The role of chief financial officer at healthcare systems is evolving, as these executives become increasingly involved in operations and help redefine strategies for a post-pandemic era.
“The finance/accounting background is in its nature fairly analytical,” said Scott Hawig, CFO at Milwaukee-based Froedtert Health. “I think that’s one of, at least in the beginning, one of the tools and skill sets we wear on our sleeve, and as the industry has gotten larger, more complex ... (and) geographically diverse, that analytical DNA is helpful.”
Today’s health system CFOs are changing to meet the demands. They are navigating value-based agreements and balance sheets for new care models, which grow more complex as hospitals and health systems merge to form sprawling organizations. Also, transformations in technology, investments and operations at healthcare organizations – with an added jolt from the COVID-19 pandemic – are requiring them to handle more responsibilities and have deeper expertise across a variety of subjects.
“Traditionally, CFOs were always the number crunchers, the bean counters behind the desk,” said Tina Wheeler, U.S. healthcare leader at Deloitte. “The CFO role has really become very … evolutionary with respect to the way that they’re almost viewed as custodians of everything from strategy to risk management and overall financial performance.”
The pandemic effect
The pandemic has created unforeseen challenges for health system CFOs, most recently hitting investments across the industry. Many systems were in the red in the first half of 2022, with some systems losing more than $1 billion.
The usual mitigation tactics – cutting staff schedules, relying on non-urgent procedures or factoring inflation into reimbursement rate negotiations – are not options this time, adding to system executives’ anxieties in an unprecedented environment.
“The role I feel like I play here is to keep everybody calm,” said David Kirshner, CFO at Providence, Rhode Island-based Lifespan.
Higher workforce costs, including the need for higher-paid contract employees, continue to drag on profits. That’s forced the fierce competition for healthcare talent to spill into the CFO’s purview, Wheeler said. Health systems in general were able to lower contract labor costs in the second quarter, but the numbers remain elevated compared with pre-pandemic levels.
Hawig said labor is his biggest concern today. Concerns over inflated supply costs and rising pharmaceutical prices also remain. He said the pandemic forced CFOs to prove their increasingly versatile skill sets.
CFOs will have to navigate any changes to reimbursement rates, such as with telehealth, once the public health emergency ends.
Finance executives also are focusing on new health equity initiatives sparked during the pandemic–well beyond uncompensated care amounts and the write-offs that follow on the balance sheet. CFOs are closely assessing community impact, such as affordable housing, education and wellness initiatives, and how to incorporate those investments, said Ashraf Shehata, partner and U.S. national sector leader for healthcare and life sciences at KPMG.
“You’re really starting to see the CFO as an emerging critical leader,” Shehata said.
A new era
One of the biggest evolutions has been CFO involvement in IT, data and analytics programs, Shehata said. Health systems continue to invest heavily, with CFOs managing transitions to new systems and modernizing back-office operations for efficiency, he said.
Cheryl Sadro, CFO at UC Davis Health, said she is involved in discussions at the Sacramento, California-based system about implementing artificial intelligence and IT systems to improve access to care. UC Davis is using the tools to streamline processes, such as determining the most efficient use of operating rooms. This summer, UC Davis received $1.7 million in federal funds to create a public health platform for vulnerable populations.
“The investment in IT, I’ll tell you, is huge for most organizations. It’s become just really a part of, not only our capital portfolio, but also just the general operating portfolio,” Sadro said.
Investments in cybersecurity and data privacy increasingly are a top priority for CFOs too.
Kirshner helped launch a transformation office at the not-for-profit Lifespan after he took the CFO job in July 2021, part of an effort to drive operational efficiency. One recent outcome is Lifespan’s plan to bring pharmacy and lab services into a consolidated location. The facility could also house laundry and sterilization operations, he said.
During the omicron surge, Lifespan’s transformation office pivoted to the system’s recovery plan, monitoring operating room throughput, reducing lengths of stay and saving energy, among other matters.
“I think a really good CFO is very, very close to change management on a grand scale because obviously you’re the one that’s quantifying everything and you’re the one that’s trying to pace, not just the financial resources, but the whole way the organization has to plan and forecast what it needs to do,” Kirshner said.
Involvement in environmental, social and governance initiatives is another growing responsibility.
More than 90% of CFOs who participated in a recent survey for the Deloitte Center for Health Solutions said they have defined their organization’s ESG strategy or are in the process of doing so.
Investments are increasingly tied up in ESG initiatives, and credit agencies are incorporating those initiatives into their risk ratings. The bonds funding hospital operations also tend to sell better with ESG components included, particularly among younger investors.
Moving ahead, training and talent pool development will be necessary to ensure CFOs can keep up with expanded responsibilities, especially as seasoned executives who evolved with their organizations look to retire, Shehata said. Health systems may need to look outside of the industry for leaders to match their skills requirements.