3 Financial Threats Pressuring Healthcare in 2022

Most healthcare CFOs expect their organizations to be thriving in one year, but labor shortages, supply chain disruptions, and Provider Relief Fund paybacks threaten their viability.

Three top financial threats are pressuring hospitals and healthcare organizations in 2022, but the majority of healthcare CFOs (82%) say they expect their organizations to be thriving one year from now.

Those are among the findings of the CFO Outlook Survey for 2022, released by the BDO Center for Healthcare Excellence & Innovation. The survey polled 100 healthcare industry CFOs. Respondents represented organizations with revenues ranging from $250 million to $3 billion. The survey was conducted in October 2021.

Threatening an otherwise bright outlook:

• Supply chain challenges aren't going away. The top healthcare business risk of 2022 is supply chain disruption (cited by 84%), and the top supply chain challenge is rising material costs (39%).
• Providers must pay back Provider Relief funds (PRF). 35% of CFOs say they are worried about fulfilling PRF reporting requirements, and 78% say that regulatory uncertainty is a risk to their business.
• Labor issues are likely to continue. Top workforce challenges of 2022 include retaining key talent (40%) and attracting new talent (40%).

HealthLeaders spoke with Steven Shill, partner and national leader of the BDO Center for Healthcare Excellence & Innovation about the survey findings, and what they mean for CFOs.

This transcript has been edited for clarity and brevity.

HealthLeaders: Tell me about the BDO Center for Healthcare Excellence & Innovation.

Steven Shill: The healthcare dilemma in the United States touches every one of us. From individual patient care to population health, our healthcare problems can feel insurmountable.

We are the adviser to healthcare leaders, solving complex problems through holistic thinking that drives patient care and financial resiliency.

HealthLeaders: What were the most surprising findings in the survey related to healthcare CFOs, and why?

Shill: There were a couple of note. The first involves bond or loan default concerns in 2022—25% of healthcare CFOs we polled are concerned they will default this year, even if they did not in 2021 (42% said they did default in 2021). This shows that, in spite of healthcare CFOs' optimism for the year ahead, financial strains haven't gone away and will continue to impact the industry. This is further evidenced by relatively low levels of cash on hand among the respondents surveyed.

The second relates to primary care spending—less than 1/3 of the CFOs we polled are increasing primary care spending, and nearly 1/3 are planning to decrease investments in primary care. This decrease might have to do with deal-making in primary care. We've seen deal prices increase sharply, which has made transactions less attractive to many organizations, especially if they're currently strapped for cash. Further, closing deals requires a robust professional staff—consisting of accountants, lawyers, auditors, and more. And right now, finding talent is particularly challenging.

HealthLeaders: A majority of healthcare CFOs say they expect revenue growth in 2022 over 2021. But 2021 was a year stymied by the pandemic. How will 2022 projections compare to pre-pandemic levels?

Shill: Generally speaking, the industry is still expected to outperform pre-pandemic revenues significantly, as 2020 and 2021 both showed an uptick despite a brief dip in Q1 2020. The continued investment in new drugs and therapeutic technologies, and increasingly accessible care models (including telehealth) are sure to help drive revenues higher than years past.

We're seeing a lot of optimism, which could be the result of a few factors, including expectations around increases in elective surgeries and the potential for additional support packages from federal and state agencies. However, these projections may be overly optimistic as these organizations are facing staffing, supply chain, and financial pressures that could impact their performance.

HealthLeaders: What are best practices for encouraging patients to get more involved with their own care and wellness, and how can this help the bottom line of hospitals?

Shill: Bringing patients closer to their care can take many forms. For instance, encouraging patient portal participation (digital front door strategies) …, offering suggestions for medication apps to help patients stay on track with prescriptions, and even automating phone calls to help encourage follow-up appointment scheduling. 

When patients are more involved in their healthcare, it means they are likely to be looking to providers for medical assessments and treatments more often, and less likely to develop high acuity conditions requiring lengthy hospitalizations or complex procedures, which can often get costly and present payment issues for some patients. This more regular cadence of patient interaction results in a favorable outcome for both patient health, provider sustainability, and the overall move toward a value-based care system.

