Going into 2022, many Leading Health Systems (LHS) felt positive about their 2021 financial performance with the average operating margin in-line with pre-pandemic levels (3.7% in 2021 vs 3.8% in 2019). However, a combination of inflation, volume and labor pressures significantly tanked 2022 margins with a projected 53% of hospitals expecting negative operating margin for 2022. Further, in a major reversal from 2021, 75% of LHS CFOs elected to reduce their operating budget in 2022 with the vast majority focused on driving cost savings through labor/productivity efficiency.
While rising interest rates will tamp down inflation, health care labor costs (particularly for clinical roles) will remain high and margin relief is not in sight for 2023. Additional supply and services inflation is also expected due to rolling contract renewal periods, and many LHS are expecting only modest commercial payer rate increases (~4%) that will fail to account for rising care delivery costs.
Recently, The Academy spent four days with VP Finance and CFOs from more than 35 Leading Health Systems to discuss strategies to prepare for 2023’s economic pressures, top CFO priorities and bold predictions / “Moonshot Ideas” for the next 10+ years. In particular, the group focused on four key topics:
- Preparing for 2023’s Economic Pressures: CFOs are feeling the pressure of the economic challenges intensely and struggling to determine how exactly to budget, predict and plan for upcoming quarters and how to message to their boards. Workforce shortages, “new normal” higher labor costs and difficulty weaning off more expensive contract/float labor are primary drivers of margin pressures. Historically, margin challenges could be resolved through growing volumes, but systems in growth markets (ex: Texas, North Carolina) aren’t feeling like that is possible due to labor shortages. Payer relationships are also top of mind for CFOs and VPFs right now, with many focused on payer accountability, especially since systems can’t pass along inflation costs to their customers like other industries can.
- Developing Price Transparency Strategies: While there is broad consensus that transparency is the way forward, CFOs recognize the sheer complexity and challenge this poses. Since price transparency went into effect on January 1, 2021, CFOs have struggled with how to take full advantage of the available data; there was frequent commentary on the lack of “good” solutions for true transparency.
- Seeking Transformative Labor Solutions: As one CFO put it, “I’ve never heard the word burnout so much in my life.” All CFOs are looking for creative and transformative labor solutions in 2023, given the continued workforce challenges of unsustainable costs and prolonged staffing shortages. They’re looking to peers and industry for best practices in leveraging innovation, analytics and technology to effectively attract, optimize and retain talent while improving patient care. CFOs are also re-evaluating workforce management strategies including cultivating higher staff satisfaction, improving quality of care, and standardizing processes
- Sharing Bold Predictions and Moonshot Ideas: Lastly, The Academy challenged CFOs and Industry Partner groups to come up with a bold headline and moon-shot ideas to get them there. Ideas ranged from creating the universal source of truth for patient data, to rewarding remote patient monitored (RPM) health behavior with lower patient premiums, to deregulating hospital pricing and rewriting the Physician Fee Schedule.
To review the insights and strategies discussed during these forums, view the free event debrief today.
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