The healthcare industry's data dilemma is costing health systems millions.
Healthcare has a data problem. And it's getting expensive.
Data is more than just a byproduct of medical care—it's the backbone of decision-making. But oftentimes that data is unclear or undefined.
Studies show that data errors in hospitals can occur at a rate from 2.3% to as high as 26.9%. A variety of factors contribute to data challenges such as data entry errors, outdated information, lack of data standardization, and system integration issues.
How much is inaccurate data costing providers?
Despite having access to vast amounts of information, many health systems struggle to use data effectively, and this inefficiency is costing them. Studies show that medical data errors can cost providers up to $20 million a year.
Without real-time data, a hospital may struggle to adjust staffing levels or optimize resource allocation during times of high patient volume. Inefficiencies like this can lead to prolonged patient stays, increased overtime pay, and the risk of misdiagnosis leading to poor clinical outcomes—all of which drain financial resources. One survey showed that up to 20% of patients may not be correctly matched to their records.
Data consistency also plays into the challenge. If each clinician involved in a patient's care journey is working from a different dataset, that will spell trouble for the clinical outcome.
Bradley Hipp is the newly appointed CFO and Vice President of TMC Health, and has years of healthcare finance experience under his belt. He says it's crucial for health systems to have data consistency, yet that is often a problem in health systems.
He says health systems must ensure that “data is being reported the same way, data is being seen the same way, and wherever you are within the health system, it's done the exact same way.”
Data sharing and integrity
A secondary piece to the data challenge for providers is data sharing practices, especially with payers. Incorrect claims submissions, due to data entry mistakes or system glitches, are not only costly in terms of denied payments, but also in the form of reputational damage with insurers and patients alike. CFOs will need to stay on top of payers and ensure that both sides have consistent, accurate data, particularly when it comes to contract negotiations.
New technology has done much to address the healthcare data problem. It enables efficient data collection, storage, analysis, and integration through tools like electronic health records (EHRs), clinical decision support systems, and artificial intelligence (AI).
Despite this, many health systems don't make the best use of technology for data challenges. To stay ahead, CFOs can collaborate with CTOs to ensure their health system has the right technology in place to refine their data practices and determine where data inefficiencies are rooted within the system.
Data analytics
Valuable data can be rendered obsolete if it is not accompanied by the right analytics. By harnessing tools like predictive analytics, CFOs can optimize resource allocation, from staffing levels to inventory management.
UW Health CFO Bob Flannery spoke with HealthLeaders about the importance of data analytics and how it is used at his organization.
"We've built a data mart that elevates expectations at the senior leadership level not to make decisions in a vacuum," he said.
Flannery emphasized the importance of transparency in resource allocation as CFO and how data analytics allows him to do that and clearly show his team where resources are needed.
"And then even sharing that, when we do actually allocate some additional resources, what went into the thought process, what went into the recognition that that really was a high impact area for people that we serve," Flannery said.
The CFO to-do list
To stay on top of the data dilemma, CFOs must invest in robust data infrastructure, including data management platforms and analytics tools. Building cross-departmental collaborations between finance, IT, and clinical teams is essential for creating a data-driven culture.
To take it a step farther, CFOs should advocate for data governance policies that prioritize data accuracy, integrity, and transparency. Collaborating with payers to streamline data exchange processes can reduce reimbursement delays and prevent costly billing errors.
By ensuring the right data is available at the right time, maintaining data integrity, fostering transparency with payers, and leveraging analytics, CFOs can steer their organizations toward an efficient, financially stable future. The cost of neglecting these data challenges is simply too high to ignore.
See how this CFO helped lead the transition at his organization.
UMass Memorial Health integrated Epic in 2017, now the system has received gold star status from the company. The switch ultimately improved operational efficiency as well as staff synergy.
"The clinical system was not integrated across the entire system, so we effectively had to work in silos because we couldn't really move information across," said UMass Memorial Health CFO Sergio Melgar.
I spoke with Melgar to uncover what into such a massive, expensive transition to a new system including communication with staff about training and talking through the transition with stakeholders.
