From labor costs to payers, CFOs had their work cut out for them in 2023.
Hospital and health system CFOs are finally seeing some financial relief as revenue increases offset rising expenses and operating margins stabilize, but 2023 was far from easy.
CFOs faced three major challenges this year, and it’s clear these pain points will follow financial leaders into the new year. Here’s a review of those challenges.
Labor costs
Labor expenses were a top concern for CFOs in 2023. Staffing shortages across clinical and administrative functions forced hospital and health systems to rely heavily on contract labor, resulting in a majorly stressed bottom line.
CFOs found that throwing money at the problem—i.e., salary increases and bonuses—wasn’t sustainable to attract and keep talent, especially when competition is fierce.
The result? CFOs started to pull back on agency use and stepped-up retention efforts on a budget.
Poor margins and bankruptcies
CFOs continued to face poor margins in 2023. While the outlook is more positive than in past years, there’s still a long road ahead to financial recovery.
The median year-to-date operating margin index increased from 0.9% in July 2023 to 1.1% in August 2023, according to recent data. While these margins are still below historical levels, it's noteworthy that hospitals have consistently achieved positive margins since March.
While margins seemed positive overall, there were quite a few hospitals and health systems who didn’t fare well in 2023.
For example, McLaren St. Luke’s closed earlier this year following years of declining revenues and an unstable reimbursement environment.
Also facing financial peril this year was value-based primary care provider Cano Health, facing what Moody's said was impending bankruptcy.
On top of this, CFOs needed to remain cautious.
"Hospital critics frequently focus exclusively on a fleeting period of stability, ignoring other available data that show the real costs of cascading waves of illnesses, inflationary pressures, and skyrocketing expenses for drugs, labor, supplies, and equipment," Ben Finder, director of policy research and analysis at the American Hospital Association said this year.
Looking at the big picture showed a much different story, he said.
Fitch, Moody’s, and S&P all released reports describing how nearly every metric of hospital and health system financial health declined in 2022, Finder said, and 2023 results might not be much better.
Contending with payers
Between denials and prior authorizations, providers felt a lot of push back from payers this year. Throughout the first half of 2023, payers were aggressively pursuing prior authorizations, creating tremendous administrative burdens. Also, the initial prior authorization/
precertification denial rates for commercial inpatient claims reached over 3% in 2023’s first quarter.
In addition to these struggles, thanks to economic headwinds made up of record inflation and operational challenges, hospital and health system CFOs were finding their backs against the wall in negotiations with insurers, feeling under the gun to secure favorable reimbursement rates in negotiations in 2023, and payers reluctant to capitulate.
One result of this was the public, drag-out war-of-words Prisma Health and UnitedHealthcare engaged in. Don’t forget there was also the fight between Bon Secours Mercy Health and several regional Anthem Blue Cross Blue Shield plans.
Providers started to realize they more leverage in payer negotiation than they think, but it requires willingness and preparation to pull certain levers.
Between going public with payer qualms or considering vertical integration, CFOs had a few options to secure the deal they wanted, and a lot of them were used to their advantage.
2024 will not be any less complicated, so stay tuned for trends CFOs need to focus on to ensure success in the new year.
Amanda Norris is the Director of Content for HealthLeaders.
KEY TAKEAWAYS
Labor costs, poor margins and bankruptcies, and contending with payers were top of mind for CFOs in 2023.