Health systems everywhere have been dealing with ongoing rising costs and new solutions are needed. What are CFOs doing to stay ahead of the price tags?
The upcoming HealthLeaders CFO Exchange is gearing up to get into today's toughest CFO challenges.
Health systems everywhere have been dealing with ongoing rising costs and new solutions are needed. What are CFOs doing to stay ahead of the price tags?
One strategy CFOs can jump on is taking a closer look at non-clinical spend. Where are the costs adding up while flying under the radar? CFOs should look at the not-so-obvious expenses that can often seem irrelevant to big picture spending. From landscaping to signage, examine where your health system can cut back.
Private equity is coming under a bigger microscope as the Steward Health fiasco continues, and one particular area CFOs are concerned with is ambulatory care. In the last few years, private equity interest in the ambulatory care space has increased. Both Surgery Partners and Amsurg, two of the biggest ambulatory care chains, have private equity ownership. How will CFOs strategize competition in this area to protect their system’s finances?
Lastly, there are some challenges that may not seem CFO related, like physician burnout. CFOs must take a closer look at burnout in their organization to recoup lost dollars and build a sustainable, comfortable work ethic for their physicians. One study concluded that physician turnover due to burnout costs health systems an extra $260 million each year. CFOs will need to collaborate with CMOs to implement physician programs to mitigate burnout as much as possible.
Are CFOs prepped with their best strategies in case of a recession?
After a trigger in the labor market indicated an impending recession, CFOs are on edge, but should they be worried for their businesses? CFOs will need to strategize with a secure financial plan to weather the uncertain economical landscape ahead.
Major concerns about the job market surfaced as the unemployment rate rose by 0.2 percentage points to 4.3%. Without a rate cut from the Federal Reserve, a recession could be underway. Better to be prepared than not. Here are four strategies CFOs can implement to ward off recession scares.
To do:
-Create a stout reserve fund: ensure there is extra cash in a reserve fund that can float the business in trying times.
-Audit revenue cycle to increase profitability, there may be unrecognized issues that are costing the system valuable dollars.
-Diversify revenue streams as much as possible, a diverse portfolio is a stable portfolio.
-Strategize growth opportunities, carefully decide on growth opportunities that don’t present a high risk.
From private equity to physician burnout, are CFOs in touch with their whole organization?
CFOs are no longer simply the ‘financial police’ or accountants for a health system. They must now be dynamic executives that examine how each part of their organization functions together.
This shift will require them to have their finger on the pulse of all the issues within their organization, from operational and business structure issues, to workforce and cultural challenges like physician burnout.
Physician burnout can negatively impact finances, as well as patient outcomes and quality of care; making it an area of concern for CFOs as well as CMOs.
“I think we need to start being more thoughtful about the business and finance structure of our organizations and how it impacts physician burnout, but also how it impacts our business models and the way we staff,” said Kyle Wilcox, vice president of finance for MercyOne Medical Group and a HealthLeaders Exchange member.
Lawmakers and healthcare executives are questioning the place of private equity in healthcare, like its involvement in the unraveling of Steward Health. Known to be associated with higher prices, lower-quality care, and reduced access to core health services, private equity will require even stricter examination going forward as it creeps into other areas like ambulatory care.
This topic is one of the many highly anticipated discussions CFOs will dig into at the upcoming HealthLeaders CFO Exchange.
“One topic I'd like to lean into with everyone with ambulatory strategy is private equity and very large groups that lean more into the ambulatory type work,” said Wilcox. “In some states, there's no requirement for a certificate of need, so I'm just interested to see what's happening across the country in this aggressive ambulatory strategy, both for private equity and the health systems.”
There’s a lot for CFOs to consider as more nuanced challenges enter the healthcare sector. CFOs must be equipped with innovative strategies not only to keep finances in check, but also to ensure the health of their system in its organizational culture and how it operates.
An expanding position needs big ideas to stay ahead and CFOs can lean on each other to brainstorm and shed light on the industry's deepest challenges.
TheHealthLeaders 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 CFOExchange event and becoming a member, email us at exchange@healthleadersmedia.com.
CFOs should ensure strategy always accompanies private equity in their health system.