CFOs can note the impact a new system can have, but must also acknowledge the long term journey towards improvement.
I broke down Melgar’s best advice to other CFOs who may be looking to upgrade their system to achieve those long-term financial and operational goals.
From AI to reimbursement, CFOs have a lot to think about for 2025.
After a rough year, financial stability is well underway for healthcare. But that doesn’t mean CFOs can relax.
A report from Moody’s Investor Services clocked in the median operating cash flow margin as nearing 7%, but noted that growth is also slowing down. With so many financial factors (and big talk surrounding each one), coming at CFOs in 2025, it can be hard to know where to focus their attention, and budgets.
Here’s a breakdown of the top trends we’re seeing for healthcare finance as 2025 commences so CFOs can know what’s coming, and more importantly, prepare their organizations.
Workforce woes
Labor costs and inflation hit 2024 hard, and unfortunately 2025 may have a similar outlook. The Moody’s report noted that workforce expense growth will continue to slow but will remain above pre-pandemic levels. Staff retention will be key, but cutting contract labor to cut costs is a trend that may continue. CFOs will need to focus on retaining employees, who are increasingly demanding higher pay, and managing expenses.
Primping the portfolio
With the median operating cash flow margin improvement and expected revenue growth, according to the report, the industry may see more systems with newfound wiggle room to make strategic investments. Higher performing health systems may find themselves making more business investments in areas like outpatient services and AI updates.
The performance gap
Nonprofit hospitals may still struggle in 2025. Around 60% of nonprofit hospitals next year are expected to have a 6%-plus margin, up from 40% in 2023. But, this is still better than pre-pandemic levels of around 78%. A recent Kaufman Hall report put things in perspective: While the outlook is stable, there's a discrepancy between the highest and lowest performing hospitals, a trend that’s set to grow even more throughout 2025.
Commercial cash
Moody's report detailed an expectation of higher reimbursements from commercial insurers next year, possibly moving up to the mid-single-digit percent range. The reimbursement increase, combined with the adoption of state-directed pay programs, will push revenue growth to hit 7% in 2025.
More cyber threats, bigger cyber budgets
Cybersecurity threats have obviously grown, and the budgets have followed suit and will continue to do so. Healthcare consistently ranks as the industry with the highest average cost per data breach. Cybersecurity is expected to reach 7% of the total technology budget in 2025, up from 5% in 2019, according to the report.
Intentional influence
With a new administration poised to take control, many are saying the next four years could be a whirlwind for healthcare. While some have expressed concern over the potential appointment of RFK Jr. as HHS secretary, (his vaccination stance is certainly a widespread concern), others have speculated that his influence will lead to a greater wellness focus. This could be good for the industry, as it could lead to more preventative health programs, and a focus on value-based care and risk sharing models. However, health systems may need to play a bigger role in managing wellness information than in previous years. With a widespread wellness movement, (which has already begun ─ thank you, TikTok), there comes a wealth of wellness misinformation to combat.
MMA: Mixed Medicare Advantage predictions
Some say it's time to pull back on MA, as it's been turbulent for years, but others see a comeback for the program. The industry knows that Dr. Mehmet Oz, Trump’s pick to lead CMS, loves MA, and should he be appointed to lead the agency, we’ll have to wait and see what his plans will be.
Dr. Sachin Jain, CEO of SCAN Health Plan, touched on this in his recent Forbes article:
“I expect that they will ease up the regulatory environment surrounding Medicare Advantage and make it an even more attractive alternative to traditional Medicare (which bizarrely still lacks dental, vision, and audiology coverage) that is often standard in Medicare Advantage plans) over the next 4 years.”
More mergers, anyone?
2024 brought some notable mergers, but many deals fell apart after apprehension about the deals being blocked by the FTC or DOJ. While some mergers broke down in the spotlight, only a fraction of healthcare mergers get challenged by the FTC. However, experts have speculated that the new administration will likely encourage more big transactions and big-name mergers.
