The transition from fee-for-service to value-based care has chief financial officers (CFOs) thinking hard about the future — and many feel ill-equipped for what’s ahead.
A recent survey found 87 percent of healthcare CFOs don’t believe their organizations are very well-prepared to manage evolving payment models using existing financial tools and processes. Similarly, 77 percent of CFOs lack confidence in their teams’ abilities to quickly adjust business strategies and plans in a rapidly transforming environment.
If you’ve been paying attention to healthcare finance, these findings shouldn’t come as a surprise — but there’s still time, and great resources available, to get ahead of the problem.
Deeply entrenched financial planning processes and technology have left many CFOs reacting to challenges instead of proactively visualizing them, and strategically avoiding those outcomes. That is not to say core financial planning and management concepts have no place in a value-based care world — these pillars are more important now than ever. However, as value-based care payment programs like MACRA gain momentum, organizations struggle to gain insight into how well they’re performing and what to do to improve.
The good news is when it comes to evolving payment models, CFOs have an opportunity to avoid inaction and apprehension, and empower strategic decision-making. By leveraging reliable data-driven and actionable insights available with healthcare-focused software, CFOs can help their hospitals and health systems take charge of their futures.
The Right Analytics Tools Are Essential
Using data analysis to inform decisions has helped leaders in various industries — from Major League Baseball to politics — identify and seize opportunities to strategize, change course, outperform peers and fundamentally improve their fields. I cannot think of a place where this would be more valuable than healthcare, where lives and trillions of dollars are on the line.
Finance professionals must have high-quality analytics and reporting capabilities to overcome challenges with evolving payment models and inform strategic, financial and tactical planning decisions. Expert analysis tools help finance teams better spot emerging trends and quickly course-correct when needed. They also deliver a comprehensive view of performance across dimensions in real time. This requires access to benchmark data sources that position leaders to compare their performance against organizations of similar size and type, called comparative analytics.
Investing in tools to measure core dimensions of performance that impact value is also crucial. Once those tools are implemented, however, simply measuring clinical outcomes, patient experience, and financial health alone is insufficient in a value-based environment. Top-performing organizations must also track operational efficiency, strategic growth, and employee growth and retention rates.
Dashboards that display such critical performance data from multiple sources should be accessible from one system, empowering leaders to more effectively measure, monitor and manage performance under value-based payment models. Research shows that when all the data needed to evaluate performance resides in one system that can be accessed by managers and leaders alike, there’s a shared commitment to sustainable performance monitoring and performance improves.
See the Future with Scenario Modeling
At a time when healthcare CFOs have more data to draw from than ever, 94 percent fear they are unable to meet the demand for actionable insight. This includes the ability to leverage data to elevate strategic and tactical decision-making as business conditions change.
Scenario modeling is a powerful tool that enables CFOs to quantify the impact of changes in key business drivers on performance. By investing in such a tool, finance leaders can eliminate bias — at least in part — or aspirational thinking that is not grounded in reality. Using models that test the strength and flexibility of a strategy under adverse conditions helps CFOs proactively prepare to manage risk and uncertainty.
CFOs and their teams should perform scenario modeling and multi-year projections regularly, and use the intelligence gained to guide strategic and tactical planning.
Revisiting Core Concepts
Performance measurement across specific dimensions is also a powerful tool for assessing how specific service lines are performing and their impact on the organization’s cost equation. Across the country, leading CFOs are using profitability analyses to inform decisions around right-sizing and right-placing services and facilities. By connecting these analytical results to the organization’s strategic financial plans, healthcare CFOs can help ensure limited resources are allocated effectively.
Budget cycles should also be reviewed for a value-based care world. Longer budget cycles can consume six months or more from rollout to board presentation. Forty-six percent of CFOs say their longer budget cycles eliminate valuable time for analysis and insights around ongoing and emerging improvement opportunities. That’s likely one reason nearly 40 percent of CFOs say they use rolling forecasting as a complement to the annual budgeting process, which provides opportunities for more frequent and timely performance analysis — critical in an era of evolving payment models.
In today’s ever-changing healthcare landscape, it’s not enough for CFOs to focus on the fundamentals of finance. They must also play an integral role in developing, executing, and monitoring their organizations’ strategies. By investing in a full range of data analytics capabilities, CFOs can position their hospitals and health systems to respond with agility to changing market circumstances — so they’re prepared for whatever the future may hold.
Kermit S. Randa is a senior executive at Kaufman Hall.