CFOs to boost compensation

Dive Brief:

  • CFOs are planning to increase their compensation spend in 2023, with 86% of finance chiefs noting they plan to raise it by at least 3% year-over-year, according to a recent survey by Gartner.
  • CFOs are still facing a tight labor market in 2023. As CFOs weigh increased turnover and a more remote workforce, “they’re thinking through, how do they use compensation as a lever to engage and retain talent across their workforce,” said Alexander Bant, chief of research in the Gartner finance practice.
  • Only 5% of the 279 CFOs surveyed stated they planned to reduce their compensation spend in 2023, according to Gartner.

Dive Insight:

While CFOs typically budget more for compensation every year, ongoing inflationary pressures and a still-tight labor market puts compensation plans “front and center” in CFOs’ “ability to engage and retain top talent,” Bant said in an interview.    

However, this does not mean finance chiefs will be budgeting for sweeping pay raises across their entire workforce — CFOs are “not trying to keep up with inflation across the board,” Bant said.

Rather, they are working with other members of the C-Suite such as the chief human resource officer and using tools like advanced analytics to single out and reward top performers which might be at more risk of departing for other opportunities, he said.

“CFOs are being more deliberate about how they allocate that money,” Bant said.

While the pace of wage growth slowed in the fourth quarter of 2022, according to recent data from the Labor Department, tamping down fears of a wage-price spiral, the war on talent remains a top worry for finance chiefs. Raising compensation can allow companies to be more competitive in the face of ongoing talent shortages, especially as workforce needs change.

For those companies which are moving employees back into the office, for example, raising compensation can help them to better compete against the remote or hybrid work opportunities which are becoming increasingly common, for example, Bant said.

Upping compensation can also help firms to find or hold onto employees with the key skills they need in areas such as digital transformation. Despite cost pressures, 43% of finance chiefs said they plan to increase their companies’ technology spend by 10% or more, according to the Gartner survey.

“What we’re hearing is, ’Yes, we are right-sizing parts of our organization and reducing head count in certain areas, but at the same time, we still have open roles and we’re still searching for talent in those areas that align to our digital transformation priorities,” Bant said of the search for technology talent.

Such skills still come at a premium, for that matter, despite the recent spat of layoffs across high-profile tech companies such as Google parent Alphabet, IBM and Microsoft. While these companies have reduced staff, they may not be letting go of employees with critical hardcore coding, data analytics or artificial intelligence related skills, Bant said.

“There is more talent available from technology companies, but that doesn’t mean that talent necessarily has the technical skills to drive the digital transformations that many CFOs and their leadership teams need,” he said.

Ketul J. Patel, Division President, Pacific Northwest; Chief Executive Officer, CommonSpirit Health; Virginia Mason Franciscan Health

There is no shortage of challenges to confront in healthcare today, from workforce shortages and burnout to innovation and health equity (and so much more). We’re committed to giving industry leaders a platform for sharing best practices and exchanging ideas that can improve care, operations and patient outcomes.


Check out this podcast interview with Ketul J. Patel, CEO at Virginia Mason Franciscan Health and division president, Pacific Northwest at CommonSpirit Health, for his insights on where healthcare is headed in the future.

In this episode, we are joined by Ketul J. Patel, Division President, Pacific Northwest; Chief Executive Officer, CommonSpirit Health; Virginia Mason Franciscan Health, to discuss his background & what led him to executive healthcare leadership, challenges surrounding workforce shortages, the importance of having a strong workplace culture, and more.

Four Insights from Healthcare Reimagined: BDO’s J.P. Morgan Conference Event

https://www.linkedin.com/pulse/four-insights-from-healthcare-reimagined-bdos-jp-morgan-steven-shill/

This January, BDO hosted healthcare and life sciences leaders on the sidelines of JP Morgan’s Healthcare Conference to glean insights from those at the forefront of these rapidly evolving industries. 

In a series of intimate breakout discussions, these leaders discussed the challenges they’re seeing and what they anticipate the near future will hold. Here are four of their biggest takeaways that industry stakeholders need to know:  

·        Healthcare labor needs a makeover

One of the biggest issues we’re seeing in healthcare today is the overburdening of clinicians and other healthcare staff. This year, healthcare leaders need to prioritize enabling clinicians to practice at the top of their licenses. That means reducing their administrative burden so they can spend more time doing what they do best: working with patients and dispensing care. 

