Are Fractional CFO Models the Next Big Trend?

A different type of CFO model is growing in popularity as health systems face high turnover rates.

As the CFO role becomes more demanding, health systems and hospitals are seeing an exodus of chief financial executives. A recent study put the CFO turnover rate at 22% in 2024, a three-year high.

To address the turnover problem, some organizations are turning to fractional CFOs.

A fractional CFO is a chief financial executive who works on a part-time or project-based basis rather than being a full-time employee, and differs from an interim CFO, who is at the organization for a shorter period of time, usually during a transition. Fractional CFOs can give organizations a cost-effective way to access high-level financial guidance without the expense of a full-time CFO.

Fractional vs Traditional

When deciding to go with fractional a CFO vs a traditional one, it all depends on what the health system needs, both in the short term and long term. Weighing direct costs like salaries and benefits against indirect costs such as overhead, training, and opportunity expenses is essential.

Costs

Although traditional CFO salaries vary widely depending on the size and operations of the health system, the average healthcare CFO salary is about $123,000. In addition, typical CFO compensation includes benefits and long-term investment.

For fractional CFOs, compensation is usually based on hourly rates or monthly retainer fees, with studies indicating the average hourly rate for fractional CFOs in healthcare is between $200 to $350 an hour.

It's critical to examine this direct cost; while traditional CFO positions require more substantial salary costs, with fractional CFOs, health systems can avoid high fixed expenses and pay only for the time needed.

Strategy and Responsibilities

While traditional CFOs provide deep integration and continuous oversight, a fractional CFO can be tailored to include only the necessary strategic tasks, such as financial forecasting, risk management, or cash flow analysis. 

A flexible financial leadership could allow health systems to scale services during rapid change without long-term commitments. However, if a health system is looking for more of a strategic financial partner who is dedicated to the mission of the organization, continuous collaboration, the culture, and the staff, a traditional CFO hire might be more fitting.

Executive Insight

Brandon Williams, CFO of Providence, a HealthLeaders Exchange member, says fractional CFO models may be on the rise in healthcare because of the flexibility and lower costs.

"I do believe we will see more fractional CFOs or similar models in the future," he says. "Many fractional CFOs have a diverse background and processes they have learned in other disciplines."

While there are benefits to both, Williams says the key is how health systems align long-term

 and short-term strategies.

"A fractional CFO is not a long-term answer for large complex organizations, but they can bridge knowledge gaps, implement sustainable processes and provide strategic guidance."

Other Fractional CFO Models

Sutker-Moran, a business consulting and CFO services firm with healthcare clients, uses a team-based fractional CFO model, deploying a small team of financial executives who are paid as W2 employees through the firm. The team typically consists of three employees: a managing director (thought of as the CFO), a director (thought of as the controller), and a staff associate.

"At the end of the day, we're trying to provide the skill set and role needed for the company, mirroring and matching what the demand is of that business," says Scott Moran, president of Sutker-Moran. "So complexity could drive that, size could drive that, a lot of things can drive it."

GuideStar ElderCare, a provider of neurobehavioral eldercare and dementia care medical services to long-term care, nursing facilities and memory care facilities, is putting that model to work.

As the organization expanded to meet growth needs, Founder and CEO Steven L. Posar, MD, said he wanted someone who understood the financial concerns of a larger provider.

"The people that we had in place, simply weren't able to evolve with the change," he says.

Being an almost exclusively government-funded organization through Medicare and Medicaid,  Posar says the organization also needed someone who was familiar with these programs as the pressure to hire ticked up.

Besides basic blocking and tackling financial tactics, Posar says flexibility was a key to making the decision. The organization needed someone to make sense of managed cash flow, the RCM function and "an organization with multiple capabilities that we could flex as needed."

Moran says he believes that more healthcare companies, will explore these models as they grow in popularity.

"The marketplace is changing the demands of the CFO is at an all-time high, and the supply," he says. "is continuing to diminish really from both ends."

Key Considerations

When deciding to go with a fractional vs traditional CFO, there are a few key considerations health systems must examine including:

-Direct costs: salaries, benefits, overhead costs.

-Indirect costs: onboarding, training, any additional costs that impact health system finances.

- Flexibility and scalability: adjustable service levels based on immediate needs versus long-term commitments.

- ROI and efficiency: measurable improvements in cash flow, profit margins, operational efficiency etc.

Companies can conduct a comprehensive financial leadership cost comparison by focusing on these elements and deciding which is best for the organization.