Insights from Health System CEOs + CFOs on Where We Go From Here

We all agree – the time for redefining healthcare was yesterday. We’re stuck in an incredibly complex and fragmented system full of waste and redundancy, and it’s taking its toll.

The first quarter of 2022 was the worst financial quarter in history for hospitals and now they’re collapsing under their own weight.

We anticipate seeing a record number of hospital closures in the next six months with financial turmoil continuing for the next two years at least. CEOs across the board are assessing business lines and making difficult decisions to exit services as margin pressures continue to increase.

Here are three key strategies hospital executives are exploring (or should be) to survive the mounting pressure:  

1. Stop Thinking Like a Hospital + Start Thinking Like a Trust Broker

Create an ecosystem of care and be a trust broker for patients within that system to help manage health outside of the hospital.

  • Invest in patient convenience. Acquire ambulatory assets, focus on outpatient care, and invest in primary care as feeder into your system. Help patients get the care they need when and where they want.
  • Focus on regional relevance, not scale, when assessing strategic options and partnerships. Expand to cover more patient touchpoints, not necessarily patients themselves.
  • Partner with community care organizations to redefine care delivery in your community, like providing mobile health to meet patients where they are and educate them on healthy choices.

Key questions to ask:

  • How do you go from hospital-centric contracts to outpatient and still have the right contracts to make money?
  • Dollars per RVU won’t work in population health models, so what physician compensation models are needed?

2. Make Sure You’re Getting Every Dollar That Someone Is Trying Not to Give You

The administrative burden to get paid what’s owed continues to go up for hospitals as payors continue to collect record profits. Maximizing revenue cycle efficiency is step one to preventing lost revenue and stabilizing costs, but there are more ways to improve margin.

  • Use pricing transparency to your advantage. Dedicate resources (or find a partner) to review rates across your region and with your competitors, then use that information to renegotiate favorable contracts with payors.
  • Assess your supply chain. Look for strategic sourcing opportunities and require volume commitments from your vendors.
  • Consider establishing health plans directly with employers. They’re feeling similar pain to hospitals.
  • Educate mid-level managers around financial stewardship and process improvement. Implement initiatives to build financial performance improvement into your organization, like one example shared where teams are required to identify and implement two changes every 30 days with positive financial impact.

3. Invest in Innovation (And Generate a Return)

Building a care network and innovating for the future of care delivery requires investment, but cost of capital is up, and debt issuance is down. With one third of hospitals likely to violate debt covenants this year and antitrust headwinds are the strongest they’ve been in 15 years, most health systems are looking to get creative to accelerate innovation and generate new revenue.  

  • Have venture funds in your capital structure. Healthcare finance has meant revenue cycle, to the exclusion of other things like VC, but there’s a critical mass of VC that know how to partner with health systems and want to. Partner with one.
  • Get your data house in order and put it to work. Healthcare organizations have huge opportunities to generate new revenue and improve the lives of patients by monetizing their data.
  • Define your innovation model. Will capital be part of your offensive strategy? Do you have the resources and discipline required to self-disrupt? Consider the fact that Amazon needed a secret lab to develop the Kindle because the model was so disruptive to the book industry and its core business.

Key questions to ask:

  • Will you engage with start-ups? If so, how?
  • Will you invest from operational expenses, capital expenses, reallocation or reserves?

Where We Go From Here

As one hospital executive recently noted, “There’s no way to operate a hospital at a profit anymore.” To overcome the pressure they’re facing, healthcare CEOs and CFOs must explore new approaches including diversifying revenue streams, capitalizing on intellectual property, making strategic investments and strengthening revenue protection.

Read more about protecting your hospital’s bottom line by avoiding the top four revenue cycle issues.

These materials are for general informational purposes only. These materials do not, and are not intended to, constitute legal or compliance advice, and you should not act or refrain from acting based on any information provided in these materials. Neither Ensemble Health Partners, nor any of its employees, are your lawyers. Please consult with your own legal counsel or compliance professional regarding specific legal or compliance questions you have.