3 Trends Healthcare CFOs Need to Watch

Three trends healthcare CFOs need to watch

October 30, 2018 - Consumer Insights DC, DE, MD, VA Florida Maine New England New Jersey, New York and PA North and South Carolina

Chief Financial Officers (CFOs), Treasurers and financial decision makers for healthcare organizations are now required to manage a myriad of responsibilities while acting nimble and innovating in a rapidly changing environment. The technological, regulatory, labor and care provisioning models are changing so quickly that adaptability is a key priority for the industry. All of these changes present operational challenges that require CFOs to manage disparate stakeholders and systems across the entire enterprise while enabling a seamless and cost-effective patient experience.

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Here's a closer look at a few of the issues healthcare CFOs are placing at the top of their priority lists:

Reducing labor shortages and surging salaries

Due to the increases in labor and supply chain costs, expenses exceeded revenues for nonprofit and public hospitals for the second straight year in 2017. The salary for medical workers is steadily increasing year over year. According to the annual Health eCareer's Salary Guide 38% of the 20,000 healthcare workers polled saw their salaries increase and 41 percent reported it increased over one year ago in 2017.

Despite salary increases the healthcare industry is experiencing a shortage of nurses in certain parts of the country. In fact, according to a report by the U.S. Department of Health and Human Services, the following states are predicted to have the biggest shortage in the next 10 years: California, Texas, New Jersey and South Carolina.

This issue is requiring hospitals to hire temporary nurses which require higher compensation either through salaries or large up-front "sign-on" bonuses. CFOs are evaluating ways to enhance loyalty and retention of its physician and nursing healthcare providers by incorporating well-being programs, holistic employment plans and other benefits beyond cash compensation. For example, certain hospital and health systems have built or engaged partners to develop tax-efficient deferred compensation plans for physicians. They may also offer behavioral and mental health programs on-site or discounted childcare, and tuition reimbursement. Hospitals are also investing in tracking and benchmarking platforms to analyze labor data.  CFO's can utilize this data to proactively plan for busier time periods and bring on additional staff on a time needed basis.

Stabilizing the rising cost of branded pharmaceuticals and consumable supplies

While supply chain costs comprise only one-third of the average hospital’s operating expenses, it is expected they will surpass labor costs as the leading expense by 2020, according to projections by the Association for Healthcare Resource & Materials Management. A majority of operating expenses, stem from the escalating costs of pharmaceuticals and consumable supplies. According to a study by Blue Cross and Blue Shield Association prescription drug prices rose 10 percent annually between 2010 and May 2017. The study also indicated that branded drugs with no generic alternatives are rising at an average annual rate of 25 percent, a total of 285% since 2010. .

Care protocols and streamlining of physician drug prescription preferences can help address this issue for CFOs along with an integrated or highly-selective pharmacy network. CFOs should work closely with physicians to identify which medications require branded versions versus generic alternatives. In addition, educational programs can be put in place so physicians can inform patients on the importance of requesting generic versions of branded pharmaceutical drugs which lower costs for the entire healthcare ecosystem.

On top of rising drug prices, the small market for healthcare consumable supplies is impacting acute care systems' bottom line as well.  Most health systems have established or joined one or more group purchasing organizations (GPOs) to negotiate more competitive prices on consumable products. Ongoing and increasing savings are available by improving the monitoring of all purchasers to ensure GPO discounts driven by volume targets are recognized and paid. CFOs must also remain vigilant to ensure that purchasing "leakage" outside the GPO contract is eliminated. GPOs also offer analytical tools that identify cost cutting strategies and inventory management solutions. Over the next decade, GPOs are projected to save the healthcare industry between $392.2 and $865.5 billion.

Investing in the right technology

It’s understandably difficult for CFOs to strike a balance between cost cutting and investing in the latest technology. However, it’s imperative that CFOs allocate personnel and financial resources toward innovation. Updating technology can improve patient care and also make health systems more efficient.

For single-site or community health systems that may be on a tighter budget, CFOs can prioritize their most critical technology needs and invest accordingly. For example, consider making investments in equipment replacement that is beyond its useful technological life or in a service line with the largest patient volumes. 

Financial decision makers in the healthcare industry will need to work diligently to keep pace in this rapidly evolving environment. It's a good time to evaluate ways to "unlock" capital for redeployment into some of the initiatives identified above.  Now more than ever before, it's imperative for CFOs at healthcare institutions to have a strategic, seasoned financial partner to help navigate operational complexities, brings deep industry connections and expertise, and provide product solutions that support your healthcare organization. 

Emmet Conlon, Head of Institutional Healthcare and Higher Education, TD Bank


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