CFOs of rural hospitals must be diligent and creative with their financial strategies.
Ohio-based Community Memorial Hospital (CMH) permanently closed its doors on August 31 due to financial challenges. The closure will have a major impact on the surrounding community, but it did not come as a big surprise.
In May of this year the hospital temporarily suspended its services. When its Chapter 9 bankruptcy application was rejected, the health system found no viable options to remain operable and was forced to shut down.
The root of these challenges, according to reports, stemmed from a fraudulent laboratory agreement in 2016 which ordered the hospital to pay $25 million back to insurance companies.
The hospital also faced issues related to its new electronic health system in 2021, and changes to Ohio’s Medicaid payment system in February 2023 exacerbated finances further.
In another blow, the hospital was hit with two cyber-attacks, leaving it with liabilities and security issues.
In a statement, CEO Bill Cherry said the majority of hospital staff have lost their jobs, and that the building and the equipment will be sold.
As a critical access hospital (CAH), the impact of this closure cannot be understated, and much of the community in Northwest Ohio and Northeast Indiana will now struggle to find care nearby.
"They are going to have to drive 30 miles or more to receive care," Cherry said. "There are a lot of elderly people within the community and a lot of them don't drive or don't like to drive, so it makes it a challenge to go and get their healthcare services."
Regulatory Environment & Strategic Response
CMH’s closure underscores a persistent issue in the healthcare sector: the financial sustainability of small and rural hospitals.
Calls will need to be heard for systemic reforms to support the financial stability of small and rural hospitals. Some viable solutions include adjusting reimbursement rates, providing targeted financial assistance, and investing in technology and telemedicine to improve access and efficiency.
The CFO Takeaway
Rural hospitals have seen a pattern of closures over the last decade, with 192 rural hospitals closing since 2005. CFOs of rural organizations must employ strict strategies for financial profitability to stay operational. They may also need to strategize more aggressively than urban health systems to avoid financial issues.
The most unique hurdle in the case of CMH was its fraudulent laboratory agreement. While it may have been a rare occurrence, executives of rural health systems must carefully consider third party agreements to avoid similar mishaps.
Cybersecurity is another issue, for all health systems as well as rural. It’s well known by now that cyberattacks are becoming increasingly more common in healthcare, and health systems must be prepared with solid cybersecurity measures in place. Without them, a cyberattack could be the final straw when coupled with other challenges. Rural health system CFOs should look to invest in high quality cybersecurity measures to lower their risk.
How should CFOs decide whether or not to move forward with M&A deals?
Former OptumHealth CFO, Mark Flakne was with the company for 11 years. Now, he’s bringing his expertise to a new health system: Included Health. Founded in 2020, Included Health provides a combination of virtual care, navigation, and communities-based healthcare.
As Flakne settles into his new role, he’s channeling his finance and business expertise into opportunities for the system, including expanding patient reach and strategizing M&A and partnership avenues.
One of the most important aspects to consider while examining M&A, Flakne says, is ensuring the industry knowledge is there.
“The expertise and the kind of industry knowledge, it can't be understated,” he said. “It's just a really important part because the healthcare system is complex, it's dynamic and there's a lot of rigidity to it.”
Too often mergers and acquisitions take place for the wrong reasons and CFOs ensure all options are explored before stepping into M&A. Flakne’s advice when deciding whether or not to pursue an M&A deal? Focus on the original goal.
“I think the focus, when you think about M&A, is what we are working to create. And for us, we're creating that all in one destination for personalized care,” he said. “It's the process of assessing really continuing to keep in mind what was the original goal that we're trying to do. What are we trying to create and build, and therefore is M&A one of the better tools or are there other ways to do it?”
The key to this, Flakne says, is deep industry knowledge and expertise; something that market disruptors in retail and other industries don’t often have.
“The one important part is having that deep expertise and knowledge within the healthcare space as you do these acquisitions,” Flakne said. “I think we've seen companies jump in who are in different industries like retail and tech and I think one of the key attributes of being successful in M&A is really having a deep understanding of the industry, how it works. And again, back to that original goal: ‘What are we trying to create?’”
For CFOs navigating the intricate landscape of mergers and acquisitions, Flakne’s insights offer a roadmap. His emphasis on deep industry knowledge underscores the necessity of understanding the unique complexities of healthcare to drive successful M&A strategies.
As you evaluate potential deals, keep the original strategic objectives at the forefront, ensuring that each move aligns with your long-term vision for integrated, patient-centered care. Flakne’s experience highlights that in a field as dynamic and regulated as healthcare, thoughtful, informed decision-making is key to achieving transformative growth and sustainable success.
With the right strategies, CFOs can have a big impact on physicians and retention.
Physician shortages, especially in specialty care, are a big pain point with CFOs, and retention is more important than ever. But how strategies can CFOS use to help physicians in their organization?
