Rethinking cost strategy: Finance in a changing healthcare industry
June 20, 2019
Even as healthcare CFOs move to a more strategic role and drive change in payer and provider organizations, cost reduction continues to be a priority. This point is reflected in our recent research, “The New Healthcare CFO,” where 84 percent of CFOs confirmed they are focused on the need to drive strategic cost reduction through operational improvements and talent optimization.
In today’s fast-changing and highly competitive market, CFOs are being challenged to rethink how they realize efficiencies across their organizations—especially as rapidly evolving technologies such as robotic process automation (RPA), artificial intelligence (AI), blockchain and others are expanding the possibilities of efficiency and cost savings. Transformational approaches are needed. These include reorganization of the finance function along with the wider enterprise and adopting new technologies and capabilities that enable a leaner and more efficient business, creating greater value.
Our research indicates CFOs and their finance organizations are moving in this direction, but in many cases, strategic cost reduction initiatives are not fully mature.
Effecting new, strategic cost strategies will involve addressing internal organizational challenges, particularly around data and functional siloes and preparing for implementing technologies such as advanced analytics and visualization tools, RPA, artificial intelligence, blockchain, and virtual assistance.
Having quality data is crucial to achieving breakthrough cost performance. One challenge that many CFOs face is lacking a comprehensive view of all the data their organization is generating. A priority for finance teams will be to build more complete, consistent, reliable and accessible data sets. Improved data quality will help healthcare CFOs address gaps in the visibility of underlying costs, for example. Better data can also help organizations fully understand the complete cost of a patient episode or a patient stay, calculating all the dimensions of those costs and recognizing patterns that could enable standardization and new efficiencies. These and other instances hold the potential to enable organizations to streamline costs.
CFOs recognize the potential benefits of breaking down functional siloes to work on a more cross-functional basis. Payer and provider organizations will need to address their internal barriers and cultural change needs to foster greater collaboration among their internal functions to enable strategic cost reduction.
Compounding the situation for today’s healthcare CFO is the continual change and growing complexity of the industry landscape. Every healthcare organization is faced with addressing the major issues trending in the industry: rapidly increasing costs (drugs, supplies, labor), downward pressure on reimbursements, and rapid consolidation of ever-larger systems leading to bigger and bigger issues in managing data.
At the same time, healthcare organizations—both payers and providers—are becoming more complex in structure. They are operating a greater number of custom offerings and incorporating more personalized services into their business models, which are driving greater demand for efficiencies and a rebalancing of the budget.
It all adds up to a dynamic environment for today’s CFO.
In our survey, CFOs share the common goal of driving business-wide operational transformation for the next three years. More than three in four (77 percent) CFOs in the industry say that one major focus near term will be to lead efforts to make the enterprise more efficient, through adoption of digital technology across the business. Almost as many, 76 percent, say they will be exploring how disruptive technologies could drive benefits across the organization.
Leading finance functions, for example, are making progress in providing real-time insight of business performance. Tools can make it easier to monitor the performance of every function on a broad range of metrics, helping the finance function to support better quality decision making and continual improvement. Another example is the use of analytics to optimize pricing strategies as a potential way to improve margins.
Addressing challenges will help healthcare CFOs make progress in implementing new solutions to strategically reduce costs. CFOs will also need newer approaches as traditional cost-cutting measures will yield only marginal gains over time. Finance function organization and talent optimization, adoption of new technologies and capabilities, and implementation of digital solutions are key steps CFOs and their organizations can take to reduce costs and become more efficient.