Expanding health care CFOs’ methods

Some levers that CFOs consider lower priority may provide better opportunities

While health care finance leaders say they are focusing on multiple levers, some areas that could potentially have a larger impact on profitability may not have been receiving the attention they deserve (opportunities in figure 4). Levers that were chosen by fewer than one-third of the CFOs surveyed, yet have the potential to significantly improve their operating margins, include:

Optimize product and service mix: A small proportion of the CFOs we surveyed across health systems (27%) and health plans (20%) consider optimizing their service mix a growth priority. For CFOs, this type of optimization tends to involve adding new products and services and discontinuing offerings that do not add financial value.

Despite the past tendency to “grow at any cost” approach, in the current challenging market, it is important to assess and optimize the mix of products and services for sustainable growth.¹¹ For instance, health systems might need to rationalize their service lines.¹² Our previous research showed that the way consumers want to access care is changing as they push for traditional health care visits and experiences to be more in line with other daily life encounters. Health systems have an opportunity to scale models such as hospital digital twins, hospital-at-home, virtual health, and retail clinics and urgent care centers to increase their scale, reach, and impact on current and even newer population segments.¹³ This means finance leaders should rethink their real estate strategy and physical locations, given that efficient financial restructuring is a top capital deployment priority.

Similarly, health plans should assess the optimal growth and diversification strategies. Some health plans are extending beyond their traditional lines of business and should carefully consider where they can branch into to achieve market success.¹⁴ Others are investing in care delivery assets to increase vertical integration and create new revenue streams, which involves a thoughtful approach. In their traditional lines of business, they should assess and optimize the product mix and geographies in which they can reasonably expect to offer competitive products with sustainable margins.

Pursue alliances and ecosystems: In the current era of convergence, health care organizations risk slower growth and poorer performance if they operate alone. And yet, only 24% of health system and 20% of health plan CFOs surveyed are focusing on alliances and partnerships. Despite the apparent popularity of traditional growth methods like mergers and acquisitions, many surveyed CFOs said their organizations face regulatory hurdles (49%) and market uncertainty (41%). Increased scrutiny from regulatory authorities (Federal Trade Commission and Department of Justice) has made dealmaking more challenging in the past year.¹⁵

Value-based partnerships between health plans and providers can open greater revenue opportunities and lower costs for both. To date, however, these relationships have had mixed financial results.¹⁶ This is driven, in part, by inadequate capabilities and reluctance to accept downside risk.¹⁷ Emerging models that align growth and operating margin goals can enhance revenue stability, lower care costs, and accelerate growth for both parties.

In addition to pursuing partnerships, health care organizations can form tech platform-based ecosystems to co-develop unique products and services, expand customer reach, access new capabilities, achieve economies of scale, and increase revenue. In this model, numerous stakeholders collaborate with the goal of increasing consumer engagement, improving outcomes, and reducing costs. Finance leaders can contribute significantly to areas like financial due diligence, risk assessment, and establishing financial and operational KPIs to monitor alliance performance.

Look for outsourcing and offshoring opportunities: This is another area the surveyed finance leaders identified as a low priority, yet it could provide significant cost savings. Only a minority of respondents (24% from health systems and 30% from health plans) said that their organizations are prioritizing outsourcing or offshoring as a mechanism to reduce costs.

As discussed in our previous section, workforce challenges continue to be one of the biggest organizational concerns, especially for health systems. Outsourcing might help remove some of that pressure. Along with giving clinical staff more time to spend with patients, outsourcing administrative functions to less expensive labor markets can reduce costs spent on salaries, benefits, and overhead.¹⁸ The approach could also reduce costs tied to recruitment and training. For finance leaders, shifting the balance from in-house capabilities such as shared-services centers to outsourcing and offshoring services can help their organizations stay efficient and competitive. Finance leaders may need to assess and address potential risks such as process control, competencies, data security and privacy, and regulations as they move forward.¹⁹

Double down on digital and AI technologies: The survey revealed that investing in tech is a higher priority for health plan CFOs (50%) than it is for health system CFOs (36%). However, few CFOs apparently view these investments as margin drivers in the near to mid-term. For instance, we asked CFOs about their organizations’ adoption of gen AI, given its recent proliferation. Three in four surveyed CFOs view gen AI as a longer-term solution for their operations. For health care organizations, gen AI has many uses that can benefit health plans and systems, including improving medical coding and authorization processes, drafting claim denial appeals, and assisting physicians and patients, identifying opportunities for member/patient interventions.²⁰ Some health care organizations are already implementing these use cases, with early signs of value.²¹

With the potential of gen AI comes challenges that CFOs may need to overcome. Our recent research shows that health care organizations may be overlooking key factors for successful gen AI implementation such as creating a governance model, building consumer trust, and securing workforce buy-in and skills. Deloitte’s cross-industry CFO signals survey shows that the competition for gen AI skills is a top concern, leading CFOs to focus on upskilling existing talent as hiring external talent can be expensive and time-consuming. While most gen AI initiatives in health care aim to reduce costs, the technology can also support other strategic goals. As strategic stewards, CFOs play an important role in leveraging AI for improved productivity, growth, revenue, capital deployment, and consumer engagement, within the right safeguards.