Look into loan removal/forgiveness to draw in physicians to your organization. Private equity has moved into healthcare fast, and they have their eye on physician groups. Brainstorm strategies to draw physicians away from private equity competition.
Work with CMOs to foster fortitude to combat burnout. Burnout is a massive issue amongst physicians and healthcare workers in general, and while it may seem inevitable, it can be mitigated. Studies show that organizations who implemented programs for physicians that focused on fostering fortitude had lower rates of burnout. Ensure the organization is giving physicians the tools they need to thrive in their roles.
Include physicians in decision making. Too often healthcare executives don’t work directly with their staff on the ground level. The staff with medical degrees are going to understand ground level care challenges more than higher level executives.
CFOs need to ask themselves: how do you make your physicians part of the organization? How can they be more involved in decision making and how can that affect retention and recruitment?
Sanford Health is the latest system to drop its MA plan with Humana. Why the trend?
Across the country, more providers are opting to drop Medicare Advantage (MA) plans creating a new trend within the healthcare landscape.
Sanford Health, one of the largest health systems in the Midwest, recently announced it would no longer accept Humana’s Medicare Advantage plans as of January 1, 2025. This decision will have a considerable impact, considering Sanford Health’s numerous facilities—including 48 medical centers and 211 clinics—and substantial patient population.
The system’s decision reverberates beyond just the affected patients, reflecting broader systemic issues within the Medicare Advantage landscape.
This time last year Scripps announced it was dropping its MA plan, Samaritan Health did the same, as did St. Charles Health System, and Memorial Hermann Health System terminated its MA contracts at the beginning of 2024.
A survey conducted by the Healthcare Financial Management Association reported that:
16% of systems are planning to stop accepting one or more MA plans in the next two years.
45% said they are considering the same but have not made a final decision.
62% of CFOs believe collecting from MA is "significantly more difficult" than it was two years ago.
Providers often argue that Medicare Advantage plans impose restrictions that can hinder patient care. Low reimbursement rates, complicated billing recesses and stringent pre-authorization requirements have pushed CFOs to their boiling point. The administrative burden and financial strain associated with MA plans is simply not worth it for many health systems.
Sanford’s Impact
According to Sanford Health officials, the administrative and financial struggles have made it increasingly difficult to maintain a partnership that supports both quality patient care and financial viability.
“We have attempted to work with Humana for several years, but unfortunately, we have continued to experience delays in patient care, barriers to scheduling and denials of coverage causing financial burden and undue stress to our patients,” said Martha Leclerc, vice president of corporate contracting for Sanford Health.
The impact of Sanford Health's decision goes beyond the immediate loss of coverage for beneficiaries, it signals a shift in how healthcare systems may approach their relationships with Medicare Advantage plans going forward. As more health systems reassess the viability of maintaining these plans, beneficiaries may face disruptions in their care, which could lead to broader implications for access and continuity of care.
Moreover, this trend could lead to even more scrutiny and potential reforms in Medicare Advantage policies. Stakeholders, including policymakers, may need to address the concerns raised by providers to ensure that MA plans can fulfill their promise of comprehensive, accessible care without imposing undue burdens on healthcare systems.
CFOs are taking on more organizational responsibility as their role evolves, but where are their top concerns as they move forward?
CFOs are fighting battles in different areas of healthcare, but there are three areas that continuously top the list: private equity competition, payer strategy and the struggle holding departments financially accountable for outcomes. The HealthLeaders CFO Exchange illuminated how CFOs are dealing with these top three concerning topics and what strategies are most viable.
Private Equity Competition
Private equity has been a major concern in healthcare for some time now, and PE firms have now turned their attention to going after specialty care physician groups. These firms see lucrative opportunities and high margins in specialty care services and often enter the market to make a quick profit and then swiftly exit. For health systems, this can spell trouble.
PE practices are usually able to proceed with lower operational costs because of streamlined and focused management on the one specific area, something hospitals can struggle with when focused on larger operations.
Some CFOs agree that one of the best strategies to compete with PE firms in this area is partnering with technology companies that can add vital tech to help boost service lines. Adding automation that can help physicians with their day-to-day workload can be a big attraction for physician groups. Another tactic is loan removal/forgiveness, which can be a huge driver of physicians to a health system.
Another less popular strategy that CFOs also discussed is operating at a minor loss in some services, just enough to scare private equity away.
Holding Departments Accountable
The CFO role is evolving to include more strategic decision making around the entire organization. To do this, CFOs will need to reexamine where they currently stand in the hierarchy of their health system and how they can lead in areas they may not have thought they would have to.
During the Exchange, CFOs shared their struggles of holding each of their departments financially accountable. One key challenge here is trying to determine who exactly is responsible for outcomes within an organization, whether it’s managers or leaders. Clarifying this throughout the health system can help CFOs maintain organizational structure and trace financial challenges to the root issue.
