With finances more stable, healthcare CFOs eye growth opportunities

Even with lingering financial constraints, healthcare CFOs see room for initiatives that will help their organizations enhance revenue and perhaps even profitability.

“We’re finally in that post-pandemic phase in the sense that organizations are starting to see margins stabilize,” said Alina Henderson, vice president for healthcare solutions with Strata Decision Technology.

In Strata’s survey (registration required) of more than 100 healthcare finance leaders, most of whom had a health system affiliation, 44% said operating margins will remain about the same in 2025, while 36% anticipate an increase.

Still, Henderson added, “We’re not yet in the bullish part of our evolution where organizations are seeing a lot of growth.”

In BDO’s survey (registration required) of 100 CFOs representing various healthcare settings with revenues ranging from $250 million to $3 billion, 72% expected a revenue increase in 2025. However, only 48% said the same about profitability. Those shares were higher among hospital and health system respondents, at 85% and 65%, respectively.

The discrepancies between the outlooks for revenue and profit indicate “organizations are having to do a lot more from the revenue side just to stay above water, which is really reflective of higher operating costs,” said Brad Boyd, healthcare consulting principal and National Healthcare Practice co-leader with BDO.

“It’s not just about cost management,” he added. “You can’t just cut your way out of this. You do need to focus on strategic growth.”

In that effort, “CFOs appear buoyed by macroeconomic indicators, including a reduced interest rate, and are poised to expand through transactions, care offerings and physical footprint,” the BDO report states.

Cautious optimism

Neither survey report closely examined the current policy and regulatory environment, with the potential for spending cuts that will increase the curbs on healthcare operations over the next year.

But compared with recent years, hospital financial metrics suggest the landscape is more conducive to growth strategies.

BDO found a big year-over-year increase, from 25% to 59% (including 80% among hospitals and health systems), in the share of CFOs who reported having more than two months of cash on hand. There was a big decrease, from 52% to 11% (including 25% among hospitals and health systems), in the share of organizations that violated their debt covenants.

Such improvements have brought a corresponding shift in strategy, albeit one that requires a targeted approach.

“In 2021, 2022, a lot of it was [reducing] agency and overtime, a lot of it was renegotiating GPO contracts or looking for ways to reduce supply expense,” Strata’s Henderson said. “Now that we’ve reached this stability, everyone’s realizing they have to be strategic about how they’re investing in improving their financial performance.”

Hospitals and health systems are being judicious about the types of opportunities to pursue.

“Organizations [are] realizing that they’re going to have to say no more than they’re going to have to say yes,” Henderson said. “Everyone has known that conceptually, but in the pre-pandemic world, we saw a lot more of a spread of investment.”

Areas of emphasis

These days, Henderson said, there is “a lot of focus on service line strategies: Where are we going to grow, where are we not going to grow, where are we going to have partnerships?”

For instance, she said, some hospitals that previously invested in hospital-at-home have backed out of operating their own program, seeing that it is not advantageous financially. Instead, they are looking at joint ventures or partnerships.

Among specific service lines examined in BDO’s survey, however, home care led the way, with 48% of respondents saying they will increase investments in that area. The share was 65% among hospital and health system respondents, with telehealth and virtual care ranking next highest at 60%.

Areas where investments are most likely to be reduced in the hospital and health system sector include ambulatory service centers (50%), lifestyle/longevity centers (45%), hospice and palliative care (45%) and primary care (40%). In some cases, those numbers may reflect prior investment in those areas.

“Healthcare organizations must balance site-of-care innovations with robust primary care networks,” the survey report advises. “While patients may be shifting toward urgent care, CFOs could be undervaluing primary care referrals, which remain a significant revenue driver and support long-term population health.”

A ripe opportunity also can be seen around patient-access enhancements, Boyd said.

“Don’t just go in and hire more doctors or nurses because you want to expand capacity,” Boyd said. “We find there’s opportunities for really optimizing your schedules that help you validate what capacity you have, and then you can understand where you need to grow, what specialties you need to grow.”

Not going away

Although other considerations increasingly are occupying attention in the C-suite, labor strategies remain paramount. In BDO’s survey, 37% of respondents said they planned to increase staffing, up from 25% in 2024.

Labor expense was the No. 2 concern cited in Strata’s survey (52% of respondents), trailing margin management (56%). In addition, labor recruitment and retention (30%) was fourth on the list, directly behind payer rates and negotiations (42%).

Respondents said labor expenses can be better managed through strategies such as productivity reporting (64%), real-time, shift-level productivity analytics (64%), effective use of labor benchmarks (56%) and improved position-control access (53%).

“Those surveyed indicated that they are only moderately confident their organizations can effectively predict and control labor costs,” according to Strata’s report. “This result reflects the growing sentiment that managing labor costs requires organizations to move beyond focusing on levers like agency or overtime. They must focus on optimizing existing resources and collaborating to manage productivity targets.”

Productivity initiatives are a prime opportunity.

“We’re seeing a lot more partnership between finance and nursing because no one group is going to solve this,” Henderson said. “Finance can’t fix productivity, and nursing on their own can’t fix it because by the time nurses and nurse leaders see that there is a productivity challenge, they’re sitting in it. Where we’re seeing a lot of that [collaboration] is in obviously processes around productivity reporting, how frequently are teams meeting, are they holding people accountable?”