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5 Keys to Manage Capital Resources

Analysis  |  By Gregory A. Freeman  
   January 29, 2018

Healthcare CFOs are facing demands for growth at the same time payers are looking for lower costs. Proper management of capital resources is becoming the key to making it all work.

Optimizing capital resources will become a top priority as CFOs face another year of financial pressures from changing payer and consumer dynamics. Volume and price pressures will continue to strain operating margins and outstrip available resources.

Hospitals and health systems will struggle to find enough capital to fund information and clinical technology, as well as expansion of outpatient facilities and replacement of aging facilities, says Laura Jacobs, managing principal of GE Healthcare Partners.

"There’s no letup in sight in the continued requirements to balance capital requests," Jacobs says. "Many states are facing more scrutiny of Medicaid dollars and on the Medicare front. Many health systems are already struggling to breakeven on Medicare revenue and that has become the mantra of many healthcare CFOs, trying to remain functional and breakeven on Medicare. But many organizations are still 20% off reaching that goal."

The unpredictability of health insurance and payment models will combine with pressure to reduce base rates on commercial contracts, forcing systems to find greater efficiencies through patient care redesign, utilizing high-value supplies and outsourced services, and considering performance-based contracts with vendors, Jacobs says.

Payers continue to put pressure on providers to accept less in reimbursement or put more money at risk with performance-based payment, she says.

"There is no opportunity for CFOs to just increase rates. Most payers are looking at no room to increase, or even decreasing rates," Jacobs says. "That pressure is going to continue and has no signs of abating. The only way to generate improved revenue is to do better on these value-based payment methods, whether that is reducing readmissions, or improving quality indicators."

CFOs must look to creative asset management to optimize capital resources, Jacobs says. She suggests these top five strategies:

  1. Repurpose underutilized or older facilities to meet demand for postacute, rehabilitation, or behavioral health services.
  2. Create capacity command centers to leverage data and analytics to ensure that health systems are effectively utilizing inpatient and outpatient facilities. "This is a very capital-intensive environment between the need for information technology and the replacement of aging facilities, and the need to expand their footprint in the outpatient arena," Jacobs says. "There is no end in sight for the need for capital to help transform organizations, or even to maintain existing facilities and operations. CFOs and leaders of health systems need to be thinking about how to optimize the capital they have.
  1. Consider how much room there might be for improved efficiency and better resource management, she says. For example, an organization that is currently operating relatively painlessly at 80% or 85% occupancy should look at issues such as improved technology, managing bed load and bed mix, and improving throughput to reach 90% occupancy, she says.
  2. Use technology (i.e., telemedicine) more effectively to reduce the stress on physical facilities by reducing the need for patients to come to them. Creative operations can maximize the utility of those facilities. "Do we really need all this space, or can we do smarter space planning? Can we look at patient flow and use our existing facilities better to avoid building that new patient tower?" Jacobs says. "Many vendors will help you preserve the organization’s capital through asset management or providing equipment that can be leased back to the organization, so that the health system can focus on how [it's] operating and delivering care rather than sinking more capital into it. There are more opportunities to do that today than ever before."
  3. Consider using philanthropy to support capital needs for programs and facilities that may have minimal or no immediate financial returns but are critical to improve health outcomes or provide a more patient-friendly environment.

Jacobs expects to see continued growth and integration. That will require focusing on simplifying decision-making and governance, developing systemwide clinical operating structures, streamlining operations, and leveraging assets and information technology investments.

There will be continued focus on how organizations become relevant and even indispensable in their market and, in many cases, that means grown and continued acquisitions, she says. This is true on both regional and national levels.

"The challenge is, as organizations are growing horizontally and vertically, to create efficiencies out of that. In many cases people are just pulling systems together and not truly looking at how they are going to integrate corporate functions and support functions to benefit from the improved efficiency that can be gained by scale," Jacobs says. "There is still a lot of room for improvement for realizing efficiencies with scale. It can be done, but it requires some hard choices about what decisions are centralized, which ones are decentralized, where to prioritize clinical resources, and creating streamlined decision support structures. That’s where hard work needs to happen."

Gregory A. Freeman is a contributing writer for HealthLeaders.

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