As health care leaders continue to navigate COVID and its impact on organizations, many still face unprecedented challenges. Numerous studies reveal the financial performance of hospitals is still below where it was pre-COVID.
As the industry moves forward, it’s important to ask, “What do CFOs need to think about going forward?” and “What does the future look like?” In this podcast, Daniel J. Marino and Steven Berger discuss the role of CFOs and how their handle on operating margins contributes to the success of health care organizations.
Daniel J. Marino, Managing Partner, Lumina Health Partners
Steven Berger, Principal, Lumina Health Partners
Episode Discussion Areas:
1. Financial challenges.
- The health care industry, including hospitals, has faced – and continues to face – great upheaval in its financial stability. This instability affects some organizations more than others.
- Nonetheless, the entire industry is feeling the financial impacts of patient volumes, in the inpatient and outpatient care settings.
2. Fixed costs are a leadership issue.
- Hospital finance leaders know what percentage of their total costs are fixed and should share with key stakeholders
- Leaders must understand the gap between their metrics and benchmark targets.
- (e.g., Should fixed costs be 40%, 50%, 60%, 70%).
- Variable costs should be a lot higher than fixed costs, for example, a 60/40 split variable to fix or even a 65/35 split.
3. Important revenue opportunities to consider.
- Leaders must create quick wins with physician practice managers
- Payer contracts are on every CFOs mind because they all feel they’re not getting reimbursed enough for services – and negotiations are difficult.
- Within hospital operations, surgical operations is an opportunity area, for example, efficiency through block scheduling and maximizing patient volume.
8 Key Takeaways: CFO Insights for COVID Financial Recovery
- How leaders think about growth in revenue is changing because of COVID.
Many shifts are impacting revenue—like site-of-service changes going from acute to ambulatory, the impact of telehealth services and virtual health, and levels of reimbursement.
- How should CFOs think about revenue differently post-COVID?
Some revenue sources are still the same, like the fee-for-service reimbursements through payers. It’s important to improve payer contracting and to find opportunities for higher reimbursements.
- Reducing FTEs challenge CFOs.
Some organizations reduced FTEs and now they’re having difficulty hiring staff. Some know they need to cut expenses, but FTE reduction may not be the answer.
- How should leaders view labor as a line item?
Leaders should look to non-clinical employees’ fixed indirect labor costs for extra costs that can be taken out. They can also review trial balance reports for all lines of labor. Leaders should reduce FTEs only if they improve operating efficiencies.
- It’s critical to have an effective cost accounting system and know costs.
The workforce must work smarter, not harder, to take redundant costs out of the system. CFOs are at a disadvantage when they can’t track costs across an organization.
- Incorporate clinical efficiencies into care models.
This can produce better outcomes, identify, and reduce unwarranted clinical variation, and reduce costs. Streamlining the different processes of patient registration and surgical and block time scheduling is key, to reduce costs.
- Should leaders spend money now to improve their future or cut capital spending to survive COVID?
The answer requires an effective, strategic financial plan, and they should start with cost accounting and clinical variation.
- Health care finance leaders need a mindset shift on how to think about their organizations.
They must analyze the data they have in place and where financial opportunities exist. By incorporating processes to drive improved financial performance, whether that’s increasing revenue or reducing clinical variation, leaders must have commitment from the full leadership team, including physicians.
- Hospital and Health Care Systems COVID Financial Recovery — Who, What, Where, When, How” webinar
- Lumina Leadership Institute
About Value-Based Care Insights Podcast
Value-Based Care Insights is a podcast that explores how to optimize the performance of programs to meet the demands of an increasing value-based care payment environment. Hosted by Daniel J. Marino, the VBCI podcast highlights recognized experts in the field and within Lumina Health Partners.