AI all day
The AI gas pedal will be to the floor in 2025. Health systems that aren’t on top of the AI game may fall behind in efficiency and operations, and incur greater costs over time. At the same time, there are still many questions about the technology, and an over-reliance on AI or investments in bad technology with little ROI could seriously cripple an organization. With more AI tools hitting the market this coming year, potentially cheaper AI prices, and more competition, CFOs will need to be on top of their game to manage the AI hype and steer the right course.
What CFOs will focus on
CFOs will need to focus on a few key strategies to stay ahead of the game, including:
- retaining employees and managing expenses
- investing in partnerships with revenue cycle and care management companies to help drive down costs
-bolstering a reserve fund for unexpected incidents like data breaches.
Financial stabilization is finally here, for some.
Hospitals and providers struggled through some of the roughest times in healthcare history during the pandemic. But a new report is painting a better post-pandemic picture.
A report released by Kaufman Hall illustrates that hospitals' finances are rebounding and even stabilizing. And while this is an optimistic note on which to end 2024, providers should be careful to examine what worked during the past year to make sure this stability continues.
The Breakdown
The report, examining financial data from more than 1,300 hospitals through October, showed that hospitals’ year-to-date operating margin index was 4.4%, a slight increase from 4.3% in September.
“There’s been a slight underperformance relative to pre-pandemic levels,” said Erik Swanson, senior vice president at Kaufman Hall.
“However, seeing the median operating margins being consistently positive throughout the course of 2024 is a good sign,”
Swanson noted that improvements in patient volume are a big reason for hospitals’ financial stability this year. With slightly shorter lengths-of-stay, many health systems were able to regain some stability.
Swanson also pointed out that many hospitals have improved their care transition processes. Making sure patients are discharged or transferred to a post-acute site of care in an efficient manner plays an important role in managing the length of stay.
The fact that patients are staying in the hospital for a shorter amount of time leads to lower utilization of goods and supplies, he added.
Additionally, the report highlighted that patient volume levels have fluctuated less than they have in recent years, making it easier for hospitals to plan and deploy resources effectively to meet that demand in 2024.
Lastly, the report showed that contract labor was a major source of spending for 2024 and 2023. As we examined earlier this year, several health systems have cut costs by minimizing or eliminating contract labor.
The Big Picture
Overall, hospital finances are stabilizing. The upside is stronger operating margins, easier-to-predict patient volumes, (accompanied by shorter lengths of stay,), improved outpatient revenue, and a decrease in some general expenses.
But a few concerns remain, including for non-profit health systems that may still incur higher costs. Cybersecurity also remains a major challenge, and cyberattacks are becoming even more sophisticated and widespread.
There is also, still, a growing gap between strong and struggling hospitals. Some experts say the industry is becoming more divided between financially healthy and unhealthy organizations. Fitch expects not-for-profit hospitals to have improved margins in 2024, but S&P Ratings has a negative outlook on 25% of hospitals. Underperforming hospitals may need to examine new strategies to keep up with their peers.
On the payer side, it may be worth noting that Moody's expects lower profitability for health insurers due to reduced Medicare Advantage reimbursement rates. This might mean payers will start looking to reap profits in other areas.
Lastly, with a new administration, the healthcare policy landscape is unpredictable.
The Key Lessons for CFOs
While some health systems will be celebrating a successful financial year, others will need to create a more effective strategic plan for 2025. CFOs will need to examine what a path to stabilization or optimization will look like for their organization.
One strategy that has worked for some is creating more partnerships and expanding outpatient services. Health systems can find savings in lower- cost care sites. CFOs should also examine the cost of care transition processes and see what can be improved to help lower costs.
CFOs can also examine contract labor. If health systems can create a strong work force for 2025, that will build a solid foundation and put them in a position to cut contract labor.
Lastly, (and we know CFOs are tired of hearing this by now), look carefully at value-based care model strategies. VBC models and an emphasis on preventative care can feel like too big of an undertaking to be impactful, but the key is taking baby steps. If more health systems focus on playing an active role in preventative care in their communities, this works toward better planning for patient volumes and utilization costs and can even help lower emergency department visits. Several health systems have seen the benefits of taking a step in the direction of VBC models.