With the bids closing for Steward Health’s bankrupt hospitals, fears of the health system’s collapse seemed to be abated. However, Steward has now postponed the sale of six of its hospitals, extending the painstaking process.
News of the system’s bankruptcy has been widely circulated: from securing a loan days before declaring bankruptcy, to not selling hospitals because of ‘unqualified bids,’ to facing an investigation called on by Massachusetts Gov. Maura Healy, to inciting firm legislature for financial misconduct.
Not only is the fiasco affecting patient care across the eastern Massachusetts, but over 1,000 health workers are losing their jobs.
The ongoing saga has been heavily criticized, with some outlets calling it a case study in executive greed.
Late last week, Healey suggested a federal investigation of Steward’s bankruptcy, and its CEO, Dr. Ralph de la Torre.
“He basically stole millions out of Steward on the backs of workers and patients and bought himself fancy yachts, mansions and now apparently lavish trips to Versailles. I hope he gets his just due and that federal investigators will come after him for his actions. Our administration is working night and day to protect jobs, protect patients, and pick up the pieces of the situation that Ralph De La Torre has put us in,” Healey said in a statement.
Private Equity
The presence of private equity in healthcare has been controversial, and for good reason: studies show the PE-owned hospitals are associated with more negative patient outcomes, eventually affecting finances and other business operations.
Private equity can cause deep financial issues for health systems, and it’s not going unnoticed by lawmakers. A bill is currently pending in California’s legislature that would require private equity groups and hedge funds to notify the Attorney General’s office of planned purchases of various types of healthcare businesses and obtain its permission. It would also reinforce state laws that prohibit nonphysicians from directly employing doctors or directing their activities.
Although more recent surveys show that the amount of PE in healthcare may be exaggerated, when it is implemented, there must be a financial game plan for the long term to avoid adverse effects. CFOs must be strategic about how they implement and introduce private equity funding.
The CFO Homework
As the CFO role evolves, it’s no longer focused solely on finances. Instead, it’s expanding to consider business structure, operations, culture and strategy.
CFOs must take note of the business evolutions that happen around them and pay attention to the strategies, wins and downfalls of other health systems that can influence their own decisions. They must also develop a symbiotic relationship with CEOs, as the two roles depend on each other.
In addition to acting as the financial police within the C-suite, they must also be proactive in every other aspect of the business. If a CFO is equipped with knowledge about every aspect of the organization, they can better strategize sound financial decisions, know when to cut back and where to grow and innovate.
While unemployment is up, healthcare still added 55,000 jobs in July.
As the nation reacts to the news of a possible recession coming off on an underwhelming jobs report, CFOs must stay on top of domestic and worldwide economics to know how it might impact their business.
The Big Picture: What To Know
Typically, if roughly 200,000 jobs are added each month it shows that the labor market is in good standing and most likely won’t see a recession. However, Friday’s BLS report showed an eerie slowdown in job growth. Only 114,00 jobs were added in July, marking a big drop from 206,000 in June, and far below many economists’ expectations.
Major concerns about the job market surfaced as the unemployment rate rose by 0.2 percentage points to 4.3%. With the Sahm rule being triggered, financial executives everywhere are on-edge.
The labor market is vulnerable right now, and with an upcoming election and the Federal Reserve’s goal of 2% inflation, economists are speculating that a rate cut may be in order. If not, a recession could be underway.
Approximately 7.2 million people are currently unemployed, up from 5.9 million last year. The labor report also indicates that wages are stagnating, and workers are often using part-employment to supplement.
Healthcare jobs are generally considered “recession-proof" because of consistent need, and the industry added 55,000 jobs with big increases seen in home health (+22,000), and hospitals (+20,000), nursing and residential care (+9,000). But healthcare and government were virtually the only two sectors that added a notable number of jobs.
The CFO Checklist
While many CFOs had high hopes for profitability in 2024, the road ahead may be bumpier than expected. CFOs can strategize to adapt to a shifting economy, but only when they balance financial safety nets with precise growth plans that will benefit and add to their organization.
