Shifting Business Models Vex Hospital CFOs

A large majority of finance chiefs in the health care field feel ill-equipped to adapt to the changing environment using existing processes and tools.
David McCannFebruary 1, 2019

Fundamental changes in how health care is delivered and paid for have been evolving, albeit very slowly, for years. Yet CFOs in the field, already short on confidence in their ability to adapt, are apparently getting even less confident.

In a new study, only 13% of finance executives at hospitals, health systems, and other health-care entities said their organizations were “very prepared” to manage evolving payment and delivery models with current financial processes and tools.

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That was down from 15% in a similar study last year by Kaufman Hall, a management consultancy and software firm.

And, in the new study, just 23% of survey respondents said they were “very confident” in their team’s ability to quickly and easily make adjustments to strategies and plans, a dip from 25% a year ago.

While the declines are small, they represent “red flags that should be of serious concern to health-care organizations,” Kaufman Hall wrote in its survey report.

The changing business environment is evident from the fact that, while 85% of the CFOs said they manage their organization’s financial help, almost as many (80%) said they are responsible for managing patient experience and the quality of care/clinical outcomes.

By comparison, fewer survey participants said they manage operational efficiency (69%) or strategic growth (62%).

Identifying and managing cost-reduction initiatives remained the biggest priority area for health-care CFOs. But predicting and managing the impact of changing payment models moved up the priority list, from third to second.

“With the new payment models emerging, the ability to understand care costs across the spectrum of care is needed, as is the ability to simulate different payment methodologies to project the bottom-line impact,” Kaufman Hall wrote.

A lengthening budgeting process is partly attributable to the tough new decisions health-care CFOs are facing as a result of their organizations’ evolving business models. Last year, 27% of those surveyed said budgeting dragged on for more than half a year. This year, that number jumped to 37%.

Some of the new decisions “may require taking a closer look at the budget implications of enterprise-wide or service-line-specific margins to add accountability for needed cost-reduction work to improve those margins,” the report said.

Unfortunately, budget assumptions at the beginning of such an elongated process may be outdated by the time budgets are finalized. Only 19% of the CFOs said they completed their annual budgeting process in three months or less.

Almost half (46%) of the respondents said long budget cycles cut into the time they can spend analyzing improvement opportunities.

In the area of strategic capital investment, two-thirds (66%) of the CFOs characterized “monitoring the financial impact of projects after they’re completed” as challenging.

Other challenging aspects of capital management included “determining which projects to approve and fund” (48%), “gathering consistent information on [capital-allocation] requests” (44%), “tracking the progress of projects underway” (38%), and “allocating capital for approved projects across calendar periods” (30%).