·        Healthcare valuations are moderating

In the past year, healthcare company valuations have been very high. We’re now seeing valuations moderate, which could mean a major shift in the deal landscape, with deal opportunities opening up as the price is right. 

·        Health equity is about choice

The reality is that each individual patient has unique needs that require tailored solutions. One important tool for improving health equity is technology that enables patients to choose what is right for them and their situation. That’s why capabilities like self-scheduling are so important, despite the fact that they are currently a missed opportunity for many providers

·        Life sciences leaders are looking at drug timelines differently

COVID-19 showed how quickly a drug can be safely developed when the right resources are in place. Moving forward, life sciences leaders are likely to pressure test drug timelines, which could lead to a shift in how the industry looks at drug development as a whole. 

·        While it’s impossible to know exactly what the future holds, we’re thankful that we were able to hear from industry leaders with on-the-ground knowledge of what’s happening now and what’s likely ahead. In the months and years ahead, we’ll continue to look to these leaders for their insights. 

A contentious time for payer-provider negotiations

https://mailchi.mp/59374d8d7306/the-weekly-gist-january-13-2023?e=d1e747d2d8

In our decades of working in healthcare, we’ve never seen a time when payer-provider negotiations have been more tense. Emboldened insurers, having seen strong growth during the pandemic, are entering contract negotiations with an aggressive posture.

“They weren’t even willing to discuss a rate increase,” one CFO shared as he described his health system’s recent negotiations with a large national insurer. “The plan’s opening salvo was a fifteen percent rate cut!”

Health systems are feeling lucky to get even a two or three percent rate bump, well short of the historical average of seven percent—and far short of what would be needed to account for skyrocketing labor, supply, and drug costs. According to executives we work with, efforts to describe the current labor crisis and resulting cost impacts with payers are largely falling on deaf ears.  
 
This scenario is playing out in markets across the country, with more insurers and health systems announcing that they are “terming” their contract, publicly stating they will cut ties should the stalemate in negotiations persist.

Speaking off the record, a system executive shared how this played out for them. With negotiations at an impasse, a large insurer began the process of notifying beneficiaries that the system would soon be out-of-network, and patients would be reassigned to new primary care providers. The health plan assumed that the other systems in the market would see this as a growth opportunity—and was shocked when they discovered that other providers were already operating at capacity, unable to accommodate additional patients from the “terminated” system. 

Mounting concerns about access brought the plan back to the table. Even in the best of times, a major insurer cutting ties with a health system is extremely disruptive for consumers, who must shift their care to new providers or pay out-of-network rates. But given current capacity challenges in hospitals nationwide, major network disruptions can be even more dire for patients—and may force payers and providers to walk back from the brink of contract termination. 

Health systems’ minimum wage skyrockets

The percentage of healthcare organizations with an internal minimum wage of $15 or higher increased significantly over the last year, according to the “2022 Health Care Staff Compensation Survey” from SullivanCotter.

In 2021, less than 30 percent of healthcare organizations had an internal minimum wage of $15 per hour or more; this year, nearly 70 percent do. Some health systems are increasing the internal minimum wage to stay competitive amid staffing shortages and rising inflation. Others are increasing hourly rates as a result of union negotiations.

Health systems reported large increases in overall staff salaries, wages and benefits this year, and many expect to see increases in 2023 as well.

Here is how the internal minimum wage rates changed over the last year:

1. Less than $10 per hour
2021: 2.9 percent
2022: 2.2 percent

2. $10 per hour
2021: 14.7 percent
2022: 5 percent

3. $11 per hour
2021: 13.7 percent
2022: 3.9 percent

4. $12 per hour
2021: 12.7 percent
2022: 7.8 percent

5. $13 per hour
2021: 12.7 percent
2022: 6.1 percent

6. $14 per hour
2021: 14.7 percent
2022: 5.6 percent

7. $15 per hour
2021: 26.5 percent
2022: 53.9 percent

8. More than $15 per hour
2021: 2 percent
2022: 15.6 percent

30 health systems with strong finances in 2022

Here are 30 health systems with strong operational metrics and solid financial positions in 2022, according to reports from Fitch Ratings and Moody’s Investors Service.

