Managing Finances in the Healthcare Industry: A tough Job for CFOs.May 27, 2016
Are you a CFO looking to cut costs? There are several things you can do to be more efficient without adversely affecting patients’ health.
Knowing how to allocate financial resources in the healthcare industry is a tough job, and one that falls directly at the hands of the CFO. Since quality of care cannot be sacrificed, paying attention to costs is a job that leaves many CFOs puzzled. Fortunately, there are some ways CFOs can cut costs while still providing top-tier care, mostly resting on the CFO’s focus on ongoing budget maintenance.
What can CFOs do to cut costs?
As the focus on cost cutting rises each day in the healthcare industry, CFOs will want to consider:
- Reducing Operating Costs- CFOs can no longer merely concentrate on the topline (gross sales or revenues)—operating costs must also be monitored and kept low. CFOs have credited this as the only surefire way to preserve margin.
- Reallocating Capital- Distributing capital to other purposes besides simply outpatient care will assist CFOs in retaining more capital in the long run.
- Value based services- By offering more personalized patient care, you not only ensure that the patient is well-cared for, but you also reduce the possibility of patient readmissions, which can not only be stressful on the patient, but can add significant expense, too. Read our blog: “Analyzing the Pay for Performance Arrangement According to Fair Market Value” for more information on the Pay-for-Performance compensation model, which rewards physicians for their direct influence on patient health.
- Technological Advancements- Though initially expensive to implement, certain technological advancements in healthcare are making huge strides in the industry, and saving lives every day. Hospitals that implement pharmacy automation systems to reduce medication errors have been able to cut a substantial amount. These systems also boost operations efficiency.
- Work with other hospital executives- Understanding how cost reduction is achieved depends on branching out of your own practice and building bridges with other hospital CFOs. The same problems plague practices of all kinds, so getting a picture of how other CFOs are coping will be indispensable for the successful future of your hospital.
- Make cost cutting an ongoing process- Leaders in the industry have said that budgeting on a consistent basis, rather than managing costs only when a crisis comes along, is KEY. This ensures that your reductions will happen on an ongoing basis, rather than in one drastic cut.
What about cutting down staff?
Because quality of care cannot be put at risk, this is a tough one to implement. Healthcare CFOs across the board, however, have said that reducing supplies saves dollars, but you cannot reap any substantial savings unless you reduce staff.
Keep in mind that this strategy will likely cause a change in morale amongst your employees. An environment where your employees are constantly afraid that their position will be cut is not a beneficial one, especially in the healthcare industry where working together is an essential part of the job.
In an industry focused on the health and betterment of humanity, it is difficult for CFOs to think about quantifying operations, reducing costs and supporting efficiency. With ongoing attention to a hospital’s budget, a CFOs goal is to ensure that any budget cuts will be as painless as possible, and that patient outcomes will remain positive.
Contact any member of our Healthcare Services Team for more information or guidance.