Check out these three CFO tips on quality, perspective and collaboration.
TMC Health CFO Bradley hipp recently spoke with HealthLeaders about his new role and his plans for his organization. Check out these three tips from him, as well as the accompanying article where we dive deeper into how Hipp views the most important strategies for success as a CFO.
CFOs grappled with a lot this year. From Medicare Advantage, to physicians, to value-based care, to multiple hospital closures. Take a look at the finance topics that took the spotlight this year.
The HealthLeaders UpNext CFO Exchange dove into the most pressing issues for finance executives, inside and outside the health system. Investing in improved care access and educating clinical teams about the financial implications of their work are two critical challenges for future CFOS. See what else upcoming CFOs should prioritize as they step into executive roles.
The HealthLeaders CFO Exchange brought on a fiery discussion on payers and physician shortages. CFOs are grappling with adaptation to shifting payer strategies and value-based care, and they may have to employ harder tactics to stay on top of payers. In this article we hear from several HealthLeaders Exchange members on their biggest pain points and insights and advice for dealing with physician shortages and strategizing with payers.
Medicare Advantage is never a dull topic, but this year brought ongoing controversy around the program. In this article we looked at Sanford Health as the latest system to drop its MA plan with Humana and where the MA trends are heading.
Preventative care, robust technology, and dedicated clinicians are key ingredients in the recipe for successful value-based care. In this article we spoke with the CFO of Advocate Health to learn how the health system saved $135 million under two federal programs with an emphasis on value-based care.
In this article we examined a bill called The Medicare Patient Access and Practice Stabilization Act that would, if passed, boost physician pay by 4.7%, replacing Medicare’s planned 2.8% pay cut. We analyzed how CFOs would need to prepare for both scenarios, if this bill does or does not pass, and carefully how they will need to strategize around the implications of this policy.
While the operating margins of some hospitals have improved this year, others are facing a different reality. In this article we looked at some of the root causes for hospital closures including increased regulatory requirements that impose significant financial and operational burdens on hospitals, particularly rural hospitals.
Switching to Epic not only improved operations, but also team synergy.
So much of healthcare requires collaboration, and executives today are realizing that old strategies, and systems, aren't going to cut it.
UMass Memorial Health (UMMH) installed the Epic EHR platform in 2017.
Now the organization has achieved Epic's Gold Stars Level 10 recognition for its use of the platform. The recognition is awarded to users who enhance team workflow and efficiency while delivering the highest quality care. UMMH is the only hospital or health system in Massachusetts to have achieved the milestone in 2023 and is categorized in the top four percent of all Epic organizations
Before the integration, UMMH – the largest not-for-profit health system in central Massachusetts -- was working off of five different revenue cycle teams, which caused confusion and inefficiency to the system's daily operations, as well as staff dissatisfaction.
"The clinical system was not integrated across the entire system, so we effectively had to work in silos because we couldn't really move information across," said UMass Memorial Health CFO Sergio Melgar.
Before the unanimous vote to integrate Epic, Melgar said UMass trudged forward with poor operational connections and a high price tag to do just about anything. Switching IT systems allowed UMMH to come together and find a new staff synergy across the organization.
"One of the first keys to the success is that we were actually able to integrate people under different systems, but under a common leadership," said Melgar. "Once that happened, then decisions could be made across the system in a much faster way."
The switch also prompted more transparency across the organization, paving the way for smoother operations where each staff member was working from the same data and the same system.
"So a lot of these bad habits that have been formed by the individual silos, now, could basically begin to be eliminated," said Melgar.
Melgar said UMMH didn't customize its Epic system too much, which helped speed up the integration and expansion process.
"We modified it a little bit from what was recommended and did have a little bit more of a finance element in the front than what others might have done, and I think it's helped us tremendously," he said.
The format in which Epic is structured also helped UMMH to get a better grip of its flow of data by moving more items to the front end of the system.
