Clinicians and front-line workers are laboring day-in and day-out to meet the relentless demands of the COVID-19 pandemic. At the same time, Chief Financial Officers (CFOs) at those same hospitals and health systems are facing their own unprecedented challenges.
In addition to dealing with the immediate financial needs and fallout of the crisis, healthcare finance leaders must find ways to close major budget gaps and develop sophisticated plans for financial recovery. This is a time when CFOs must employ leadership skills as well as their financial management skills. They will need to help reshape their organizations’ objectives and strategies, balancing reduced capital capacity with investment strategies to address a future environment that is likely to be different from any environment healthcare has known previously.
Navigating hospitals through the now, near, and far of an industry forever changed by COVID-19 requires a new kind of financial leader. CFOs must be equally comfortable managing short-term finance operations issues, evolving and maximizing data and analytics to track and model financial impacts, and challenging their organizations’ strategies to reshape their future course.
The following sections look first at CFOs’ evolving roles and responsibilities, and then the leadership qualities required to execute effectively on those responsibilities in these critical times.
Defining Roles and Responsibilities
Financial leaders cannot wait for the current uncertainty to clear before planning for the future. In this environment, a CFO must simultaneously play the very difficult roles demanded for the now, near, and far:
Now: Financial First Responder. As is true for all of management, the primary role of healthcare CFOs right now is to provide whatever support clinicians need to address the immediate demands of the pandemic. In that way, they can focus on caring for affected patients and communities.
CFOs should be working urgently to ensure availability of the necessary financial resources to support current operating needs (e.g., supply chain, capacity, and workforce), as well as needs associated with ongoing strategic initiatives. They should be talking with banks and other potential sources to build liquidity resources in the face of rapidly deteriorating cash flows resulting from the loss of elective procedures, and the high costs of providing care to COVID patients. The CFO must lead this strategic effort in order to position the organization to be able to address short-term uncertainty. Even if there is a cost to maintaining liquidity sources in the short term, having such reserves in place to help support cash flow will be essential, at least for the next several months.
CFOs also need to be quantifying the precise financial impacts of the pandemic—working to closely monitor and track incremental COVID-related expenses, as well as COVID-related losses. This will help in securing government assistance, in quantifying the pandemic’s impacts to boards, executive teams, and other stakeholders, and in identifying the financial gap for the organization. Finally, CFOs should focus efforts to project near-term scenarios to understand the potential for debt covenant and credit rating issues, and to address such issues moving forward.
Near: Financial Recovery Planner. Planning for a post-COVID environment requires CFOs to be comfortable accepting some level of uncertainty, while conducting rigorous scenario modeling. The ability to build flexibility and sensitivity within financial plans is more important than ever to enable their organizations to adapt to various potential future realities.
How long hospitals and health systems will be coping with post-surge issues is a big unknown. Some organizations are planning for permanent capacity dedicated to COVID-19 patients, while others are planning for lower clinical volumes projected for the long term. Organizations shifting to recovery mode will simultaneously have to focus on:
- Continuing to address immediate, remaining COVID care needs
- Filling significant budget gaps widened by the pandemic
- Addressing a backlog of elective procedures and other delayed care
- Assessing the pandemic’s financial and operating toll on the organization
- Continuous modeling of operating scenarios based on different projections (and building actual experience) for COVID cases, payer mix, and resumption of non-urgent surgical cases
While finance leaders still must be doing a fair amount of blocking and tackling during this period, they also need to begin thinking more long term. CFOs must develop financial recovery processes that can be implemented now and continue post-COVID.
Healthcare’s “new normal” will create significant need for financial leadership that is fluent in the use of data, analytics, and flexible tools. Looking toward both the near- and far-term, finance leaders must continue to focus on forecasting cash flow and developing operating and balance sheet projections for the organization. The organization will correctly look to financial leadership to understand the comprehensive implications associated with how long the current crisis lasts and how fast the organization can recover under various circumstances and recovery plans. CFOs will need to recast the organization’s financial plans based on a variety of scenarios, and continue to do so as more information and analysis is available.
