A 0% operating margin isn’t a true break-even point for a nonprofit health system, according to Brian Craft, CFO of Flagstaff-based Northern Arizona Healthcare. He and five other hospital and health system CFOs told Becker’s which healthcare finance myths they wish would go away.
Editor’s note: Responses have been lightly edited for clarity.
Brian Craft. CFO at Northern Arizona Healthcare (Flagstaff):
- Nonprofits should have a 0% operating income. I spend a lot of time trying to help leaders and staff understand what financial sustainability looks like for a nonprofit health system and try to drill home the fact that a 0% operating margin means you generate just enough cash to replace your capital “if” the prices of capital never increased, and “if” you never had to replace large capital items like buildings and bed towers and “if” you had no desire to ever grow and take care of more of your community, which is why a 3% to 5% operating margin actually becomes the minimum to ensure the financial sustainability of the organization and fund the mission long term.
- Just fix the revenue cycle. As a CFO and former revenue cycle leader, I’m not sure I’ve ever met a revenue cycle vendor who couldn’t identify leaking opportunities within the revenue cycle. The entire healthcare revenue cycle on the payer side is designed for providers not to be able to reach 100% of expected collections. Unfortunately, if hospital operators don’t grasp that concept, it can become a very difficult battle to control or cut costs when “just fix the revenue cycle” means they would not have to cut FTE’s, reduce expenses, or make other difficult decisions. While it is a balance, I try to focus on ensuring our costs are at benchmark level regardless of revenue cycle performance because at that point we can say we are efficiently operating our facilities and being good stewards of our community’s money.
- We pay _______ too much or too little. While experience, performance, and cost of living are all important factors in determining someone’s pay, the Econ 101 concept of supply and demand and price point will always control our pay ranges. When COVID occurred and labor inflation increased drastically, it wasn’t because the value of caring for patients all of the sudden increased; it was because the demand for staff outpaced the supply, which drove up prices. Ultimately, while I would love to predict my future labor inflation and can plug 3.5% into a budget, it will always be the economics driving what it takes to hire and retain doctors, nurses, techs, executives, coders, billers and an entire army of other very important staff in the care process that controls my labor expense.
Boyd Chappell. CFO of Taylor Regional Hospital (Campbellsville, Ky.): I think the one hospital finance myth I wish would go away would have to be the idea of the “CFnO,” or that we are just “bean counters.” While the accounting function and cost control are important, my experience has been that the most successful CFOs are able to expand the role of CFO to be so much more. For successful CFOs, it is truly a partnership with operations, and perhaps more importantly a strategic partnership with the CEO. Hospital finance is truly a three-legged stool: helping identify strategic growth opportunities, ensuring a strong revenue cycle to fund that growth, and finally cost control.
Diane Moore. CFO of Mitchell County Hospital (Colorado City, Texas): You cannot cut your way to long-term sustainability. One hospital finance myth I wish would go away is that rural hospitals can solve their financial challenges simply by cutting costs. Rural hospitals already operate with lean teams, and many of our costs are tied to maintaining essential services our communities depend on regardless of volume. Long-term sustainability requires strong reimbursement, disciplined revenue cycle management, thoughtful growth, and, most importantly, protecting access to care close to home.
Matt Morgan. Senior Vice President and CFO at Cottage Health (Santa Barbara, Calif.): I would say the myth I’d like to go away is that finance is stimulated by saying no. I certainly want to be more CF-YO than CF-NO. I (and my team) want to grow the business, want strategic development, want service lines funded, want improved technology, and want long-term investment. Sure, we have to pressure-test the requests, and that does result in a no-go at times. At the end of the day, though, finance wants to be a partner, not a foil.
Rob Tonkinson. Senior Vice President and CFO at Centra Health (Lynchburg, Va.): That freestanding outpatient settings are lower cost than hospital-based outpatient services, because the care provided there can be provided in the hospital using the same staff, the same supplies and the same other resources and, therefore, is close to the same cost (given the size of hospitals, things like stocking supplies costs a very small amount more than in a freestanding setting because the distance from the loading dock to the department is longer). The reimbursement for the service is a lot less in the outpatient environment, but that is not the same thing as the cost. The reimbursement is higher because historically, high reimbursement on outpatient procedures subsidized the 24/7/365 availability of resources and the excess capacity for true emergencies. That was necessary because services delivered to true hospital-level patients are not paid adequately to cover the standby capacity and round-the-clock availability.
Austin Willuweit. CFO at Monument Health (Rapid City, S.D.): That organizations can be successful on a long-term basis without integrating the finance function operationally and clinically. To drive change, finance leaders need to be partners with operational leaders and clinicians. Finance needs to be working side by side, rather than solely as a data provider, with their operational counterparts to reach appropriate decisions. Similarly, finance leaders need to directly participate in and support clinical decision-making committees that can push organizations toward higher-quality, lower-cost outcomes.
