Overcoming challenges and achieving resilience

As a result, health system CFOs project only a slight improvement in margins in the next year. For health plans, surveyed CFOs projected margin headwinds from lower premium increases, pent-up demand for elective surgeries, and rebate pressures (figure 1).

With challenges to traditional business models, finance leaders are looking at investing in technologies and rethinking work to future-proof their organizations.

Fundamental aspects of health care organizations’ business models are rapidly changing, the most obvious being tech-enabled care delivery, revenue sources, and way of working. Many interviewed CFOs discussed how their future revenue models will no longer be the same. Their typical business model of capturing revenue from inpatient hospital stays (for health systems) and premiums (for health plans) might no longer work.

Capital spending outlook is often considered a barometer of change in organizations’ business models. In our prior survey, several finance leaders mentioned they were pausing major capital expenditure programs amid financial uncertainty. This year, however, a much higher proportion of finance leaders than last year are planning to increase capital expenditure aligned to their major organizational priorities of boosting growth, managing costs, and addressing larger societal issues. Their key areas of focus include:

Technology as a priority: Technology investments—digital technologies and core business technologies—are top capital spending priorities (figure 2). Finance leaders identified them as top priorities in 2020 and 2021. As organizations grapple with volume concerns, interviewed finance leaders discussed investing significantly in alternate care models and sites to boost growth. This includes virtual health, remote monitoring, and hospital-at-home as critical parts of their next-gen care delivery strategy.

In addition, they are investing in core technologies to not only create efficiencies and cut costs but also to support business transformation. Cost efficiencies have always been a priority, but CFOs are now looking to new strategies that have the potential to overhaul the way they do business. For instance, during potential M&A discussions, one of the biggest issues they try to address is whether technology integration may be an accelerator or a barrier to efficiencies. In addition, CFOs discussed addressing supply chain issues structurally after a challenging last year that increased supply costs dramatically. Organizations are now layering sophisticated analytics and a cloud-based approach to their enterprise resource planning systems to help them address pricing, vendor issues, and other supply chain bottlenecks in real time.

More resilient workforce: Several health care organizations quickly arranged for their nonclinical (and some clinical) workforce to work remotely during the pandemic. As facilities and businesses now begin to reopen, interviewed CFOs discussed adopting an increasingly hybrid future of work and workplace. Many CFOs discussed how they will be virtual-first and work with employees to bring them together for important milestones and activities such as annual planning exercises and townhalls. Many of the health plans that used remote work before the pandemic were looking to leverage it even further. Employee motivation, engagement, and empathy will be key drivers in assessing the right balance, according to the CFOs.

The hybrid model will require balancing capital on two fronts: technology and real estate. From a technology perspective, CFOs’ immediate priority is better hardware for remote staff (e.g., laptop devices) and Wi-Fi as well as current collaborative and productivity software tools to ensure they have the right KPIs to assess their benefits and impact on employee engagement. In our recent research on future of work, health care employees and chief human resource officers alike discussed the importance of the right collaboration and productivity tools to remain engaged. From a real estate perspective, some CFOs discussed a few employee cohorts eventually returning to physical offices. Many organizations are planning to restructure their office spaces to make them more personalized yet collaborative and digitally enabled, keeping employee preferences in mind.

In addition, CFOs also pointed to a need for enhancing automation capabilities with better and faster ways of capturing and reporting data.

Health equity is among top organizational goals, and finance leaders are focused on their role in identifying opportunities and supporting initiatives.

Sixty percent of the surveyed finance leaders identified addressing health disparities and improving health equity as significantly important to their organizational strategy. Interviewed leaders described their organizations’ work to address health equity in their communities over many years but admitted that most efforts were considered side projects or were on a small scale. Many acknowledged that the disparities uncovered during the pandemic and by the social justice movement put a spotlight on how much more work needs to be done. Both surveyed and interviewed finance leaders said that their specific role in health equity initiatives for their organization was to help identify opportunities to achieve scale and sustainability. They viewed their roles as partnering with other leaders to determine the best ways to invest their resources and strategically partner with others. As one CFO put it, “The CFO can be the glue to try to bring dollars together on a larger scale in a more focused way.”

CFOs discussed three priority areas for their role in health equity:

• Aligning investments with health equity goals: Eighty-five percent of surveyed CFOs said they were prepared to align investments with their organizations’ health equity objectives. Interviewed CFOs discussed the importance of funding to scale up efforts meaningfully. In the words of one finance leader, “We’ve got all these great awards for programs, and we have made a real difference but now the question is making these programs available at scale, and we have spent a lot of time talking to each other, helping each other carry out initiatives, but you really have to see how you can touch more people. That’s my biggest priority right now.”

• Improving diversity and inclusion in the finance workforce: Eighty-five percent of CFOs said they were prepared to improve diversity and inclusion in the finance function’s workforce. Some key efforts include increasing diversity within finance management ranks to match the organization’s overall workforce and ensuring they are recruiting a more diverse talent pool. The trend toward virtual-first is an opportunity to attract more diverse candidates, according to the interviewed CFOs.

• Compliance and reporting of health equity initiatives: Interviewed leaders consider their foremost function as data, analytics, and reporting stewards for all initiatives, including health equity. They discussed ensuring oversight and focusing on compliance and risk mitigation through regular board reporting. In addition, many said they were creating and reporting appropriate metrics to measure the performance and impact of health equity initiatives. For instance, one CFO mentioned maintaining and reporting on measures such as patient engagement scores and physician engagement scores for patient cohorts by race/ethnicity, which had never been done before.

As business models evolve, finance leaders are broadening their responsibilities as strategic enablers

Many interviewed finance leaders noted that though their role has been changing to a more strategic one for several years to help their organizations navigate key strategic priorities, they expect that evolution to accelerate due to the pandemic. They said the traditional role of finance—reporting monthly, quarterly, and annual performance—was no longer their main focus. They discussed how they created a strong team focused on controllership and the “backward view” aspects of finance, freeing CFOs’ time for forward-looking and strategic activities.

In our survey, 77% of finance leaders said they were moving beyond the traditional finance function to partner in organizational decision-making to boost business growth. Interviewed finance leaders said they view themselves as a strategic business partner to other leaders in the business, who is involved in decision-making throughout the planning process instead of being viewed as the final barrier to overcome. They described initiatives ranging from business model transformation to digital investments where they played a key role in decision-making.

To ensure that the finance function is a strategic enabler to overall decision-making, surveyed finance leaders said they were focusing on making the function agile (optimizing working capital, enhancing forecasting), tech-enabled (improving tech architecture, adopting digital technologies), and data-centric (automation of processes, analytical capabilities; figure 3.)

However, preparedness in these areas varies, with few surveyed CFOs saying they were “very prepared” on almost all the above key focus areas (figure 3). Interviewed executives discussed how uncertainty surrounding their financial planning in 2021 was one of their biggest challenges. Therefore, their immediate focus is on making the function more agile. They said they had shifted to rolling forecasts last year and would continue to do so. This gives them room to make rapid changes to any external and internal sensitivities in these uncertain times. However, they noted that as they redesign forecasting, they are seeking more analytics capabilities in their department.

Conclusion

As finance leaders work on building a more resilient organization for the future, they should consider:

• Prioritizing investment in automation for cost and efficiency

• Developing governance, process, and oversight of new investment opportunities (from digital technologies to health equity)

• Identifying the right set of data and metrics for speedy evaluation and course change if required

• Assessing skills needed in the finance function for new ways of working and strategic mindsets