Hospital CFOs: 3 things demanding your attention in 2018

From managing new risk-based payment models to navigating an uncertain regulatory environment, healthcare industry finance leaders face many challenges this year, making it difficult to determine which initiatives to prioritize.  

To simplify and focus, below are three areas hospital and health system CFOs should prioritize in 2018, according to a new study from Kaufman Hall. For the study, Kaufman Hall surveyed CFOs and other senior finance executives from more than 350 hospitals, health systems and other healthcare organizations across the nation from Oct. 2 to Oct. 27, 2017. Of the respondents, 69 percent were from multihospital health systems, 19 percent were from standalone hospitals, 4 percent were from medical groups and 8 percent were from health plans or other organization types.

1. Cost reduction initiatives. Nearly 30 percent of the respondents said identifying and managing cost reduction initiatives is the most important performance management activity for their organizations. "CFOs recognize the urgency of generating cost improvements, but are struggling with data, processes, and tools due to their lack of structure, transparency, accuracy, and hence, creditability," according to Kaufman Hall. Seventy percent of survey respondents said their organizations do not use cost measurement tools, or use tools that are too simplistic or provide inaccurate data.

A reliable cost accounting solution can help healthcare organizations manage cost-reduction initiatives. "It must provide flexibility and transparency of costing model elements and a fluid ability to support strategic and financial planning," according to Kaufman Hall. "A trusted cost accounting tool enables modeling and forecasting of utilization, labor and other costs, and insights into current costs at a patient or service line level."

2. Financial planning. More than 50 percent of respondents said operational budgeting and forecasting, cost management and efficiency, and reporting and analysis to support decision-making as top initiatives. To improve in these areas, hospital leaders need to have clear goals that are communicated across the organization, according to Kaufman Hall. However, further improvement is needed to ensure transparency and accountability, as nearly half of respondents said their organizations do not closely track targets across the organization to help achieve financial goals.

"Progress is being made in improving financial planning processes, analytics, and tools in order to ensure best-possible organizational performance," according to Kaufman Hall. "But CFOs and other finance leaders must focus on the areas that will generate the most significant returns." Kaufman Hall recommends hospitals and health systems examine whether they have the financial resources and talent to successfully implement and operate clinical and administrative tools; support ongoing data collection and management; drive data analytics; and integrate the results with broader organizational plans. 

3. Budget processes. The budget process at most healthcare organizations is time consuming, and budget assumptions are often outdated by the time they are published. Although the majority of respondents (69 percent) said their organization's budget process takes more than three months from initial rollout to board presentation, CFOs recognize there is room for improvement in this area. Forty-seven percent of respondents said their budget cycles do not leave ample time for value-added analysis that can inform strategic decisions.

"Finance leaders are and should be considering different approaches to budgeting, not just simple tweaks to the existing process," according to Kaufman Hall, and many healthcare organizations are doing just that. Thirty-one percent of respondents said their organizations plan to start using rolling forecasting in the near future to give them the ability to adjust projections and strategies to remain in sync with long-term financial plans.

Access the full Kaufman Hall report here.

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