Take Action Against Economic Uncertainty, Says UnityPoint Health CFO

Uncertainty is going to be the challenge plaguing hospitals for the foreseeable future. What hospitals can do about it is key.

At the start of his career, Doug Watson, chief financial officer for UnityPoint Health, was working as an auditor, auditing banks, oil and gas companies, and other similar organizations. But when he audited a few small hospitals, he realized he had a calling in a career in healthcare finance.

"I started working with some hospital clients and felt like it mattered," Watson says. "The difference in helping a hospital manage their finances better or identify issues earlier has a real impact on people. We could help save a life."

Watson became CFO for UnityPoint Health—a Des Moines, Iowa–based health system with about $5 billion in net patient revenue—in August 2021 and has helped to lead the organization through some of the toughest financial issues facing the organization resulting from the pandemic, inflation, and the labor shortage.

Watson recently sat down with HealthLeaders to discuss economic and environmental uncertainty, and how hospitals can take action.

HealthLeaders: What is keeping hospital and health system CFOs up at night?

Doug Watson: Uncertainty. In finance, we like to have a solid baseline with which to project things, do a new budget, or evaluate financial performance. Since March 2020, we haven't had any solid baselines in healthcare. You have to go back to 2019 for a solid reference point so we can compare what's happening today back to something we view as normal. And that's been a challenge because normal is getting out of date. 2019 was quite a long time ago.

There's uncertainty about what's going to happen with the economy next year. Experts are predicting a 100% certainty of a recession, but how significant it will be is unknown. There's a lot of uncertainty about how inflation is going to manifest itself over the next 12–18 to 24 months.

Another key assumption to what you're doing is the labor market uncertainty. We've never seen a labor environment like this. We've had shortages that were emerging prior to the pandemic, but so many caregivers have left the industry during the past year. It's striking the number of doctors who have just left active practice and then you couple that with the unpredictability of demand on any given day.

We're [also] having waves of COVID, and now there is RSV [respiratory syncytial virus] hitting the pediatric side in a huge way, and we're going to have flu coming up. Historically, we have had one flu season that was a little unpredictable, but you had a lot more predictability as to when you thought you'd be super busy and when things can be quiet. Now that is no longer the case because we get surges.

Then you throw the political and the geo uncertainties around the supply chain and how the Ukraine war is going to affect the longer term. There are no answers that add a level of uncertainty to any kind of prediction or forecast that we might be trying to make.

HL: What kind of impact might the mid-term election have on healthcare finance?

Watson: It certainly has the potential to have a significant impact. There are a lot of things that are in play regarding the end of the emergency declaration around the pandemic. A lot of the waivers, some of the home hospitalization waivers, some of the payment modifiers, etc., are all tied to that. So, the timing and the makeup of Congress will determine if those waivers move into permanency, or if there will be extended time provided beyond the official end of the emergency declaration, whenever that may be.

The other factor is the economic situation, and that can tie in with the political backdrop. But as we see the economic environment get more difficult potentially, we must determine what that means in terms of enrollment in public programs and the funding for those public programs—which is a combination of state and federal [decisions]. Those things are significant and could change depending on how [the election goes].

HL: How can healthcare organizations prepare for the challenges we've discussed?

Watson: We're doing a lot more scenario analysis. It's about thinking ahead and asking, "Well, what if X occurs?" But it is more than just running the numbers. It's about identifying the steps to take, getting operations and strategy involved, and having conversations about if something happens, and what can we do about it. We don't want to be reactionary if something happens, we want to have actions put in place ahead of time. 

We've been doing a lot of scenario planning work around government programs. One example where there have been substantial changes is in the 340B environment. That is a good example of us saying, "As we go forward, what would we do in different scenarios, depending on how that might change?"

HL: What challenges are on the horizon for hospitals and health systems in 2023?

Watson: It will vary a lot depending on how some of this uncertainty is impacting individual organizations. The financial headwinds that the industry is facing are significant, and that's affecting organizations differently. I think it opens both risk and opportunity going into next year. There are opportunities to have a dialogue with organizations that perhaps wouldn't be talking historically. There are opportunities to think about how we can deliver care in different ways. In an era of uncertainty, in an era where the environment is challenging, people can come up with creative solutions that perhaps they wouldn't do in a normal environment.