Combatting Payers with Specialty Drugs
Lastly, CFOs are having issues with payers regarding specialty drugs and their soaring popularity. Specialty care drugs for weight loss and diabetes have seen a huge surge and health systems are feeling the pressure to cover them. CFOs need a strong adoption plan for these drugs and must strategize to beat payers to adoption where they can.
CFOS at the exchange discussed using ASP+ plans to help with initial costs, along with using a 340B plan to help with margins.
With challenges swooping in from every corner, CFOs will need to determine where is best to strategize and spend time on solutions to come to sustainable positive outcomes for their health system.
Service line performance and the role of local communities were challenges highlighted during HealthLeaders CFO Exchange.
The relationship between community engagement and financial sustainability were the focus of this year’s HealthLeaders CFO Exchange.
CFOs from leading health systems gathered to discuss how nurturing community connections can not only enhance patient care but also drive profitability through strategic service line development.
The Community-Centric Model
One of the key themes emerging from the discussions was the growing recognition of the community-centric model. CFOs are realizing that integrating healthcare services with community needs goes beyond just providing care—it involves actively participating in and investing in the local ecosystem. Hospitals are not just healthcare providers but vital community partners and their role extends to improving overall community health.
Just as the CFO role is evolving to envelop more strategic business decisions dependent on stable organizational relationships across all departments, health systems must recognize the evolution of community impact on their services, especially the bottom line.
Exchange members discussed situations when they took away an unprofitable service that didn’t see much use and how that decision often backfired. Sometimes CFOs saw a large portion of their patient volumes reduced across all other services due to the absence of that singular service.
The advice here? Don't be too hasty with service line decisions. Consider partnerships and other options before deciding to cut a service line. If a service is not highly profitable, consider having it at one center to drive patients to that location. Also, continually evaluate service lines so the profitability or losses are clear before it grows into a larger challenge.
CFOs encouraged each other to think about how each service interacts with other service lines, they are often not completely standalone services. They also advised against diving into full programs for additions to service offerings. Simply making additions to existing programs can become a draw.
Driving Productivity
The CFOs also addressed decisions around outsourcing functions. CFOs must understand the impact of the organizations in their community and why building those relationships is crucial. By outsourcing some functions that a health system performs well, it may help to alleviate some of the stress in managing that extra program.
But even with outsourcing, CFOs said, be sure to fight to keep top staff in place so there is less of a pain period, and they understand the basic levels of your health system.
The underlying question in this discussion was: how can CFOs drive productivity? The consensus was it’s not so much about shutting down services but examining how they can become more efficient. A key component to this is having community partners in place to ensure there is no lapse in care.
As the discussion wrapped up, it was clear that the relationship between community and profitability is both complex and promising. By focusing on community-centric models and strategic service line development, hospitals can achieve a dual goal: enhancing patient care while ensuring financial health.
The discussions underscored a future where healthcare systems are deeply embedded in their communities, with financial strategies aligned to support both public health and organizational sustainability.
The HealthLeaders Exchange is an exclusive, executive community for sharing ideas, solutions, and insights. Please join the community at our LinkedIn page.
To inquire about attending a HealthLeaders CFO Exchange event and becoming a member, email us at exchange@healthleadersmedia.com.
Mark Flakne learned a lot while at Optum. Now he's moving onto new projects as CFO of Included Health, a virtual care provider.
In a significant move within healthcare finance, Mark Flakne, formerly the chief financial officer of OptumHealth, has embarked on a new journey as the CFO of Included Health. Included Health, founded in 2020 from the merger of Doctor on Demand and Grand Rounds, provides a combination of virtual care, navigation, and communities-based healthcare.
Flakne, known for his strategic skills in driving revenue growth and financial stability, is geared up to apply his extensive expertise to Included Health’s rapidly expanding digital health offerings.
During his eleven years at OptumHealth, Flakne played a pivotal role in transforming the hospital's financial landscape. Prior to his role there Flakne said he had no prior healthcare experience and OptumHealth acted as the gateway to his understanding of the healthcare industry.
“That's actually where I really grew up in healthcare,” Flakne said. “I developed my passion around healthcare from being part of that for those eleven years, and it also is where I was able to really develop my love and understanding of value based care. So that really was a big part of it.”
Under his leadership, the company achieved a 28% increase in annual revenue growth taking it from $21 billion to more than $70 billion.
A Three-Pronged Approach
Flakne’s strategy to sustain revenue growth is broken down into three steps.
“The first and probably the most important is you need to have an experience that the member loves,” he said. “So if you do have a product, you know that people don't like, we all know what happens.“So for us, it's about having that experience that a member loves to use and be part of.”
The second part of this strategy is examining the question: “how can I reach more members?”
