Staying agile: A key to financial planning during a crisis

The COVID-19 pandemic, due to its disruptive and enduring nature, has forced hospital CFOs to rethink the way we do our jobs. What became apparent is that CFOs must be more agile than ever in budgeting and planning.

Within weeks of its arrival, the pandemic rendered the financial plans and budgets of most healthcare providers irrelevant. For the first time in my career, our operating budget bore little resemblance to what unfolded during the year. 

In the first few weeks of the pandemic, it quickly became evident that we would need an incomprehensible amount of personal protective equipment, respiratory devices, beds and staff. This increase in spending came at a time while many revenue streams were completely shut down. Forecasts of spring volumes were useless and only created anxiety over the extraordinary spending that would be needed to ensure the safety of our team members and the best care for our patients. As 2020 gratefully came to a close, it was clear very little of the time we spent in 2019 doing detailed budget planning was of value. 

Because the pandemic has persisted for months, completely new spending priorities and planning needs have arisen for healthcare providers. It now goes well beyond PPE. Hospitals have scrambled to offer additional sites of care, including locations for virtual work, mass vaccination centers, specialized hospital-grade infusion clinics and even childcare sites. Besides bricks-and-mortar needs, wholly new staffing models, including a commitment to pay for high-cost traveling nurses and physicians through the first quarter of this year, were required to handle pandemic demands.

In 2020, as we planned for 2021, we faced three major issues:

  • Our operations team didn't have time to collaborate and effectively plan because they were overwhelmed with patient care.
  • Financial data from 2020 could not be used as a reliable base due to COVID-19 impacts and forced cancellations of elective services.
  • Plans for 2021 were difficult to project not knowing payer mix and volume due to continued COVID-19 and a recession.

Although faced with these tough challenges, we realized healthcare wasn't an immoveable Titanic, slow to react and change. Responding to the demands of the pandemic, we were rapidly acquiring PPE, quickly opening new hospital floors, and finding equipment and staff in creative ways. We did this while simultaneously redirecting discretionary spending as needed. 

Winston Churchill said, "Plans are of little importance, but planning is essential." 2020 showed that time and effort spent on annual budgeting became devalued by unforeseen events while long-term and risk-scenario planning became even more useful. It allowed us to shift quickly and implement improvements in operations, both locally and at the system level.  

Staying agile, and not confined to an annual budget, affords advantages in uncertain times. To me, agile planning means taking a continuous planning approach, which grants flexibility to better leverage resources, take advantage of new opportunities and realize returns from investments sooner. The great news with this approach is that the planning cycles are shorter, allowing finance leaders to focus on what is most important.

It also can allow finance leaders to take on more projects that are based on non-financial metrics such as returns on outcomes. Some examples of this include improving team member satisfaction and retention, higher quality, or increasing investments in the community, like a public health initiative.

At IU Health, we've adopted a dual-plan approach for budgeting and financial plans going forward. Plan A establishes our core budget to support the organization's mission and fund our operations. It allows funding of "no brainer" projects to capitalize on opportunities as they arise and give business units the resources to move ahead when conditions are right.

Plan A also looks several years out and lets operating regions manage their own budgets and self-fund projects they deem important. Under this approach, projects that promise a return receive priority because they can help to fund our strategic vision initiatives, like community health programs, that are more focused on return on outcomes and improving the health of Hoosiers rather than a financial payback.

Plan B is the "what if" plan. It includes identified strategic and community-based projects that can be quickly executed if certain performance outcomes are reached. Projects are funded based on criteria that include the level of investment required, risk, expected benefit to the system and alignment with system priorities. Having a Plan B allows you to prepare for the coming year based on best-known information at the time, yet do more if positive financial performance is achieved. 

IU Health isn't there yet, but we are moving to build a multi-year focus into our agile planning. This is especially important for larger systems, because multi-year planning gives regional teams greater flexibility to make significant investments when they know they have a year or more to reap the benefits and stay on track with their long-range financial goals. 

For IU Health, another step to building more agility into financial planning is ensuring the ability to cope with extraordinary times while also changing our pricing strategy to make care more accessible and affordable while ensuring high quality and service. 

The pandemic could yet bring more unexpected challenges. But an intentionally agile approach to financial planning should provide more ability to adapt, cope and overcome as those challenges emerge.

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