Though hospital operating margins seem to be recovering, first-quarter results have been a mixed bag, and 40% of hospitals are still losing money, according to Kaufman Hall.
Recent analyses have highlighted a growing divide between high- and low-performing hospitals as the high cost of labor and supplies, workforce shortages and reimbursement challenges from CMS and commercial payers continue to eat into hospital bottom lines — particularly for those in rural parts of the country.
Four in 10 hospitals are still reporting margins in the red. Driving these margins back into the black is a top priority for CFOs this year, and some are seeing results from applying a back-to-basics approach.
"It boils down to basic blocking and tackling in terms of financial management," St. Louis-based Mercy CFO Cheryl Matejka told Becker's. "I would encourage CFOs in that situation to go back and look at the basic financial systems and processes. Are you reviewing productivity daily? Do your leaders have the tools they need to manage their departments and the business? Does your executive team take time to review financial outcomes, not only at the end of the month but in the middle of the month? Does every single leader understand their financial target and how they relate to organizational goals?"
Another factor that has helped Mercy improve its overall operating performance is by making sure that every leader at the health system is working to identify ways to improve their department's numbers.
"Deliberate, continuous improvement takes a lot of time and focus," Ms. Matejka said. "It's not very sexy, but it's critical to financial success."
Taking a step back and reevaluating the organization as a whole is something that Minneapolis-based Allina Health CFO Doug Watson also found helpful.
"Just because you've been doing something a certain way for a long time, doesn't mean that that's the best way for you to do it," Mr. Watson told Becker's. "Give thought to who your partners are, and are there partners that can help you accelerate things in a way that you can't do on your own, that then help benefit the organization and then you can focus on other things that really you have to do yourself."
While hospital margins are improving overall, they are not rebounding quick enough for some, and remain below the pre-pandemic "magic number" of 3%.
While inflation has shown positive signs of slowing, some challenges — such as pressure from payers, workforce shortages and a lack of talent in healthcare — are here for the long term.
"This is where technology comes in," Vincent Tammaro, CFO and vice president for health sciences at The Ohio State University Wexner Medical Center in Columbus, told Becker's. "There's huge opportunities to scale, support patient care, automate clinical workflows and address gaps and transitions in patient care."
Artificial intelligence continues to evolve in healthcare and holds particular promise for unburdening workers and providers from tackling arduous and time-consuming administrative tasks such as navigating coding, billing and prior authorization processes.
"As an example, there's no reason why we shouldn't be using AI to do prior auths," said Mr. Tammaro, who will join New York City-based Mount Sinai Health System as CFO in October. "Today we have a team of about 80 to 100 people across the system doing this. We still need those 80 to 100 people, but we should focus them on other, higher value parts of the business as opposed to following up on a prior auth that adds no value. That just allows us to keep the revenue we already had; it's not incremental revenue."
Another key piece of advice for hospital executives is to really hone in on growth initiatives as identified by their strategic plans.
"Growth initiatives should have targeted ROI — whether financial or mission-based, and where possible, should align pricing strategies in payer relationships, Yale New Haven (Conn.) Health CFO Gail Kosyla told Becker's. "Consider optimizing systems of care, including partnering where it makes sense. Systems need to ensure that patients' needs are at the forefront. This may mean they need to stop doing services that are no longer aligned. Systems should also strive to reduce costs through standardization to achieve greater efficiencies and outcomes."