“Whether that be reaching them in more services and products in the ways that they're interacting with the healthcare system. But it's also reaching more members from other avenues. So think of the public sector or think of other market spaces, seniors, those sort of different groups of populations.”
Lastly, Flakne says, develop an appreciation and understanding of value-based care.
“I think it's about how you can participate in their arrangements to drive the right outcomes but also benefit from a financial perspective. And so it also goes to how you structure your financial arrangements.”
Expanding Care
Flakne expressed his interest in Included Health stemmed from the potential he saw in the company, and how many members it could reach with its innovative care model.
“There's such a great opportunity for us just to reach so many more members and also more ways that we can reach them,” he said. “There's more opportunity in how we interact with them, as well as new members that we're not even interacting with today. And so that's been really exciting to see that we're getting started, but we're already producing the results that we hope to produce.”
CFOs must understand the importance of strong relationships and how to exercise accountability within their organization.
The recent HealthLeaders CFO Exchange brought about CFOs’ biggest pain points, and accountability is one of them. How can CFOs ensure accountability in their organization? A clear structure and facilitating strong organizational relationships might be a start. Check out these five tips from HealthLeaders CFO Exchange members on how to steer accountability and culture within your organization.
CFOs have their priorities in certain areas of their organization.
The 2024 HealthLeaders CFO Exchange brought about several insightful discussions for CFOs from across the nation and showed where their main focuses lie.
From virtual care to physician collaboration, see where the event attendees are prioritizing their time (and money).
The HealthLeaders Exchange is an exclusive, executive community for sharing ideas, solutions, and insights.
Please join the community at our LinkedIn page. To inquire about attending a HealthLeaders Exchange event and becoming a member, email us at exchange@healthleadersmedia.com.
The HealthLeaders CFO Exchange brought on a fiery discussion on payers and physician shortages. How are CFOs coping?
From the growing complexities of managing hospital finances amid a turbulent landscape, never ending physician shortages in specialty care, and shifting payer strategies, there is no shortage of challenges for CFOs.
To talk strategy and find solutions to these challenges, dozens of finance leaders from across the country recently met in Virginia for our HealthLeaders CFO Exchange. During the event, attendees laid out all of their most pressing pain points on the table.
Physician Shortages
CFOs discussed one of the biggest challenges facing their health system’s clinical enterprise: gaps in specialty care. CFOs lamented over the struggles of recruiting for specialty roles in genetics, anesthesia, and the shortage of specialty care physicians. The challenge is it takes a long time to be trained in specialized care, and it’s time that health systems just can’t afford, more specialty care physicians are needed now.
“Our forecast is growing so fast we need 100 to 150 primary care physicians in the next five years, ” said Allen Butcher, CFO of St Joseph's / Candler Hospital in Georgia.
The discussion highlighted pain points such as CFOs not being able to replace retiring geneticists or anesthesiologists, and the shortage of treatment centers. One CFO even mentioned how their health system’s anesthesiology department was over budget by two million dollars.
CFOs advised each other to look at other groups that are certified to do anesthesia, for example, an intensivist can sometimes do the “low stakes” cases. They also suggested using locums to fill in the gaps for specialty care.
Another challenge for CFOs is the aging physician population.
Danielle Willis, CFO of LCMC Lakeview Hospital in Louisiana brought up that this issue is where care model changes are having an impact on physicians.
CFOs need to ask themselves: how do you make your physicians part of the organization? How can they be more involved in decision making and how can that affect retention and recruitment?
Payer Strategy
Another big topic at the conference was payer strategy—a multifaceted challenge with implications for health system revenue and operations that is ongoing. With the healthcare payment landscape continuously evolving, CFOs are grappling with shifts from fee-for-service to value-based care models, but payers are playing hardball, especially with denials.
These changes show the need for a realignment of financial strategies to ensure not only sustainability, but profitability.
Payer strategies, including changes in reimbursement rates and the increasing prevalence of value-based contracts, are requiring CFOs to adopt more sophisticated financial models. Value-based care necessitates comprehensive data analytics and performance metrics to track outcomes and adjust strategies accordingly, but the struggle to facilitate this strategy with payers is tough.
CFOs discussed the need for change to come from the legislative level so that payers are not dominating and squeezing the life out of the health systems. Consider monthly check-ins with payers to ensure both parties are aligned on their goals.
The discussion concluded with a strong emphasis on the importance of adaptability and proactive management in navigating the complex financial landscape of healthcare. As CFOs continue to tackle physician shortages and evolving payer strategies, the need for strategic foresight and innovative solutions will be crucial in sustaining hospital operations and ensuring quality patient care.
The HealthLeaders Exchange is an exclusive, executive community for sharing ideas, solutions, and insights.
Please join the community at our LinkedIn page. To inquire about attending a HealthLeaders Exchange event and becoming a member, email us at exchange@healthleadersmedia.com
