Editor's note: This blog is part of Fiscal Fitness, a regular H&HN series exploring the cost containment strategies hospitals are employing in response to reimbursement pressures and an uncertain economic climate. Read more at our Fiscal Fitness page.

There's no point in burying the lede in this one: Catholic Health Initiatives faces a $2 billion operational gap over the next five years. That's "Billion," with a "B."

Now, no one expects the Denver-based health system to go belly up or anything like that. No, the system seems to be too well managed for that. On many levels, CHI is one of the nation's leading health systems. Its executives are regular participants at the AHA-HFMA-Citi Nonprofit Health Care Investor Conference, which takes place every spring in New York City, and their presentation always draws a big crowd of financial analysts eager to hear how such a diverse organization — 76 hospitals in 44 markets — can typically retain a positive balance sheet.

But these tight financial times are hard on every provider, the leaders are no exception. And they are only going to get tighter as state and federal budget cutters look to get control of runaway deficits. Private payers too are ratcheting down on payments. Even the promise of millions of newly insured patients under the ACA isn't necessarily a boon for providers like CHI since many of its hospitals are safety nets and rely heavily on Medicaid.

"Historically, we've been challenged to be profitable on Medicaid," Michael Rowan, executive vice president and COO, told me during a recent interview. "The ACA will bring more people into the system, but they're more likely to be paid at Medicaid rates."

During the last 12-18 months, CHI did a deep dive into system operations, Rowan says, and that's when executives realized that the system was likely to face the mammoth $2 billion gap. And it's not as if the system was sitting still. Starting in 2009, it embarked on a cost cutting initiative that trimmed nearly $250 million. In the supply chain alone, it saved $90 million over four years by reducing variation.

Moving forward, Rowan says, the health system must shift the bulk of its attention away from the "low hanging fruit" and toward the complicated clinical front if it's truly going to be able to deliver high value care.

"The challenge isn't so much that we have to cut costs as it is setting up a CHI standard," he says. "We are challenging our markets to get on that standard."

Rowan says that one of the biggest keys is to reduce clinical variation across the entire system. That, of course, is easier said than done in a national system that doesn't employ many of its physicians.

CHI started an initiative a few years ago that seeks to push best practices and evidence-based medicine throughout a service line. Specialists in a specific area, say cardiology, come together and discuss clinical protocols that can and should be adopted across CHI. As the system continues to roll out its electronic health record, those protocols will be incorporated into a robust clinical decision support tool, Rowan says. CHI hopes to save between $100 million and $150 million over the next five years by reducing clinical variation.

In the end, Rowan says, it is all about finding a way to deliver "a higher value of care and lower costs."