If the Federal Reserve decides not to cut rates in pursuit of 2% inflation, many Americans will see financing challenges for things like cars and homes. This coupled with stagnant wages will put extra strain on employees that CFOs need to be aware of.
CFOs will need to carefully strategize growth opportunities, because without this they risk losing relevancy as a business. They should also focus on creating solid safety nets for their organizations by creating a stout reserve fund.
Lastly, CFOs should also look at auditing their revenue cycle to increase profitability, as well as diversifying revenue streams as much as possible.
With the HealthLeaders 2024 CFO Exchange on the horizon, labor costs and organizational culture top the agenda.
From soaring labor costs and labor shortages, to inadequate payment rates (not to mention an impending recession), CFOs have much to tackle this year.
But what is top of mind and how can CFOs get support? The HealthLeaders 2024 CFO Exchange, which takes place August 26-28 in Virginia, will bring together CFOs from health systems all over the country to network and brainstorm their best ideas together.
There’s what CFOs will be discussion:
Reducing Costs
Going back to basics, reducing costs is always top of mind for CFOs. But the same old strategies aren’t optimal anymore, and they will need to pivot to find sustainable long-term solutions.
With inadequate payment rates adding to financial risk, CFOs will need to consider investments and growth opportunities carefully and examine what expansion avenues are viable. Labor costs and shortages are also in this mix, and they’ll will have to strategize where they improve labor woes and cut costs. For example, a part of HCA’s Q2 success involved cutting contract labor costs by 25.7%.
CFOs will also need to get creative in where they cut costs. Often clinical expenses are under the microscope, but examining nonclinical spend can have a big impact as well if they’re willing to dig deeper into smaller expenses. Some health systems have even looked into filming opportunities to reel in some extra revenue when financials are being squeezed.
Examining Physician Burnout and Culture To Drive Success
Physician burnout may not necessarily seem like a CFO’s issue, but it undoubtedly has a big impact on financial performance. One study concluded that physician turnover due to burnout costs health systems an extra $260 million each year.
“I think we need to start being more thoughtful about the business and finance structure of our organizations and how it impacts physician burnout, but also how it impacts our business models and the way we staff,” said Kyle Wilcox, vice president of finance for MercyOne Medical Group and a HealthLeaders CFO Exchange member.
While this challenge obviously will not squarely fall on a CFOs shoulders, they can certainly help. They can collaborate with CMOs to determine how physician burnout is affecting their health system and brainstorm the best appropriate solutions. Studies show that fostering fortitude for physicians can have a lasting impact without big costs or interventions. When physicians feel supported, the whole system works better from the ground up.
Physician support is just one part of the culture picture for health systems, and CFOs shouldn't hesitate to get involved. They should examine where they can improve relationships with colleagues to boost operations for the whole organization. From close collaboration with the revenue cycle team, to forming a strong alliance with CIOs, when all parties focus on understanding the initiative purpose and expected outcomes, they can ensure they are working from the same playbook.
Ambulatory Care Strategy
One challenge that CFOs will discuss at the HealthLeaders CFO Exchange is ambulatory care. In the last few years, private equity interest in the ambulatory care space has increased. Both Surgery Partners and Amsurg, two of the biggest ambulatory care chains, have private equity ownership.
“One topic I'd like to lean into with everyone with ambulatory strategy is private equity and very large groups that lean more into the ambulatory type work,” said Wilcox. “In some states, there's no requirement for a certificate of need, so I'm just interested to see what's happening across the country in this aggressive ambulatory strategy, both for private equity and the health systems.”
TheHealthLeaders 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 CFOExchange event and becoming a member, email us at exchange@healthleadersmedia.com.
Has your health system considered these cost cutting opportunities?
With rising healthcare costs from inflation to labor shortages, CFOs need to examine every road they can to cut costs for their organization. HealthLeaders spoke to top CFOs from HFMA and beyond to determine what strategies have had the most impact for their health systems when it comes to saving money. Check out these top strategies for health system savings.
Look at physician burnout in your organization; Physician burnout can have a major financial impact. Since the pandemic, burnout has been steadily costing health systems an extra $260M each year. CFOs should examine its impact on their organization to determine their next steps. Consider collaboration with CMOs to create viable solutions and support for physicians.
