Building a healthcare finance center of excellence: a view from the C-suite
- The concept of a finance center of excellence is gaining traction as a way to help health systems tackle daunting financial challenges.
- Finance centers of excellence have improved the budgeting process and interactions between financial analysts and operational leaders.
- A finance center of excellence can smooth a health system’s transition to value-based care.
Bringing together experts to collaborate and share best patient-care practices in a clinical center of excellence is a common practice. Faced with the challenges of shrinking margins and demands for greater affordability, many progressive health systems are applying a similar approach to create finance centers of excellence.
Unlike their clinical equivalent, finance centers of excellence are not necessarily physical locations but rather a collection of the right people, tools and practices to help organizations achieve better financial performance. Below, we share some lessons from two health systems that have laid the foundation for such ecosystems.
Deploying expertise in the field
For some organizations, building a finance center of excellence begins with rethinking the structure and location of the finance team so analysts can support operational leaders in implementing processes that create better financial performance.
In 2014, OSF HealthCare in Peoria, Illinois, completely revamped its finance and accounting functions by centralizing its corporate finance team and deploying 60 financial analysts across the system’s 13 entities. These analysts have a “get-out-of-the-back-office mindset” and work “elbow to elbow” with operational leaders to help them reach their targets, which are based on a long-term financial plan, said Mike Allen, FHFMA, CPA, the health system’s CFO and the 2019-20 Chair of HFMA.
Making financial planning more efficient
Another critical step to building a finance center of excellence is refocusing leaders’ efforts. That aspect may involve doing away with a labor-intensive annual budgeting process that produces little return.
OSF HealthCare eliminated its arduous annual budgeting process at the end of FY18. Instead of producing a detailed budget annually, OSF HealthCare implemented a more agile planning process that uses rolling forecasts paired with intuitive performance management to drive accountability. The new, simpler approach creates financial targets for operational leaders based on prior periods, with a focus on driving ongoing and sustainable improvement — eliminating the laborious work of developing an annual department-level budget.
Having streamlined the planning process and deployed analysts to the different entities within the system, finance leaders at OSF HealthCare can work with operational leaders to analyze the bottom-line impact of their decisions and refine strategies to close performance gaps, Allen said.
Developing a structure to partner with operations
Another vital step to building a finance center of excellence is establishing regular operating reviews, which may occur quarterly or monthly, depending on the organization. At Wellforce, a $2.2 billion healthcare system in Burlington, Massachusetts., leaders chose a monthly approach.
In 2015, Tufts Medical Center, which formed Wellforce through an alliance with Circle Health, was facing financial challenges due to Medicaid expansion, heightened competition in its market, unprecedented snowfalls and the Ebola crisis, all of which had a negative impact on income, said Michael Wagner, MD, Tufts Medical Center’s former CEO.
Wagner met with the CFO, Kristine Hanscom, and determined that they needed to fundamentally change course. In January 2016, senior executives invited the top physician, nurse and administrative executives from each of the organization’s eight product lines to present a financial report. The product line leaders were asked to focus on two areas:
- How they could drive their top-line revenue
- How to improve their contribution margin
“It was probably the most enlightening eight hours that the senior team had had,” Wagner said.
That was the genesis of what has become a monthly financial reporting process for all service lines. The monthly reports have helped guide new investments designed to improve both financial performance and quality and outcomes at Tufts Medical Center.
Investments in surgery, cardiovascular care, neurosurgery care, pharmacy and other areas helped the system grow its top-line annual revenue from $850 million to $1.1 billion over a four-year period, said Wagner, who has moved to the system level as chief physician executive and served as interim system CEO in 2019.
Lessons learned about building a finance CoE
The C-suite leaders offer the following advice for other organizations that want to build a finance center of excellence and implement best practices for financial planning, analytics and performance.
Start by gaining support from the board and C-suite. For organizations aiming to roll out metrics and tools to drive accountability for nonfinance stakeholders, engaging the COO, CMO, CNO and other operational leaders is a crucial first step. Without their sponsorship, it is difficult to create buy-in throughout the organization, said OSF HealthCare’s Allen.
Recognize that doing away with the annual budgeting process will be uncomfortable. “As finance people, we tend to go with what we know and what we’re comfortable with,” Allen said. Leaders can reduce their team’s uneasiness by establishing that it is OK to get out of comfort zones and by deploying a robust communications plan to prepare stakeholders.
Be specific when setting financial targets. At Tufts Medical Center, senior executives provided product line leaders with dollar figures representing specific contribution-margin targets that they would be expected to hit. Using dollars is more concrete than using a percentage, Wagner said. Educating end-users is also a critical change-readiness step as organizations roll out new approaches to planning and accountability.
Make cost data transparent. “One of the biggest ‘a-has’ out of this entire process was that we needed to give our managers much more information so they could engage in a dialogue with their clinical lead, whether it was the division chief or the nurse manager on a floor or in the clinic,” Wagner said.
Don’t expect a technical solution to do all the work. Both OSF HealthCare and Tufts Medical Center implemented a management-reporting platform to support their finance center of excellence. But leaders concede that it takes more than sophisticated software to create change — it takes a commitment from leadership and deliberate change management efforts to drive adoption and avoid lapsing into old habits.
Preparing to thrive in a value-based care environment
Best practices like implementing rolling forecasting and continuous performance management can help organizations understand their cost structure so they can transition to value-based payment. In a value-based world, both health plans and physicians want to be assured that the cost structure of a hospital is rational and reasonable, Wagner said.
At OSF HealthCare, building a finance center of excellence has allowed leaders to move toward continuous performance management as they prepare for payment changes ahead, Allen said. Instead of focusing on “putting numbers in boxes” as they had with the old budget process, executives in finance, strategic planning and operations work together on solutions to reach their revenue and cost targets.
Such collaborative work can be rewarding for finance leaders. “The fun work is driving the change,” Allen said.