Healthcare chief financial officers must confront a changing industry with careful strategy.
This article appears in the May/June 2019 edition of HealthLeaders magazine.
Disruption to the way hospitals make money is not just a looming threat anymore. It's here. And hospital chief financial officers know that their organizations must face a changing industry with some brutal honesty and careful strategy.
HealthLeaders will gather an invited group of 50 hospital and health system chief financial officers for the HealthLeaders CFO Exchange August 7–9 in Kohler, Wisconsin. Here are some of the trends the CFOs will discuss:
1. Disruption = dollars flowing out of hospitals
Hospitals have for years balanced the ledgers with profitable services like lab, imaging, and outpatient, making the margins pay for inpatient services that have lower returns. That imbalance left prices for those procedures high, and the government has stepped in to even out certain payments for hospital-based services and innovators who are undercutting hospitals with lower prices and easier technology.
"The way our financial model has worked isn't working anymore," says Jim Wentz, chief financial officer at Ochsner Medical Center in New Orleans. "That's what disruptors are coming after—things they can easily do, making it easier and less expensive for patients."
One example is in imaging, which has been a profitable sector of inpatient volume, Wentz says. "Imaging is becoming commoditized. Hospital-based imaging centers get reimbursed at 2–3 times higher (than non-hospital-based imaging). Employers are paying for this and don't want to anymore."
Rick Hinds, chief financial officer of UC Health in Cincinnati, also sees disruptors coming, but as a tertiary referral center, the disruptors aren't the same.
"We are seeing incursions on our core book of business, which is complex care," Hinds says. "They are disruptors, if you will, but more from inside the industry than outside. This is being driven by economics; usually the higher-end services are more lucrative under today's payment methodologies."
Many health systems are investing in new revenue streams and backing their own innovation ventures, Wentz says. "We're doing a lot of innovative stuff, but the investments we're making in innovation pale in comparison to (such disruptors as) Amazon or UnitedHealthcare. Their artificial intelligence is so good."
These disruptions aren't just nipping at the fringes of healthcare finance; they are going straight to a balancing point.
"Inpatient—quaternary and tertiary services—for most of us are not the profitable ones," Wentz says. "We achieve some margin, but those really are being supported by outpatient. This—along with the push to have more transparent pricing and the discounts we accept off that pricing—will cause big problems. From a financial point of view, how do you make that work organizationally when that's the way our business works?"
2. Technology = questions about ROI
At a time when there is more pressure than ever for health systems to adopt both information and clinical technology, hospital finance leaders are pushing executive teams to be mindful of the overall cost curve and prioritize technology investments that deliver maximum dollar and clinical value.
"Information technology is expensive, and trying to decide how much and what type is needed can be challenging," says Bernadette Spong, chief financial officer at Orlando Health. "How much to spend on cybersecurity, AI, EHR and ERP hardware, and other applications is a topic of discussion for our senior leaders, led by our CIO."
Healthcare economics are quirky because, in many cases, hospital and health systems do not see returns in efficiency or cost from investments in technology.
"We do a fair amount of telemedicine," says Wentz, "and the reimbursement is just not there. We're the only industry that gets penalized for new technology such as robotics. [New] noninvasive spine procedures costs are covered the old way, so we don't get properly reimbursed or there's a lag time."
3. Talent = new skills and burnout
All members of the hospital executive team are looking to manage a new labor dynamic in which high-value skills demand ever higher salaries, while provider burnout and mobility make the loyal healthcare workforce harder to achieve. For the CFO, these talent issues have real dollar implications.
"Clinician burnout and resulting turnover are a big issue, both on the physician front as well as frontline caregivers," Hinds says. "This is being driven by lifestyle changes of our younger workforce, as well as the demands of EHRs and increasing regulatory burden."
That regulatory burden can show up in staffing levels, adds Wentz. "The acuity is increasing in hospitals. Most of our case-mix index has gone up dramatically over the past few years. Our nursing ratios used to be around 6:1, and now we're seeing acuity of patients driving more stringent nursing ratios of 4:1 or 3:1."
The CFO Exchange is one of six healthcare thought-leadership and networking events that HealthLeaders holds annually. While the events are invitation-only, qualified healthcare executives, director-level and above, will be considered. To inquire about the HealthLeaders Exchange program, email us at email@example.com.
Jim Molpus is the director of the HealthLeaders Exchange.
Photo credit: Pictured above: Bernadette Spong, chief financial officer at Orlando Health (Photo by Dana Hartig)