Examine nonclinical spending. CFOs often zoom in on clinical expenses to look for savings, but nonclinical spend deserves attention too. CFOs should examine nonclinical spend in their organization and may be surprised where they can find little savings that quickly add up.
Closely examine revenue cycle investments. Is the tech your system uses mission critical? Where are your biggest investments and how well are they performing for your system? Consider assessments and other tools to sort out priorities and create the most streamlined, efficient, cost-effective revenue cycle possible.
Consider nontraditional revenue avenues. Hospitals and health systems can turn to unique opportunities like filming to bring in extra cash. Filming fees can bring thousands of dollars a day and present opportunities to build lasting relationships with production companies who are eager to find great filming locations.
What can CFOs learn from the health system's better-than-expected financial results?
HCA's better-than-expected second quarter performance boosted the health system's revenue up to $17.5 billion for the quarter, up 10.3% from $15.86 billion for the same time last year.
The 188-hospital, Nashville-based health system reported second quarter net income of $1.46 billion, up from $1.19 billion, putting the system's stock at $5.53 per diluted share.
How did the system accomplish this?
The Playbook
As health systems are smacked by contract labor costs, which soared during the pandemic, the game of cutting costs grows more intense, as it is coupled with workforce shortages.
HCA was able to slash its contract labor costs in its second quarter by 25.7%, compared to its Q2 contract labor costs in 2023. Total Q2 labor costs were $7.7 billion, up from $7.3 billion in the same quarter last year. As HCA continues to make cuts to contract labor, it notes that wage inflation has helped by remaining relatively stable.
Outside of cutting costs, HCA's Q2 success also came out of other initiatives, like academics. HCA expanded its Galen School of Nursing, growing to 10 campuses across 10 states, improving its nursing supply into its markets. Last spring the health system invested more than $200 million to open new campuses throughout the college, and with this in place HCA is able to more easily acquire nursing talent for its operations.
The Payoff
The health system has adjusted its full-year guidance and is now projecting revenue between $69.75 billion and $71.75 billion, up from its previous guidance of $67.75 billion to $70.25 billion. The company's stock jumped more than 7% in premarket trading at the end of July.
HCA saw inpatient admissions growth of 5.8%, compared to 5.2% the previous year. Other departments saw increases as well: Same-facility emergency room visits increased 5.5% in the second quarter of 2024 compared to 2023, and same facility inpatient surgeries were up 2.6%. However, same-facility outpatient surgeries declined 2.1% in the second quarter of 2024 compared to the same period of 2023.
"The company's results for the second quarter were positive and reflected strong demand for our services," Sam Hazen, Chief Executive Officer of HCA Healthcare, said in a press release. "Our teams continued to execute our strategic plan effectively and produce positive outcomes for our patients."
Blue Shield of California and CalPERS are partnering with virtual care company Included Health to improve access to care for members, creating more opportunities to lower costs through better care management.
A unique collaboration in California is using virtual care to bring down healthcare costs for millions of Californians.
Blue Shield of California and CalPERS (California Public Employees’ Retirement System), a federal agency that manages pensions and health benefits for more than 1.5 million people, are teaming up with virtual care company Included Health to develop the virtual care strategy.
Included Health, which sells navigation and virtual care services mostly to self-insured employers and health plans, was chosen by CalPERS to be its population health management vendor. The partnership will provide ‘care case and disease management’ for complex care members and those who are going through a transformative moment in their lives.
Blue Shield of California’s big objective within this three-way partnership is to provide a cohesive underlying network that will support CalPERS objectives and put cost controls in place for its members
“We have over 80% of our primary care providers on pay-for-value arrangements,” said Tim Lieb, senior vice president of growth at Blue Shield of California.
Equity Through Virtuality
Dr. Ami Parekh, chief health officer of Included Health, says technology can not only aid in lowering healthcare disparities, but also create an engaging experience for members, all while lowering costs. Through an app on their smartphone, they can do anything from speaking with their clinician to checking their deductible.
“I wanted to see how technology could transform the patient experience,” said Parekh.“While we have used a lot of technology in healthcare, I don't think we’ve really pushed the limits on how transformative it can be from a member experience perspective, as well as from the outcomes it can deliver.”
