6 steps for defining hospital finance to meet today’s pressures and patient needs 

Finance functions do not typically make the list of innovations being pursued at hospitals and health systems. In fact, given the stereotype of finance teams having a laser focus on cutting costs and finance leaders being the “no” people, this function is at times perceived as a barrier to innovation.  

While finance teams must necessarily focus to some extent on trimming costs and evaluating the value of expenses, the growing complexity and high-stakes pressures of the healthcare delivery environment require them to play a larger role in their organizations. Now more than ever, hospital finance has opportunities to function as an integrated partner instead of as the all-too-common siloed approval/denial department.  

To realize these opportunities, Los Angeles-based Keck Medicine of USC sought to build strategic, operational and quality linkages between its finance team and other programs to achieve a more united push for innovation, where stakeholders would understand what finance could do for and with them. The health system’s goal in adopting this broader and more strategic perspective on how finance could work with other critical functions was to make the finance function much more focused on the quality of patient care. It meant that finance would have a shared ethos with the full organization to ensure that patients get to the right place at the right time using the right cost structure. 

A transformation built from disruption 

Keck Medicine’s leaders understood that achieving this reimagined role of how healthcare finance teams will meet the challenges of the moment – both for patients and for addressing financial pressures that are not expected to ease – would happen only by disrupting the status quo. A fully collaborative CEO-CFO relationship was needed. While it was clear that each leader brings a different world view to their role, their endgame is the same: a financially sustainable healthcare organization with outstanding patient care. When collegiality, respect and a sense of a shared mission and vision are nurtured between CEO and CFO, the CFO becomes an active partner in promoting innovation. 

Focus on promoting independence, transparency and consistency

Necessary changes also include transitioning the traditional hierarchy of finance teams toward a culture where team-based approaches are valued while independence is cultivated.

Ideally, Keck Medicine concluded, finance teams should be organized and led in ways that are compatible with the rest of the system. And finance functions should be prepared to match the growth of the organization over the next 10 to 15 years, with an emphasis on systemization to ensure that standard processes and tools are scaled across all entities to create efficiencies and better experiences for the finance staff and their internal and external customers. 

Keck Medicine determined that what was lacking was transparency and consistency, including consistent methods for capital decision making that make it clear how decisions are made and by whom. Performance could then be measured against that methodology (e.g., whether what happened was expected or regrouping was necessary). 

The Keck Medicine journey 

Keck Medicine of USC’s finance team had been struggling. Pandemic impacts and other challenges triggered a roller coaster of pressures in FY23, including a $50 million loss in the first six months. The lack of effective collaboration between finance and operations teams became apparent.  Instead of strong communication and a focus on identifying solutions, the then-siloed approach had given way to finger-pointing and an inability to reach consensus about next steps.

To address this challenge, Keck Medicine’s leaders made it a priority to perform an internal assessment, including a survey aimed at finding out to how the finance team felt about the situation and the support they were receiving. Among the survey takeaways, some people said they were not comfortable with the support provided and felt unheard or unvalued. Others noted the lack of strong connections across the organization and team. Little understanding existed of the organizational vision and how to turn the vision into actions people could understand.  

Strategic revenue cycle leadership needed

The revenue cycle team had strong tactical leaders but no strategic leader who could envision where the function needed to be in five to 10 years. A new perspective was needed to promote growth in the work environment and remove barriers to it instead of cost-cutting a path to success. 

Three engagements with outside firms focused on revenue cycle, supply chain and controller services helped the team create a new vision for how they could break out of stereotypical finance department behavior, particularly the naturally occurring silos. This experience enabled the team to see how best to become a more valued and integrated function within Keck Medicine, given that staffing and building an organizational chart for the future were common threads among the engagements. 

A focus on guidance is also needed

Engaging the outside firms gave staff time to examine processes, identify silos and look for better ways to collaborate. Team members also needed to gain more current knowledge.  

For example, finance leaders struggled to identify the type of team, technology and other resources they would want if budget was not a consideration. This exercise was more difficult than anticipated because staff, who had been chronically under-resourced, had lost touch with what best-in-class performance and outcomes looked like.

A key part of the CFO’s role was to focus on developing a leadership group that could guide the team through this transitional journey, with a focus on creating new roles, developing existing leaders and recommitting to the mission and purpose of the finance leadership function at Keck Medicine. 

Following the internal assessment and external guidance, Keck Medicine established a roadmap and educated the finance team on changes that would be expected of them.  

Primary actions of the finance function overhaul 

Keck Medicine implemented the following six key actions.

1 Allow the CEO and CFO to have their own unique perspectives, but make sure they share the same endgame. CEO and CFO relationships walk a fine line, bringing together two personalities, each with major responsibilities. Keck Medicine struck a balance to create a fiscally responsible yet visionary leadership philosophy, and the CFO today is much more connected to organizational strategy than his predecessors. 
 
2 Create a chief revenue cycle role. Keck Medicine’s leaders determined the health system needs a leader with long-term strategic views who can build closer ties within the organization and internally advocate for the potential that could be achieved if the finance team eschewed the stereotypical views of how the finance function should operate. This leader would require experience for reviewing metrics to understand the causes of problems and ensure that they would receive attention. Having defined the role, the health system is actively recruiting a leader for this position. 
 
3 Redirect the controller services team. This team once was called upon only if support was needed, but its role has been redefined so that it is now actively used as a valued resource to engage in initiatives. For example, the team is working with nursing teams to develop a new nursing institute and a new systemwide float pool. 

 4 Give departments the information they need. When the blame game becomes entrenched in cultures, organizations can lose sight of basics, such as whether people have access to the information they need to meet financial goals and targets. Once Keck Medicine gained clarity on this challenge, it was clear that departments were not receiving reports related to their targets that allowed them to identify successes or address shortcomings. Reports at Keck Medicine now are designed to be understandable and highlight opportunities for improvement. Establishing one source of truth and delivering high-quality data have also dampened the value of competing P&Ls from which physicians and staff could draw different conclusions, fueling distrust in the overall quality of data provided.  

5 Partner with people leading targeted margin improvement. When improvement targets are given to department leaders, generally by areas of focus, the Keck Medicine finance team does not wait for signs of potential problems before intervening. Instead, the team collaborates with these leaders throughout the improvement processes, significantly lowering the likelihood that margin improvement plans will go off the rails and allowing the finance team to be proactive partners by helping departments meet goals instead of reactive reporters of missed targets. 

 6 Understand that communication failures can be costly. During the pandemic and post-pandemic recovery period, communication to nursing staff emphasized achieving optimal staffing numbers instead of focusing on dollars spent. Nursing teams defaulted to expensive contract labor to keep their numbers up and did not use the float pool as effectively as possible. Once the impact of contract labor on the bottom line was fully understood, the finance team recommended several actions that helped Keck Medicine reduce contract labor spending from $48 million to $27 million over a six-month period. Instead of defaulting to contract nurses, over-hiring is now allowed in both the nursing units and the float pool, which finance has shown is the most financially sound option. 

The journey continues 

With this transformation, Keck Medicine now views finance team members as embedded partners who identify issues, opportunities and solutions. Staff not only know they can rely on the finance team for support but also have often found that the team will come to them to provide support even before they know they need it.

The goal is for the finance function to be six months to five years in front of Keck Medicine’s growth path, bringing issues, opportunities and new philosophies and technology to the academic health system and collaborating closely with other senior leaders in executing strategic initiatives. This reimagined role allows the finance team to function as an integrated partner working toward the same patient-facing goals and sustainable bottom-line targets as other organization leaders.