning

CP: You know that I have to give all of the credit to Mika Taylor. So she’s in charge of our budget, financial planning and analysis, in charge of budgeting. And so this is a little bit an unknown story. So I’ve been in John Muir a little over 10 years, actually 11 years now, and I took over the analytics function. And we had decision support and budgeting, and that was as close to analytics as we had at the time. This would have been about six years ago, and Mika was just a star at that time. We worked really well together, she was great. And you know those teams were trying to figure out did want to go to analytics, did they want to go to budgeting? And so I was gonna be in charge of analytics, our controller was gonna do budgeting. So I was making the pitch, “Why would you want to do budgeting? You know, come to analytics, it’s much better than budgeting. Who wants to do a budget?” And the funny thing is it’s now probably one of the funnest parts of our jobs.

So, we we took the budget process, we watched all of the problems we had had in a traditional budget process. And Mika I think had sort of attended some of the Strata user groups, talked to the colleagues, and said, you know, “What do you think about this and the forecasting and whatnot?” And we likened it to somewhat of your home budget and it resonated with us. We got the finance team together. Mika put on almost a half day “retreat” I’ll call it, where we talked about doing this, everybody got bought in on it. And then we needed to convince the operational leaders and again, at that time, I was really young as the CFO. I was, or, “early” in my career, never young, but early my career. And we were getting ready to have this conversation. Our senior leaders belong to the Leadership Institute so they were away at a conference listening to other health systems talk about how they do things. And I get a text from them saying, “hey Chris, we just heard this really invigorating talk about a new budget process, we want to talk to you about it when we get back.” And so I respond to the text, “oh do you mean like setting targets that people can hit on an ongoing basis and ratcheting it down?” “…Yeah!” And so it became almost simple to convince them, because they had heard it from someone else, everybody was raving about it, it was an easy transition.

On Culture Change in Adopting Dynamic Forecasting in Healthcare

We have folks who don’t change very well so they struggled with it, they were late to adopt. But they saw their teams save five months of time and endless arguments around, “I’m not going to give a dollar because you’re gonna give a dollar.” And so it was easy to convince. We took it to the Finance Committee to talk about this dynamic budgeting and what we were doing, and had this chair go, “Does this mean you’re gonna keep moving the target?” It’s like, no, we’re gonna, we’ll use our third quarter forecast, we’ll present our target for the next year, and frankly we’ll be able to run forecasts every single month to be able to tell you how we think the year’s gonna go.

Since then I’ve heard many for-profit companies, non-healthcare, they run five quarter forecasts and it’s sort of a best practice. And so we’ve gotten incredible interest about this, both from the folks you talk to, but I interviewed somebody to be on our investment subcommittee. They were doing research on John Muir, found the article and started to question, “How did you do this? I want to take this to our portfolio companies, this is fascinating.” I mean, and so it really has been probably the most prevalent interest that I get from outsiders, and even to the point that with COVID, people particularly June 30 hospitals, they’re trying to put a budget together. The last quarter is a disaster. In [talking to] our Finance Committee, our volumes haven’t been this low since 2012. Think about you know trying to plan with this in the middle of it and having no idea if it’s going to come back. So people were finding Mika through LinkedIn and whatnot, talking, “How did you do this? We need to implement this and maybe implement it tomorrow.” So it’s been a really rewarding process and to your point maybe contrarian, but I think we’re somewhat of a leader in that space.

On Sharing Advanced Healthcare Finance Strategies with Other Organizations

DM: Well, anybody who’s going to be innovative has to be contrarian in that moment right, because that’s what defines innovation is other people aren’t necessarily doing it. And you guys were definitely early movers, so you just said a couple things that I really want to dive into just for a second. One is just with what’s going on with COVID-19, you know you said that there’s been a tremendous amount of inbound interest coming to you right? Just in terms of people wanting to learn.

Do you feel like we’re ever going back? Like, do you feel like those organizations who will flip that switch now will then go back to what they were doing before? And that’s very similar to what’s going on with telemedicine right now, like you have to do it now so people are doing it, but I don’t believe a lot of people think we’ll ever go back. I think they believe it’s gonna be a permanent part of our care delivery system moving forward. Do you feel that same way about this shift in planning?

CP: I do and I’ll tell you why I do. I think they’re certainly, the telemedicine I think is somewhat of a no-brainer because everybody likes it, right? But this moving the budget, everybody doesn’t buy in right away. But the other thing that happened that may not be as transparent to everybody is – I think – and we certainly did this but, as I talk to others, it’s the same thing… we let perfection go away. And so all of a sudden, we were okay with implementing things that were good enough, because we had to.

