In a post-pandemic era, US-based healthcare systems and their service partners continue searching for their “new normal” and a return to double-digit margins in most service areas. As a result, healthcare CFOs need to play a leading role in the fundamental reevaluation of financial and operational strategies going forward.

Financial Margins: Persistent Challenges

According to industry research, pre-pandemic financial margins continue to be a top priority for systems and their financial leaders. Labor costs and related shortages, supply chain disruptions and inflation have decimated industry margins since early 2020. A recent publication from S&P Global confirms there is still considerable work to be done to return margins to pre-pandemic levels. Although margins do not solely define a system’s rating, stronger financial measures are traditionally associated with higher–rated systems and aggregate ratings have declined since 2020. S&P Global’s rankings of the largest 170 healthcare systems designate AAA and AA categories as ‘financially healthy’ systems in their annual analysis of the industry. According to their report ‘US Not-For-Profit Health Care System Median Financial Ratios—2023,‘ systems rated in the ‘AA’ category fell to 39% of total rated systems, from 44% in 2022.1

Looking Ahead – Solutions for CFOs

The role of the CFO in health systems is evolving beyond traditional financial stewardship, necessitating new approaches to achieve higher margins. The shift requires active management not only of the health system itself but also of its joint venture partners. With increasing regulatory pressures, the transition to care-based delivery models (i.e. value-based care versus fee-for-service), and rising market competition, CFOs must embrace innovative planning as strategic leaders within the organization. How can a healthcare CFO effectively drive an organization forward to enhance margins?

Leveraging Process Efficiencies and New Technology Now

Healthcare CFOs can renew their system’s focus on labor and supply chain management, process efficiencies, information technology (IT) enhancements and transparent financial reporting. It is not uncommon for CFOs to struggle with disparate IT systems and broken processes leading to contradictory information. Further, and far too often, hospital financial leaders are entrusted to analyze manipulated data outside of the originating system(s) because the information is considered unreliable, if provided directly. Whether the result of inadequate implementations or a lack of integration between the myriads of IT systems leveraged across the enterprise, technology upgrades along with process improvements will be necessary to provide efficient, reliable and timely data to facilitate decision making and pave the way for a return to healthy margins. Reintegrating now is one path forward.

Embracing new technologies is another path forward. For an industry often unfamiliar with pioneering cutting-edge technology, it will be imperative for innovative CFOs, and their teams, to embrace new technology while seeking a path forward. Whether it’s utilizing artificial intelligence for revenue cycle optimization or corporate accounting teams employing cloud-based workflow automation tools, how work has been performed in the past will need transformation to meet a board of director’s demands and margin goals. Introducing new technology will foster a need for process improvements and developing adequate controls. CFOs will need to establish an appropriate tone at the top with proactive communication throughout the enterprise explaining the importance of improved processes and related controls. These will drive efficiencies, more transparent reporting, and, ultimately, bottom-line results.

Strategies for Long-Term Financial Growth

In the industry’s current landscape, new strategies are essential to developing long-term financial margin growth to address current challenges. Patient care, staff retention, and overall organizational stability will depend on it.

There are several strategies financial leaders should consider during this post-pandemic recovery period:

  1. Centralization: Streamline operations and improve integration through the development of a shared services center. Leverage this approach to drive efficiency, scalability and transparency throughout the organization.
  2. Capital Structure Optimization: Develop a robust capital structure to ensure balance between near-term financial stability and long-term growth initiatives.
  3. Leverage Information Technology: Equipping teams with integrated tools to provide accurate and timely financial data for decision-making.

Ready to Reimagine Your Healthcare Business Processes and Improve Margins?

Riveron is committed to helping our clients improve business processes and learning from others in the healthcare sector. Our expertise in business transformation, accounting advisory, and technology enablement allows us to assist organizations in simplifying complexity building scalability while fostering long-term partnerships. Together, we can navigate the evolving landscape and develop effective strategies to secure financial stability and growth in a post-pandemic world.