Healthcare CFOs Looking to Technology to Boost Waning Margins

Healthcare CFOs do not plan to reduce spending on technology and automation despite a dramatic dip in revenues and margins, according to a recent Black Book survey.

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The COVID-19 pandemic has created an unprecedented public health emergency that quickly turned into an economic crisis. Virtually all industries have felt a hit from the pandemic, but few have experienced a downward trend as healthcare.

All of the healthcare CFOs in the Black Book survey said they expect their organizations to experience a significant revenue decline this fiscal year, which will prompt them to adjust budgets and spending in 2020.

Yet, just 12 percent of the senior finance leaders said they will need to reduce or defer spending on digital transformations for their financial systems.

"It would seem most CFOs understand what the pandemic has proved is the need to speed up digital transformation initiatives to not only survive but to prosper in the new normal," stated Doug Brown, president of Black Book Research. "For CFOs eager to expedite their organization's digital transformation, the standardization and simplification leaders want in their back-end processes are allowing for less complicated, faster adoption despite the times."

Since the pandemic, healthcare organizations have taken stock of their financial technology. In recent months, 84 percent of hospital finance leaders and 79 percent of leaders at large physician practices have confirmed they performed audits on the state of their digital transformation.

A majority (93 percent) of those respondents identified missing capabilities, redundant technology, or conflicting systems. Optimizing the digital transformation of financial systems, however, could drive rationalization and acquisitions, the survey stated.

The pandemic is heralding in a new era of virtual healthcare. The survey found that healthcare organizations are navigating the challenges brought on by COVID-19 (e.g., declining procedure volumes) by empowering virtual health (87 percent) and initiating highly patient positive experiences (73 percent).

About 54 percent were also doing this while confronting radically sinking margins with layoffs and process changes.

Together, these strategies call for accelerated digital transformation of financial systems, the survey indicated. About 81 percent of responding healthcare CFOs and senior leaders said the absolute and immediate need for technology implementation and optimization is essential for the long-term survival of their organization.

"The lack of advanced financial analytic tools, strategic dysfunction caused by failed software integrations and outdated dashboard and decision support systems has put focus on the immediate technology needs of chief financial officers," said Brown.

Hospital operating margins were already on a downward trend as the first confirmed cases of COVID-19 were identified in the US. But by a couple of months into the public health emergency, margins dropped by 282 percent as providers across the care continuum experienced dramatic reductions in utilization, consulting firm Kaufman Hall recently reported.

“April was the worst month ever for hospital finances,” stated Jim Blake, managing director at Kaufman Hall. “Our nation’s hospitals are in a perilous position. They are serving as the frontlines of our battle against this virus, but the pandemic is threatening their fundamental financial viability at a time when we need them most.”

The road to recovery is likely a long and bumpy one, as one in five hospital executives expect revenue declines of over 30 percent by the end of the year, a new Healthcare Financial Management Association survey for Guidehouse showed.

Digital transformation may boost waning margins. A Black Book survey from last year showed that most CFOs and senior finance leaders (86 percent) who automated key financial processes at their hospital or health system reported a “substantial” return on investment. Yet, automation was under 25 percent for most hospitals and health systems.