HealthLeaders: To help their organizations travel the road to profitability, what specific actions can healthcare CFOs take?

Shill: Healthcare organizations concerned about their financial health should review the underlying causes of their distress to gain an understanding what can be attributed to the pandemic, and what will persist once it's over.

After that, they should consider engaging financial advisors who can help reevaluate budgets, review leasing decisions, address risks of bond covenant violations, and entertain additional financing options.

Additionally, since financial health of an organization is usually directly impacted by operating decisions, strategy, and market conditions, we recommend that the next step would involve operational, clinical, and digital advisors examining all of the aforementioned areas with the objective of ensuring the sustained financial health of the organization.

HealthLeaders: While a majority of respondents say they expect revenue growth in 2022, a majority also say they have defaulted or will default on debt heading into 2022? Why this seeming contradiction?

Shill: 2021 proved challenging for healthcare organizations due to the unexpected resurgence of COVID. This surge forced many elective surgeries to be pushed off yet again, keeping many patients from returning to healthcare facilities.

Additionally, we have seen a dramatic expansion of costs. This increase is a result of rising payrolls due to staff shortages caused by burnout and other reasons. Global supply chain issues can also be blamed for growing costs, as supply shortages drive up prices of essential resources. This, combined with depressed higher margin revenues and higher operating costs have led many providers down the road of distress and lending defaults. 

However, these defaults are widely understood as anomalies. Technically, they were defaults, but not due to substantive underlying issues—this financial strain is mostly regarded as temporary. Because of this, they were not of much concern for bond council. This may, however, change depending on macroeconomic factors such as sustained inflation and a tightening liquidity environment with higher interest rates.  

HealthLeaders: Short of paying healthcare workers more money, what steps can CFOs take to offset worker burnout, fatigue, frustration, and the so-called Great Resignation?

Shill: Beyond salary increases, healthcare organizations can look to improved benefits packages, increased flexibility, employer-provided mental healthcare and childcare to support and retain their current staff.

Making investments in your employees' careers is another great way to help improve retention, alongside supporting a diverse and inclusive culture that helps employees feel more comfortable sharing their ideas, frustrations, and perspectives with leadership.

HealthLeaders: The vast majority of healthcare CFOs say supply chain strain is a top risk in 2022. What are some steps CFOs can take to ease that pain?

Shill: To manage the supply chain squeeze, healthcare CFOs and leadership can consider second- or third-tier suppliers when purchasing materials and supplies. Looking to suppliers that are not "physician preferred" can often yield more frugal or more plentiful options. Collaboration with other healthcare organizations is another option, which may result in a fair trade of supplies, or even an IOU to be repaid down the road.

Providers should also consider increasing inventory stores, as well as working with their staff to ensure they understand the supply challenges the team is facing, and how they can help by conserving resources and choosing supplies wisely.

HealthLeaders: Many healthcare systems are considering digital transformation or some "big risk, big reward" growth strategy. What does digital transformation mean for the typical healthcare system or hospital?

Shill: Digital transformation for healthcare organizations is often a holistic progression to implementing new technologies into the care model. This can include everything from telehealth investments and improving their ability to monitor and analyze data from wearables, to analyzing data generated from internal programs and services, to adding efficiencies into the day-to-day operating activities. Digital transformation is an ongoing process that leverages modern tech in an effort to improve care through data.

HealthLeaders: Is there anything else you would like to comment on related to this survey?

Shill: We would be remiss not to mention that compliance and regulatory concerns, and the associated costs, are impacting the healthcare industry. We have seen Price Transparency, The No Surprises Act, as well as other legislation, both state and federal (including the expiration of emergency waivers), weighing heavily on healthcare organizations. The Provider Relief Fund and its compliance is another great example of post pandemic fallout that is sapping healthcare provider resources.

To manage their future regulatory and compliance needs, healthcare providers will need to dedicate significant resources.