"In a lot of the legacy revenue systems, in particular, the work is back-ended," he said. "Some of those are moved to the front, and the reason they're moved to the front is that if you can get them done correctly at the front, the flow of information is more complete."
The journey to get where the health system is today was long, grueling, and tough on staff. It required intense training for every staff member and somber meetings with board members. It also required a loan of $125 million, and a total of $700 million invested over 10 years.
CFOs should keep in mind that while an IT system switch may be exactly what a health system needs, the road to get there can be long, riddled with potholes and speed bumps. For a switch like this, CFOs must acknowledge the fiscal realities that go hand-in-hand with a long-term strategy for system transformation.
"I think [it] has helped our quality tremendously, because for one, I think our information is much more readily available," Melgar said. "It's much more uniform. We have much more common practices and we're able to implement things across the system much quicker."
"It's not perfect," he said "but it's definitely getting better."
Stay tuned for a deeper dive into this story including what sacrifices it took to switch systems, what it took to bring UMMH's staff to excel with Epic's system, the cost savings, and how Meglar honed in on his financial strategy for a successful overhaul.
Prior to joining TMC, Hipp served as chief financial officer for Banner University Medicine Tucson. He has also held finance leadership positions with Loyola Medicine and WellPoint.
Right off the bat, Hipp says he was excited to jump into his new position and knew he was stepping into a quality-driven organization.
"TMC is a leader in these areas, providing excellent quality, high patient experience," he says.
"You've got a dedicated community that is hugely supportive of Tucson Medical Center and what we mean to the community then drives the financials."
There's much that goes into ensuring quality from a health system, and Hipp says one thing he found and loved at TMC was that the organization has a good grip on how to pivot and adapt when needed.
"Just when you think you kind of figure something out, whether it's through legislation or a pandemic or anything else, it throws you a curveball and you're constantly trying to figure out what kind of curveballs are coming next," he says. "Having that basic block and tackling technique, I believe that TMC has that basic act of tackling down really well."
Quality comes first, and finances will follow, Hipp explains.
One piece of Hipp's financial strategy at TMC is looking at operations through a service line perspective. To do this, there must be service line alignment and a strategic arrangement. CFOs should examine what a community really needs and then think about those needs through a service line lens.
A second piece is staying on top of payer tactics. Hipp says health systems don't always have the luxury of margins to fall back on, so CFOs must work with payers to not only get them more engaged on denials, but also with peer reviews to be able to stick to their prior authorizations.
"It's a two-edged sword," he says. "You're losing on the revenue side and then your cost to collect goes way up because you have to invest resources in the revenue cycle side to track that down and to monitor that."
Partners, Not Employees
One consistent theme amongst finance leaders' goals and strategies this year has been collaboration; it's vital for health systems, particularly in finance. CFOs must make sure they are not making decisions in a vacuum and include other valuable perspectives from clinical teams that will affect patient care.
"I see finance's role as more of a consultative type approach, where we can present data to the chair or the physician leadership," Hipp says.
Hipp says healthcare finance must move on from the dictatorial type of reporting and strategizing that may have dominated in the past, and into an era of close-knit collaboration that brings invaluable insight to the discussion.
Physicians and nurses have the expertise and the scientific mindset to think through operational challenges. Hipp recalled a memory from his time working at Loyola that put physicians' work and dedication in perspective.
"Probably 10 years ago, when I was at Loyola, I was kind of stuck in traffic getting to an 8 a.m. meeting," he says. "It was a surgical clinical program meeting. It was one of those mornings where just everything was just kind of going wrong, and you're irritated when you walk in. Then we get to the meeting. We're in this room. The lead person on the physician side wasn't there. We're like, ‘Oh, god, what's going on?' He walks in 15 minutes later. He still has his scrubs on and he has blood on his scrubs. He said, ‘We had a tough night last night. We just had a double lung transplant.'"
Moments like this, Hipp says, put the value of physicians' work into perspective. To make the most informed clinical financial decisions, clinicians need to be at the table.
"And you think that you're so important with what you're trying to do?" he says. "But if you don't have that collaboration with those physicians then you're not going to be successful."