“So one of the things we find with our clients and I think this will be true of CalPERS, is many patients just aren't engaging at all in primary care.” she said. “And what [this] allows, it just gets more people engaged in care.”
Parekh and Lieb agree that virtual care is often thought about too narrowly, but with the right implementation, it allows members to access care on their own time, and for many Californians who live in healthcare deserts, that’s a big deal.
The partnership won’t eliminate brick and mortar options, enabling members to choose which option suits them to connect with their care providers. Members who are more engaged in their primary care, they note, often need less urgent or emergency care, which in turn can lower care costs.
“And so, you can still go in person, but if we really are seeing greater use of primary care, we're seeing less emergency care,” says Lieb. “It's not a takeaway for any member, this is additive and that's the real positive. The virtual suddenly opens up that conduit to actually get care, whether that's during a lunch break or around the off hours.”
Lower Costs Through Higher Quality
The partnership with CalPERS aims to lower costs through higher quality care, both say. This includes how providers make treatment decisions.
“If you're seeing a high-quality orthopedic surgeon, they're not going to recommend surgery unless you really, really need it. That improves the quality and outcomes and decreases the total cost of care,” Parekh said.
Parekh said this is the huge driver to affordability with better outcomes and experiences, and CalPERS aims to build a model to help California with the sustainability of the investment in healthcare.
“The total cost of care and improved outcomes is actually the navigation piece and the population health management work, and we're going to supplement that with virtual to really get the best outcomes we can,” says Parekh.
“The more we can improve the quality, the more we can improve the outcomes.
That's what drives overall lower spend,” said Lieb.
Tenet's $259 million Q2 income flew in from a few key factors like increased ambulatory services.
As health systems close their second quarter of 2024 Tenet Healthcare watched its net income rise 111%, taking it from $123 million to $259 million. The Dallas-based health system’s financial gains follow a strong first quarter performance, where net income soared to $2.2 billion, according to financial reports.
So what drove Tenet’s financial success?
Tenet Health's positive financial outlook in 2023 set the health system up well in 2024. Tenet’s roadmap from its first to second quarter shifted from the selling of several hospitals towards purchasing facilities in better alignment with the health system’s long-term strategy towards profitability. After exiting a successful first quarter, Tenet saw mounting gains coming from the sale of three hospitals in South Carolina and six more in California.
Tenet’s earnings report also highlighted effective operational management, as well as volume growth in the ambulatory care and hospital segments. Notably, ambulatory services drove a large part of Tenet’s revenue in the second quarter, reeling in 21.1% more net operating revenue compared to the previous year.
On top of this, Tenet attributed its 2023 success to a favorable payor mix, and improved contract labor costs.
Fast forward to 2024 and all these factors are still playing a role, especially volume growth. Tenet was the only major for-profit health system to raise its full-year projection following first-quarter earnings.
"Our results through the second quarter, which have significantly exceeded our expectations, have been driven by volume and revenue growth as well as sustained fundamentally strong operating performance," said Saum Sutaria, M.D., Chairman and Chief Executive Officer of Tenet in the company’s earnings report.
"Our portfolio transformation and enhanced cash flow profile provide us with compelling opportunities for growth as we execute on our strategy and continue to broaden our service offerings for patient-centered care."
Tenet’s net operating revenue for the first three months of its second quarter was $5.1 billion, up from $5.08 billion at the same time last year.
Tenet Health’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for its second quarter was $945 million, which is up just over 12% compared to 2023. The company’s adjusted EBITDA outlook for 2024 is expected to be somewhere between $3.8 billion to $4 billion, which is up $300 million from the year before.
According to the report, Tenet's salaries, wages and benefits were $2.2 billion in the second quarter of 2024, a 5.1% decrease from $2.3 billion over the same period in 2023.
Tenet’s earnings stayed steady even though supply expenses increased, although not by much. Tenet’s supply expenses were $908 million, up 1.9% from $891 million in the second quarter of 2023.
Lastly, Tenet’s second quarter operating income was $761 million, a bump of 26% from $604 million compared to the same time last year.
