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Analysis

5 Keys to Manage Capital Resources

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.

Gregory A. Freeman is a contributing writer for HealthLeaders.


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