Given continued volatility, healthcare finance leaders need to continue to look for ways to address disruptors, evaluate ways to recast processes, and adopt new strategies to balance needs and remain resilient. Finance leaders should be developing short-term strategies to manage liquidity, while also developing performance improvement initiatives for the long-term – in short, being adaptive.
Volatility in 2020
We are in a period of intense, global volatility, and the ride will not be slowing down anytime soon. In our partnership with healthcare leaders, we have found that few organizations were fully prepared for 2020’s disruptors. This is not to fault healthcare leaders. After all, organizations prepare for threats, but few could gauge the scope of planning required to take on the system of events that occurred in 2020.
In the early days of the COVID-19 public health emergency (COVID-19 PHE), the country focused on flattening the healthcare curve and facilities across the U.S. prepared for case surges. As company leaders and boards reviewed their continuity plans, they discovered these well-intentioned plans failed to address the potential impact of a prolonged pandemic, and their crisis management playbooks were ultimately insufficient when critical decisions had to be made. Cybersecurity risks, global supply chain disruption, workflow and facility changes have put a strain on business continuity plans designed for only 60 days in crisis. The traditional ways to address crisis management have been pushed to the breaking point as crises continued to evolve.[1]
Responsibility of Finance Leadership
While the surge did not initially happen in all parts of the country, healthcare leaders had to remain vigilant and plan for a second wave. In this period of extended volatility, finance leaders have a crucial responsibility to the organization. They must focus on maintaining liquidity, reprioritizing strategic efforts, and driving efficient operations for the short and long-term.
This creates an interesting and complex situation for Finance Departments. Striking a balance in 2020 was difficult for any financial leader. To reserve sufficiently during the 2019 planning process would have been seen as unreasonable. Conservatism, a finance stalwart, will continue to be challenged in this environment, and financial leaders must examine how they can prepare their organizations for an uncertain future. The balance is now shifting as more disruptors have the potential to arrive on our doorsteps. Finance leaders specifically should be asking – ‘is this disruption an opportunity to recast the way we have always done things?’ It may be time to consider that what was once deemed essential may no longer be.
While most organizations will focus on ways to operate as efficiently and effectively as possible, we have seen many that have a hoarding complex when it comes to rules, policies, and procedures. They add without subtracting. As a result, they end up with a mishmash of outdated and misunderstood rules, policies, processes, and assumptions. To avoid this trap, we’ve worked with organizations to adopt a process of elimination by purposefully asking ‘What if?’ designed to answer: ‘What if we could discontinue one process or step? Which one would make us better?’. We believe this process to be more powerful and yield faster results than examining the long-term approach to gaining financial efficiencies.
Reactions to the COVID-19 crisis are resulting in unforeseen performance improvement opportunities that could remove meaningful costs from organizations, both in the short and longer term. With this in mind, we seek to examine how business resilience and strategic pivots can be leveraged by finance leaders to counter the difficulties that healthcare organizations faced in 2020.
The Dual Foundation of a Resilient Business
Resilient businesses are built upon two foundational concepts: the driving purpose of the organization and solid financial fundamentals. In the context of the past year, these two concepts will service healthcare leaders well.
The Driving Purpose of the Organization as a Foundation for Strategy
Healthcare organizations are anchored in the central purpose of caring for patients and consumers – the Business of Healthcare. This has been underlined again and again in the context of the COVID-19 PHE. Leadership teams are being forced to carefully consider how this purpose can be effectively and strategically executed, requiring certain strategic pivots and innovative thinking. Consider the changes that have accelerated since the COVID-19 PHE began – widespread adoption of telehealth, which will likely continue and could ultimately reduce the health systems’ need for facilities to treat patients. Hospital at Home – an approach pioneered by Johns Hopkins in 1995 – did not gain a lot of traction despite an Innovation Challenge Grant from the Center for Medicare and Medicaid Innovation (CMMI) awarded to Mount Sinai Medical Center in 2014. The approach didn’t get off the ground until April of 2020 when the Centers for Medicaid and Medicare Services (CMS) increased flexibility to provide and receive Medicare payment, allowing improved hospital outpatient services in patient homes.
Anchoring on organizational purpose and utilizing it as the foundation for strategic decision-making enhances resiliency and innovation. Leaders who leverage purpose as a driver of strategy report enhanced innovation and improved change delivery, as well as positive impacts on financial performance.[2] An estimated 53% of executives who claim their companies have a strong sense of purpose indicate they are more successful at innovating and transforming their businesses.[3] Additionally, healthcare organizations can put their purpose front-and-center consistently to engage (or re-engage) their workforce. Reinforcing the mission can help to mitigate burnout as teams begin to exit the first in-crisis period.
