Finance and Budgeting Challenges In The Evolving Healthcare Organization – Part 1

Finance and Budgeting Challenges In The Evolving Healthcare Organization

This article was written by Lisa Miller.
Everybody involved in healthcare, from frontline nursing staff to hospital executives and healthcare consulting providers, recognize that change is the one constant factor in the industry.
In part 1 of our hospital budgeting blogs, we explore the finance and budgeting challenges facing the evolving healthcare organization.
Challenges facing hospital leadership
Hospital leadership face multiple factors as they try to balance shifting dynamics within today’s evolving environment. Financial sustainability for every hospital incorporates a variety of trends, requirements and challenges. These include:
1. Quality, including patient safety, hospital acquired conditions and medication errors.
2. Regulatory and compliance requirements.
3. Reimbursement, new payment models and readmission penalties.
4. Mergers, acquisitions, market competition (that includes other hospitals and health systems, and entities such Amazon, Apple, retail based companies such as CVS and urgent care centers).
5. Capital improvements, innovation and new lines of business.
6. IT challenges and future trends.
I) New ONC strategy to reduce IT challenges for patients and providers. The goal is to reduce reporting burdens, strengthen interoperability and enhance the patient experience. [1]
II) Cybersecurity, physical security and disaster preparedness.
III) New technologies and care delivery models, for example telehealth, wearable technology, home based medicine, and a trend towards outpatient surgeries.
IV) EHR upgrades, evidence based clinical decision support systems.
7. External partnerships and population health initiatives using Social Determinants of Health to identify, prevent and control chronic conditions.
8. Patient empowerment: This includes patient satisfaction, the consumerism, price transparency and patient access.
9. Revenue cycle improvements, such as coding, billing, patient communication.
10. Supply chain transformation, for example, purchased services cost containment, prescription drug costs and shortages, cost saving strategies for high cost medical devices and implants (PPIs).
11. Labor shortages and costs.
12. Physician and clinical staff productivity, including burnout.
Looking at these factors, the task can appear overwhelming, and it often is.
There are multiple stakeholders, both internal and external. Coupled with the complexity of government oversight, accrediting bodies, private payers and the move toward consumerism it means every hospital must plan, strategize and continually monitor budgets, costs, and revenue streams.
Creating a ‘’patient centered vision’’

This changing healthcare landscape requires a dedication to a “patient centered vision” by your hospital.
Historically, a healthy system is broadly divided into two divisions, the clinical and financial. That model has evolved with the shift to value based reimbursement. Leaders from these respective functions are beginning to collaborate as they strive to provide high quality patient care.
Both understand that interdepartmental communication and transparency are key to success.
The insight of CFOs is essential in the development of strategic plans. As they take the lead to create budgets, they simultaneously share the hospital’s vision and ensure that budgets are developed based on that organizational plan.
Current trends in budget preparation include a focus on operational performance with positive operating margins and a return on investment.
In this scenario:

  • Each department budget becomes a cog in the wheel, and is crucial to the success of the entire healthcare entity.
  • The organization needs to create and share data-driven enterprise reports. This step enables departmental leaders to review budget success or change direction on a monthly basis.
  • An annual review of results is no longer a viable option.

The need for leadership in healthcare
Where do you begin to address the many challenges within the organization and each department and ensure financial stability?
You begin with great leadership.
Healthcare thought leaders of 2020 must be forward thinking, strategic, data-driven, patient centered, adaptable, future focused, open to change, flexible, an active listener, team leader, teacher and coach.
Thought leadership is the key to addressing the many challenges facing health systems and ensure financial stability. Click To Tweet
As the healthcare industry acclimates to disruption, major health systems are turning to their CFOs for crucial guidance.” [2]
 “the modern CFO is a cross-functional leader involved with everything from strategy to customer acquisition.” [3]

As the health system leadership creates the strategic plan, hospital CFOs lead the way for department heads to become partners down the road to change.
Department leaders must exhibit leadership qualities themselves and embrace their role in the patient-centered vision.
Collaborating with the CFO, finance and clinical departmental leaders can begin with the following steps:
Step 1 – Dedication to routine open communication: utilizing the “huddle concept” by meeting regularly to share successes and clarify issues through virtual or in-person meetings. In follow-up, department leaders can huddle with their team to continue the transparency focus throughout the organization.
Step 2 – Data driven: Is your data being effectively used? CFOs must strive to share monthly departmental data reports with their department leaders. Accurate, actionable data should include target volumes, costs, and current revenue (and highlight any reimbursement issues).
Step 3 – Ongoing reviews: Encourage department leaders to review the original plan, current data points and any variances on a monthly basis. Utilize new budgeting and forecasting concepts to adjust priorities based on results.
Step 4 – Develop standard budget processes: These should be created throughout the enterprise and provide continuing education for department leaders. The importance of understanding trends with department specialties must be emphasized. In order to remain current, participation in must be encouraged.
Step 5 – Utilize evidence-based process improvement strategies: Engage clinical leaders to provide staff training.
Step 6 Celebrate successes: Share insights and educate throughout the year.
Step 7 – Stay focused: Productivity requirements, multiple distractions, and increased responsibilities are always an issue for leaders as they embark on change. Keep the goal at the forefront, ensure communication channels remain open, and continually regroup to review processes and find more efficient ways to stay on task with budget improvements.
Challenges in the healthcare arena, while they may evolve, will not disappear.
Teamwork, transparency and a shared vision are the only strategies which will help your organization to successfully provide exceptional care for your patients, for the best value, while maintaining the financial health of your organization.
[1] Strategy on Reducing Regulatory and Administrative Burden Relating to the Use of Health IT and EHRs, Office of the National Coordinator; Feb. 2020. Retrieved from:
[2] Laura Ramos Hegwer and Nick Hut; “The Healthcare CFO of the Future: How finance leaders are adapting to relentless change”, HFMA ; 9/1/2019. Retrieved from:
[3] Jack McCullough, “CFO Priorities for 2020 and Beyond”; Forbes, 1/7/2020; Retrieved from:
[4] John Gragg, The Next Generation of Budgeting for Healthcare, HFMA– 12/7/2018; Retrieved from:

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