Healthcare CFOs Concerned About Economy, Regulations

September 26, 2023 - The volatile economic environment is keeping healthcare CFOs up at night, suggests a new survey from the Deloitte Center for Health Solutions.

The survey of more than 60 finance leaders of US health plans and health systems found that 70 percent think the economy is a greater organizational concern compared to last year, while 21 percent think the gravity of the issue has not changed.

“While not surprising, inflationary pressure has likely brought the challenges of a cost-heavy operating model to the fore, especially for health systems,” wrote lead author Tina Wheeler, US healthcare leader at Deloitte & Touche LLP, and colleagues. “Higher care delivery, labor, and supply costs are major factors that are structurally elevating these organizations’ operating costs.”

Healthcare CFOs also said new regulatory requirements and the current operating model and cost structure are also larger organizational concerns this year at 57 percent and 51 percent, respectively.

Wheeler et al. reported that revenue growth has slowed amid inconsistent volume recovery from the COVID-19 pandemic. Changes to payer mix and care modalities have also impacted health payer and system operations, with over 40 percent of health system finance leaders predicting more than two years for profit levels to reach pre-pandemic levels.

The survey report also highlighted healthcare’s challenges with its workforce, which comprises more than half of all expenses for healthcare organizations.

“While showing signs of improvement from last year, staff burnout and nurse shortages tend to remain issues for health systems,” Wheeler et al. wrote. “The CFOs we surveyed are, overall, spending more time and resources on role retention and arresting attrition, efforts that result in elevated workforce costs. This has prompted many of the finance leaders to pay closer attention to their workforce needs and look for innovative solutions such as automation, upskilling, and increased flexibility, among others.”

Most healthcare CFOs are aiming for recovery by focusing on reducing costs, according to the survey. But Deloitte researchers are asking how organizations can reduce costs and improve profitability, rather than if they can.

Health system leaders were more likely to say improving revenue cycle, including shorter payment times and process redesign, to improve profitability. More than half (52 percent) selected that response, while 48 percent said addressing talent issues and 42 percent said increased payments.

Meanwhile, 60 percent of health plan leaders said improved offerings and 57 percent said medical cost management.

Both health system and health plan leaders also cited strengthening the supply chain as one of the top levers for improving profitability, with 45 percent of health system leaders and 43 percent of health plan leaders.

Potential high-impact drivers for health system CFOs were service model optimization (42 percent), care delivery transformation (29 percent), and digital transformation investments (26 percent).

Wheeler et al. said conventional levers for increased efficiency and profitability have generally provided diminishing returns over the past few years. Coupled with inflationary pressure and a shakey macro environment, they suggest other profitability levers.

"Some of the levers such as digital transformation and service model optimization that may be lower on finance leaders’ radars may be more effective profitability drivers,” they explained.

“Enterprisewide digital transformation initiatives can help [healthcare] organizations achieve several key organizational goals. Our prior research of [healthcare] executives showed that consumer engagement, revenue growth, and cost efficiencies are among the top outcomes of digital transformation. It could be a good time to challenge the status quo of cost-heavy operating models considering shifting consumer preferences and a rapidly changing [healthcare] ecosystem.”