As of 2019, top global companies that achieved high-impact transformations in the last 10 years had a major commonality: a renewed sense of their organizations’ purpose.[4] For healthcare, a renewal of purpose can be an impetus to drive the evolution of the healthcare ecosystem (digital health, site-of-care, etc.). In a study by the Center for Connected Medicine and the Health Management Academy, the top criterion for innovative decision-making in health systems was alignment with stated goals.[5] It is unclear if innovation in this study is defined by new approaches and processes or improving existing processes. Regardless, volatility from the pandemic and disruptive market dynamics such as new industry entrants and competitors, changing demographics, and regulatory changes, are forcing healthcare organizations to rethink their business models. Those that keep a strong sense of purpose will be most resilient during these ever-evolving times.
Managing Financial Fundamentals Through Volatility
In addition to anchoring strategy in an organization’s purpose, healthcare finance leaders must continually monitor finance fundamentals. Finance leaders can develop short-term strategies to manage liquidity in the context of market complexity, while also developing performance improvement initiatives for the long-term. This is not about rapid cost reduction. The focus should be on a thoughtful understanding of cost drivers, what patients want and need, and how to best deliver appropriate care.
Leaders should redefine what is “essential” from an expenditure perspective on an ongoing basis, reinforcing what are necessary costs in the context of continual volatility. There is also an opportunity to continue broadening the definition of care beyond patients to other health stakeholders. This can help healthcare teams focus on both what the patient needs and wants, which in the long run can improve effective care and improve efficiency.
Finance leaders must also reevaluate balance sheet reserve strategies. Approaches deemed far too conservative pre-COVID may be optimal for the coming planning season. Organizations can also pivot investment strategies to deliver care both efficiently and effectively. For example, one client we partnered with pursued a digital strategy that amplified patient care while reducing costs. Other providers are considering current real estate assets in the context of changing patient needs.
Strategy and Agility: The Accelerator Planning/Execution Loop
As organizations transition from the initial emergency phase of the COVID-19 PHE, there is opportunity to enter an adaptive phase.[6] This requires pivoting strategy and executing effectively. To achieve this, we recommend a cyclical model called the “Accelerator Loop”. The model maps to the following five interlocking stages: Prioritize, Decide, Align, Plan, and Allocate, designed to drive strategic adaptation rapidly and effectively.
- Prioritize – Observe and assess relevant, accurate information to select critical strategies.
- Decide – Translate raw data into contextual insights and make the right decisions in an agile manner.
- Align – High volatility requires constant alignment and realignment across the organization.
- Plan – Strategic change agility requires aligned stakeholders addressing a set of potential scenarios, defining viable plans.
- Allocate – Do not hesitate to reallocate resources to meet rapidly changing events.
The Accelerator Loop is applicable across business and market cycles to enable organizations to respond and adapt to changing dynamics. For example, Ankura worked with a large health system with facilities in multiple states, partnering with the CFO and other executives to address key initiatives focused on margin improvement, increased efficiency, and quality. Leveraging the Accelerator Loop, they were able to implement a governance structure, financial reporting, and validation process to efficiently address the key initiatives and drive transformation. The program projected $300 million in cost savings over the course of a two-year period. In times of volatility, the Accelerator Loop must be revisited regularly. Leveraging this model can provide leaders with clarity and flexibility to execute against the odds.
Conclusion
The COVID-19 pandemic has forced healthcare financial leaders to carefully consider ongoing strategy and adapt accordingly. We advocate that leaders anchor on their organization’s purpose, closely focus on financial fundamentals, and leverage the Accelerator Loop model to reposition strategy throughout ongoing volatility. Crises beget opportunities, and healthcare organizations are in a position to take on new challenges to generate efficiencies and innovations through an agile and resilient strategy.
[1] Scott Corzine, Randall Coxworth, and Helen Lane, “Is Your Business Resilient Enough? Lessons Learned from 2020 So Far,” Ankura Consulting, 9/14/2020.
[2] “The Business Case for Purpose,” Harvard Business School Analytics Report, 2015; Claudine Madras Gartenberg, Andrea Prat, and George Serafeim, “Corporate Purpose and Financial Performance,” Organization Science (October 9, 2018), 30(1), pp.1-18.
[3] “The Business Case for Purpose,” Harvard Business School Analytics Report, 2015.
[4] Mark W. Johnson and Josh Suskewicz, “Leaders, Do You Have a Clear Vision for the Post-Crisis Future?,” Harvard Business Review, April 17, 2020.
[5] “Trends for Scaling Innovation in Health Care” Center for Connected Medicine and the Health Management Academy Report June 2019
[6] Ronald Heifetz, Alexander Grashow, and Marty Linsky, “Leadership in a (Permanent) Crisis,” Harvard Business Review, July-August 2009.
© Copyright 2021. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
