CFOs Want To Cut Costs But Don’t Have Data, Resources To Do It

Reducing costs is the top priority for healthcare CFOs, but about three-quarters of finance leaders say that resource constraints are impacting effective financial planning and analysis at their organizations, a recent survey shows.

According to Kaufman Hall's new report 2020 Healthcare Financial Outlook: Performance Management Trends and Priorities, more healthcare financial leaders are experiencing resource constraints compared to previous years (70 percent in 2019 and 66 percent in 2018).

These resource constraints are affecting investments that could help organizations save money, the consulting firm reported.

About 54 percent of over 120 healthcare finance leaders at the nation’s hospitals, health systems, and other healthcare organizations said they have insufficient data, benchmarking, and reporting tools to completely support efforts to reduce costs without compromising care quality. Additionally, 15 percent of respondents also said they currently have no tools in place.

But the problem isn’t the amount of data, it’s the lack of analytics, explained Kristopher Goetz, senior vice president of performance improvement at Kaufman Hall.

“There is a massive amount of data flowing in from claims systems, electronic health records, cost accounting systems, patient satisfaction surveys, wearable devices and other sources,” he stated in a press release. “The problem is more than two-thirds of healthcare organizations don’t have the analytics tools they need to use all that data to gain financial insights and inform their decision-making.”

Without the right tools, healthcare finance leaders are struggling to sustain high-value care delivery, as well as long-term strategic financial viability, he continued. So far, healthcare finance leaders have not received the support they need from the C-suite to bolster their cost-reduction efforts, but that could change in 2020.

Nearly two-thirds (63 percent) of healthcare finance leaders in the survey want to improve operational budgeting and forecasting in 2020. That percentage is up from 53 percent the previous year.

Improving budgeting and forecasting could help organizations respond to emerging complex payment models, including value-based care. The 2020 survey showed that only 24 percent of respondents are “very confident” in their team’s ability to quickly and easily make adjustments to strategies and plans if business circumstances change. And circumstances certainly will.

Over half of respondents said that disruptors like UnitedHealth Group and Optum, CVS Health and Aetna, and Amazon are at least strong competitive threats.

Technology will be key to responding to new competitive threats and emerging payment models, the survey revealed. About 41 percent of respondents are already using cloud-based applications for performance management, budgeting, and planning, which is up from 31 percent in 2019. Just 18 percent said they still rely on spreadsheets, and the remaining respondents have an on-premise application.

Plans to improve operational budgeting and forecasting were also second only to plans to enhance reporting and analysis to support decision-making (selected by 69 percent of respondents).

Half of respondents reported having budgeting cycles lasting six months or longer from initial roll-out to board presentation, and that is up from 37 percent in 2019 and 27 percent in 2018. Nearly half (49 percent) of respondents are also now using rolling forecasts as a complement to the traditional annual budgeting process, and another 7 percent are using rolling forecasts as a replacement for the traditional method.

Changes in budgeting and forecasting may be due to the higher number of health systems in the survey pool this year or the fact that management teams are encountering tougher decisions that require more extensive analysis. Either way, longer annual budget cycles pose challenges, the authors of the report stated.

Under long annual budget cycles, initial assumptions may be outdated by the time budgets are published and the budgets produced are more likely to be rigid and not easily adaptable to changing market conditions. Overall, the long annual budget cycles are retrospective, the authors explained.

Healthcare finance leaders need to be more agile and use rolling forecasting to meet new business demands and challenges. Rolling forecasts allow organizations to identify and adjust to market changes, improve timely allocation of resources, and executive a forward-looking view of organizational performance. Organizations replacing the annual budget process with rolling forecasting can also expect fewer staff hours since the process typically takes just two to three weeks per quarter.

The survey also showed that healthcare finance leaders are interested in tracking clinical outcomes in addition to traditional financial metrics to improve organizational performance. Clinical outcomes were the second most selected metric for managing organization performance behind financial health.

“These numbers indicate that most organizations understand the need to manage performance across multiple dimensions,” Kermit S. Randa, CEO of Kaufman Hall Software, stated in the release. “Quality of care and the patient experience, in particular, will be increasingly important differentiators in a more consumer-focused, retail-oriented business model. Using data to identify opportunities for operational efficiency is critical as legacy hospitals and health systems work to reduce costs and compete on price.  This data can also help drive revenue optimization and clinical quality improvement, which empowers organizations to achieve healthcare’s triple aim.”