And so we put it in, we accepted the change, and then we continued to make it better. I think, if people take that same learning and we’ve all talked about “what do we take from what we learn from COVID-19 and continue to transform healthcare?”, if we continue to do that I think those systems will never go back. Because they’ll now all of a sudden adopt the process out of necessity and then they’ll continue to iterate and make it better over time. And I think they’ll find similar to what we found, it’s just a better way to do things. Because –

DM: – yeah, and it’s just unpacking that “better way” comment a little bit, Chris. Like if you were talking to a group of other CFOs at dinner and they were saying, “hey, what are some of the biggest benefits that you’ve seen?” – which is really what they’re trying to ask is “how do I sell this?” you know, what would you say?

On the Pitfalls of the Traditional Budget in Healthcare

CP: So the reality of the budget: the day you publish it, it’s wrong. And so the reality of a dynamic budget is you literally can recast it every month and I would not be surprised if, as we continue to harvest more and more data in our ERP systems get better and whatnot, I wouldn’t be surprised if you can continually forecast within a month, within a quarter, you know. And you’ll continue to iterate and make it better. And so the flexibility it gives you and the uncertainty of healthcare and frankly COVID-19 proving that, I mean nobody knew we were gonna empty our beds out in the middle of March. That completely changes all of your plans and it’s hard to plan long-term and so I think having the tools in place that you also can engage all of your users and empower frankly all of your employees to make a difference, that’s a huge win for you.

Because you don’t want an organization where the CFO is telling everybody “cut costs, do this, do that,” it’s just you know, everybody goes into a survival mode. Which is bad for everybody. So you really want to empower those teams. I mean, you know, nurses are highly educated, very bright adults, I mean you’ve got this tremendous workforce, you might as well leverage it to do other things than just care for patients, so you can improve the financial health. And you can’t do that without those tools, and a once-a-year budget is not something that they’re gonna engage with, frankly.

DM: Yeah, I forget the estimate, I think there is a couple million dollars in savings just by cutting out this process for you guys alone, so you’ve saved all these hours as well. These meetings that really were meaningless. So I guess you know, take a broader look at Strata, you know. So if you were in front of our team today, which in some ways you are, and you were to give a message to them about how they can really help heal healthcare and so how are they are making a difference as a company, what is your lens on that? What would you share?

CP: That’s a great question because there’s a lot of ways to sort of answer that question. You know, I think that the the biggest thing that you’re doing is you’re making something in healthcare that is not front and center to everyone, but you’re empowering thousands of people. And the more involved and the more folks you have involved in the system and the platform, the better we all can be from it and the more we can learn from it. And so, you put out a study, I think it was earlier this month, around, “hey, what happened?” And I think as you and I were talking, you realize well, I’ve got all this insight because of the power of the cloud and the power of the network that we’ve built.

And so as you continue to put things in there, it’s been inspiring to see you build this library of best practices, so now all of a sudden we can take those tools and use them. And I’ve talked to folks in other industries and they’re shocked how we don’t collaborate with each other. Where he came came from the energy or utility industry, he would call other utilities and they would talk about how to do things and share ideas. And he got into healthcare about five years ago, the CEO of a health system up in Minneapolis or Minnesota, and he said people don’t share like they do in other industries. And you’re creating that environment to share, so the more folks that your teams can get on board the better. It is for everybody.

DM: Yeah, you know it’s interesting, just reflecting on this conversation, because it’s almost like every other conversation we’ve had. And I always think about this because we’ve talked to so many different CFO’s… Like there’s two kinds of CFOs, they’re sort of on offense or on defense. And you’re on offense. You’re either regressive or progressive, and you’re progressive. And then you’re either pessimistic or optimistic, and you’re really, you know obviously this is a very optimistic, forward-looking conversation.

So I just appreciate the opportunity to work with you and your team and spend time, you know, talking about the things that we talked about and really trying to make a difference in support of all the great work that you and your team are doing at, you know, the hardest moment in the history of healthcare. You know we’ll never have a bigger test of leadership than right now and one of the things that’s always been, you know, so thank you, I guess first and foremost for joining us today.

CP: My pleasure.

DM: And you know, one of the great things about John Muir is just the culture. And I found it really interesting how you called out Mika, and not surprising at all. So you know, that is indicative of the kind of culture you have in your team that your organization has, and you know, I thought it might be good to give our team a glimpse of what that culture looks. So with that, have a wonderful holiday weekend. Thank you again to Chris Pass for joining and let’s take a look at the team at John Muir.

CP: Thanks, Dan.