The COVID-19 pandemic has made financial planning a laborious challenge for health system CFOs and administrators.
In a recent report, the American Hospital Association projected hospitals will lose $323 billion in 2020, mostly due to volume declines during the pandemic. In response to these unprecedented revenue losses, health system leaders have been forced to quickly implement cost-cutting strategies.
While demanding, the situation may present an opportunity for health systems to reimagine their financial planning, says Frank Stevens, vice president of financial planning and solution engineering for Strata Decision Technology.
“In the last two or three months, I’ve seen more velocity and momentum toward more advanced approaches to planning than ever before,” Mr. Stevens said during a June 30 webinar hosted by Becker’s Hospital Review and sponsored by Strata. “Many health systems have found that traditional budget approaches that probably weren’t cutting it before COVID-19 are definitely not cutting it right now.”
Here are four takeaways on dynamic financial planning from the webinar:
1. The COVID-19 pandemic has forced hospital leaders to rethink some of their fundamental practices. While in the past hospitals may have viewed budgets as an indicator of annual spending limits, those projections are often difficult to predict and unreliable. More agile planning focuses on improving upon past performance.
2. Dynamic planning transforms traditional methodologies. This includes swapping annual static plans for rolling forecast systems that are quarterly, monthly or even ad hoc. It also means reframing discussions. For example, under traditional planning, a hospital executive may say, “If we focus on the detail, we can drive accuracy in our plan.” Under dynamic planning, the conversation could be rephrased as, “If we focus on our key business drivers, we can react quickly and improve performance.”
3. Accountability ensures these new strategies are implemented and tracked. To make the process accountable, leaders should ensure diagnostic measures of financial performance are controllable. They should also use analytics programs that contextualize information that is presented in dashboards and reports. Plus the process should be consistent and feature recurring financial reviews and well-defined expectations.
4. Different methods will work for different health systems. Factors like fiscal year timeline, technology needs, capacity for change and organization structure all affect which approach is right for a health system. Approaches may include an all-in option, where dynamic planning is implemented systemwide. A parallel structure allows a dynamic planning process to be implemented in tandem with current budgeting processes. Lastly, a pilot would seclude the rollout to a specific entity or group to allow for greater feedback and more time for end user adoption.
To view the webinar, click here.
To learn more Strata Decision Technology, click here.
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