As strategic leaders, CFOs should strongly consider the use of rolling forecasting or other forecasting methods to quickly assess performance and improve organizational agility. A continuous forecasting process can help identify additional potential issues related to liquidity, credit ratings, or debt covenants, and provide flexibility for the organization to respond with mitigating actions. Ongoing, intense focus on progress compared to internal benchmarks (based on financial planning targets) will be essential for financial leaders to ensure that their organization’s recovery stays on pace. Transparent sharing of these data will highlight areas of success and opportunities for improvement, and will provide essential proof points on which leaders can focus as they communicate internally and externally with debt holders and other stakeholders.
Over the next several months, CFOs also should look to enhance processes. It will be an opportunity for healthcare leaders to take a hard look at operations, and to develop and implement considerable process improvements. Finance leaders will need to drive the assessment of broader changes to traditional healthcare models spurred by the pandemic. For example, staffing productivity models will need to be re-evaluated to help cope with anticipated backlogs in non-COVID care, and to account for similar situations in the future. Organizations also will want to challenge “just-in-time” supply chain processes that have contributed to widespread supply shortages amid the surge.
CFOs will need to work hand-in-hand with other executive leaders to determine what pre-COVID strategies and capital projects can continue in a post-COVID environment, and which need to change completely. It is likely that many traditional strategies will no longer fit or will need to be accelerated (e.g., telehealth). Regardless, financial leaders must be both creative partners and financial advisors to operational leaders. Moreover, they will need to charge their staff to “get in the field” to best support leaders at all levels of the organization.
Far: Advocate for Innovation. The COVID-19 crisis has accelerated significant changes to healthcare payment and care delivery models. How long, or even whether, those changes will continue remains to be seen. A key role of future-focused CFOs will be to help their organizations adapt to a whole new healthcare paradigm, with all-new expectations from patients, boards, physicians, and the communities in which they operate.
CFOs will need to be active partners with the rest of the management team to help conceptualize and develop new businesses, service lines, revenue sources, and priorities that will emerge as a result of new market expectations. It will fall to the CFO to challenge historic structures and processes, and to step forward as a strategic leader. At the same time, CFOs will need to ensure their organizations have the data and analytic support needed for new processes as they evolve, and that those resources are used effectively.
CFOs must constantly think about process integration. For example, they will need to ensure that their organizations have early warning systems in place to understand market changes, and to drive evolving strategies through the organization’s financial plan. Performance improvement will be a vital component for all healthcare organizations moving forward. Organizations will need to adjust performance targets based on new business realities, and develop and implement strategies needed to reach those targets.
Becoming the Agile Leader
Consistent across all of these timeframes is the need for CFOs to balance compliance and disruption, leveraging data in new ways to enable operational leaders to build sustainable plans in the face of significant change. It is a role that requires courage, confidence, and boundless competence. CFOs must simultaneously be a source of inspiration and stability to the entire organization. This includes their own staff members, many of whom likely have never encountered the type of large-scale disruption currently underway, and will be learning and honing their own skills by watching leaders perform in this unprecedented time.
On a continuing basis, CFOs must ensure that their organizations are effectively measuring and tracking results versus internal and external benchmarks. At a fundamental level, CFOs will be responsible for driving data and analytics for their organizations. Having the right tools, and collecting and analyzing the clinical and operating data, will be critical to helping organizations keep on track.
It likely will be some time before there is clarity on the shape of healthcare’s “new normal,” but the new expectations of financial leaders already are beginning to form. COVID-19 has accelerated many disruptive components of the internet economy that hospitals and health systems have yet to adopt. Healthcare already is behind many other consumer-oriented industries. It is time for healthcare leaders to move faster, think more creatively, and be more agile in transforming their organizations.
Healthcare finance leaders at all levels have the opportunity to drive the change organizations need. The entire organizational community needs CFOs to perform at their highest levels—they are depending on it. By stepping forward with a renewed data-driven agility, hospital and health system CFOs can help their organizations, their teams, and their communities as they evolve into a post-COVID environment.
Action items for the future-focused CFO:
- Identify, understand, and inventory the needs of the CEO and other executive peers as recovery begins. Teams likely will need different support than they have historically.
- Evaluate how financial teams can become more agile by implementing flexible methodologies like rolling forecasting.
- Monitor opportunities for operational improvement and recovery progress through the use of comparative benchmarks.
- Conduct finance team meetings to gather insights on how current systems and data tools can be pushed for incremental value, or identify needed training to maximize use.
- Identify high-potential staff members who are fluent in the use of information tools and can help operational leaders plan for recovery.