Financial Survival Strategies: Taking the Long View

Healthcare lea-ders will recall the margin pre-ssures they faced pre-COVID-19, the result of increasing expenses and decreasing reimbursement. The COVID-19 pandemic worsened these hardships by forcing hospitals to cancel (and patients to delay) elective procedures, which in turn resulted in a significant loss of revenue as labor and supplies costs rose at an accelerated pace. Temporary federal relief through the CARES (Coronavirus Aid, Relief, and Economic Security) Act has come and gone. So now, amid continuing economic pressures, the question persists: What are the financial strategies that can help healthcare providers survive?

Typically in lean times, annual planning and budgeting processes are centered on scrutiny of operations to find greater efficiencies. However, confining the examination to the expense side of operations when margins trend negative is unsustainable. Sharpening the proverbial pencil when reviewing salaries, wages, and benefits—and flattening the organizational structure—seems immediately impactful and logical. Cutting the number of employees and eliminating layers of management will reduce expenses. However, this tactic abandons investments made in human capital to date. The consequences can ripple through the organization with a harmful impact on organizational culture as well as preparedness for whatever the future may bring. There can be long-term costs to employee engagement, productivity, quality, patient satisfaction, and organizational effectiveness.

There is a better way out of a financial jam. Organizations can and should explore other options before making such drastic changes, and then make changes within the contextual framework of their strategic priorities. It seems that when we must do something quickly, we frequently fall into Pfeffer and Sutton's Knowing–Doing Gap (^{Pfeffer and Sutton 2019}): We know that other strategies could be available but do not follow the best evidence. This gap between knowing and doing can exist for several reasons, including limited resources, competing priorities, a lack of motivation, or resistance to change.

Evidence shows that margin optimization is not just about reducing costs by eliminating unnecessary expenses, negotiating better pricing, and exploring shared service arrangements. Costs can also be reduced with digital platforms and by automating routine tasks. Improving margins should also mean top-line improvements—finding other sources of revenue, attracting more volume, and revenue cycle optimization. Improving margins may mean finding ways to partner with organizations to extend your reach and complement your services. And in today's environment, it may also mean careful technological investments to improve operational efficiency and automate routine administrative tasks. In sum, it should mean avoiding the knowing-doing gap and incorporating evidence-based practices.

The power of data allows organizations to find ways to inform benchmarking, improve their operations, identify patterns, opportunities, and risks, and communicate with all stakeholders. Data can enable organizations to distill from any desirable unit of operations a microexamination that optimizes value and efficiency as they seek to improve margins. These analyses provide a more accurate picture of the organization's performance. They point to areas of strength and weakness in the value chain and allow more informed decisions about where to deploy resources and investments.

More available data also enable leaders to identify trends and patterns in the value chain over time, inform scenario planning, and allow predictions so that leaders can anticipate and respond to changes in their operations. With more data in hand, organizations can also benchmark their performance against industry standards and peer organizations. These analyses can help in incentivizing staff and galvanizing needed change.

I must note that these analyses are only as good as the reliability and validity of the underlying data. Across the enterprise, do we share the exact definition for the variables that inform our performance metrics? Until healthcare leaders can answer that question in the affirmative without hesitation, these metrics may be meaningless.

In This Issue

We begin with an article from two experts in healthcare finance. Dan Majka, managing director and financial planning practice leader, and Dawn Samaris, managing director, of Kaufman Hall & Associates, describe options available to transform organizational performance. They frame the typical nonprofit organization as consisting of three companies: operating, finance, and investing. Each either contributes fully to the organization's financial health or compensates for the underperformance of the others. Majka and Samaris also share tools and questions leaders must use to take a hypercritical assessment of their entire operations so that their organizations can survive and thrive well into the future.

Next, Alan S. Kaplan, MD, FACHE, describes the “payvider” (payer–provider) model that is growing in importance as hospitals adapt to a rapidly changing landscape of payment and care delivery models. Kaplan, the CEO of UW Health in Madison, Wisconsin, explains how organizations that assume the roles of both payer and provider can capture more revenue and reduce expenses through operational and administrative inefficiencies. They can also gain greater control over the care continuum, from the point of service to claims management and reimbursement. In addition, the payvider model can help hospitals better manage and coordinate patient care, resulting in improved health outcomes and patient satisfaction.

To illustrate the value of strategic investments, as explained by Majka and Samaris, Ochsner Health System in New Orleans, Louisiana, embraces diversification in line with the organization's capabilities and needs. Aimee Quirk, CEO of Ochsner Ventures, explains the levers that hospitals can deploy: business spinouts, intellectual property licensing or commercialization, partnerships, joint ventures, mergers and acquisitions, and direct funding. Ochsner Ventures draws from that playbook; Quirk leads us through three projects that illustrate their approach to strategic investing, new diversified businesses, and partnerships.

Hospitals may also seek to optimize their revenue cycle management by improving billing and coding processes and reducing denials. Consultant Rose T. Dunn, CPA, RHIA, FACHE, FHFMA, interim vice president of revenue cycle at an integrated delivery network, shares how technology can improve the revenue cycle. She explains how robotic tools can handle costly and labor-intensive processes to improve operational liquidity and profitability. In sharing projects and lessons learned, Dunn warns that while the implementation of bots can potentially pay dividends, organizations should not simply “botonize” a bad process. Opportunities for technology adoption also demand robust process improvement.

This issue's case study explores how partnerships can help make specialized healthcare local to optimize patient outcomes and volume. Thomas E. Jackiewicz, president of University of Chicago Health System in Chicago, Illinois, shares how a joint venture with AdventHealth's Great Lakes Region will improve access to care in the city's western suburbs. Jackiewicz advises healthcare leaders to shift from always thinking that “we must own it ourselves.” He suggests tapping into the power of complementary partnerships to launch strategic initiatives for which they may lack the internal capabilities and know-how.

As the perspectives in this issue illustrate, effective financial survival strategies include proactively planning for worst-case scenarios. Reaction based on faulty assumptions is no match for the inevitable black swan event. Leadership should establish and revisit contingency plans to address potential disruptions to all areas of operations, including losing key staff. This planning will ensure that the organization remains resilient and operates effectively when the next set of challenging circumstances arises.

Whatever approach leaders adopt to weather a financial storm, it must arise from an organizational culture based on mission-driven performance improvement. This shift may mean abandoning the status quo. Organizational change is daunting, given the interplay of human behavior, resource constraints, communication challenges, and leadership effectiveness.

Successful transformation requires a comprehensive approach that engages, informs, and motivates the stakeholders—your people—who must support the change. This shift demands clear communication to build trust and promote collaboration. In that process, a sense of urgency is a very effective catalyst.

I hope you find this issue informative. Feel free to continue the conversation with me at [email protected].