1. Advocate Aurora Health has an “AA” rating and a stable outlook with Fitch. The health system, dually headquartered in Milwaukee and Downers Grove, Ill., has a strong financial profile and a leading market position over a broad service area in Illinois and Wisconsin, Fitch said. The health system’s fundamental operating platform is strong, the credit rating agency said.

2. Atlantic Health System has an “Aa3” rating and stable outlook with Moody’s. The Morristown, N.J.-based health system has strong operating performance and liquidity metrics, Moody’s said. The credit rating agency expects Atlantic Health System to sustain strong performance to support capital spending. 

3. Banner Health has an “AA-” rating and stable outlook with Fitch. The Phoenix-based health system’s core hospital delivery system and growth of its insurance division combine to make it a successful, highly integrated delivery system, Fitch said. The credit rating agency said it expects Banner to maintain operating EBITDA margins of about 8 percent on an annual basis, reflecting the growing revenues from the system’s insurance division and large employed physician base.

4. BayCare has an “AA” rating and stable outlook with Fitch. The 14-hospital system based in Clearwater, Fla., has excellent liquidity and operating metrics, which are supported by its leading market position in a four-county area, Fitch said. The credit rating agency expects strong revenue growth and cost management to sustain BayCare’s operating performance. 

5. Bon Secours Mercy Health has an “AA-” rating and stable outlook with Fitch. The Cincinnati-based health system has a broad geographic footprint as one of the five largest Catholic health systems in the U.S., a good payer mix and a leading or near-leading market share in eight of its 11 markets in the U.S., Fitch said.

6. Bryan Health has an “AA-” rating and stable outlook with Fitch. The Lincoln, Neb.-based health system has a leading and growing market position, very strong cash flow and a strong financial position, Fitch said. The credit rating agency said Bryan Health has been resilient through the COVID-19 pandemic and is well-positioned to accommodate additional strategic investments. 

7. CaroMont Health has an “AA-” rating and stable outlook with Fitch. The Gastonia, N.C.-based system has a leading market position in a growing services area and a track record of good cash flow, Fitch said.  

8. Christiana Care Health System has an “Aa2” rating and stable outlook with Moody’s. The Newark, Del.-based system has a unique position as the state’s largest teaching hospital and extensive clinical depth that affords strong regional and statewide market capture, and it is expected to return to near pre-pandemic level margins over the medium-term, Moody’s said.

9. Cone Health has an “AA” rating and stable outlook with Fitch. The Greensboro, N.C.-based health system has a leading market share and a favorable payer mix, Fitch said. The health system’s broad operating platform and strategic capital investments should enable it to return to stronger operating results, the credit rating agency said.

10. Deaconess Health System has an “AA” rating and stable outlook with Fitch. The Evansville, Ind.-based system has a leading market position in its primary service area and a favorable payer mix, Fitch said. The ratings agency said it expects Deaconess’ operating EBITDA margins to improve and stabilize around 10 percent by 2023, reflecting strong volumes and focus on operating efficiencies. 

11. El Camino Health has an “AA-” rating and stable outlook with Fitch. El Camino Health, which includes hospital campuses in Los Gatos, Calif., and Mountain View, Calif., has a solid market share in a competitive market and a stable payer mix, Fitch said. The credit rating agency said El Camino Health’s balance sheet provides moderate financial flexibility.

12. Gundersen Health System has an “AA-” rating and stable outlook with Fitch. The La Crosse, Wis.-based health system has strong balance sheet metrics, a leading market position and an expanding operating platform in its service area, Fitch said. The credit rating agency expects the health system to return to strong operating performance as it emerges from disruption related to the COVID-19 pandemic. 

13. Hackensack Meridian Health has an “AA-” rating and stable outlook with Fitch. The Edison, N.J.-based health system has shown consistent year-over-year increases in market share and has a solid liquidity position, Fitch said. 

14. Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The Falls Church, Va.-based health system has a consistently strong operating cash flow margin and ample balance sheet resources, Moody’s said. Inova’s financial excellence will remain undergirded by its favorable regulatory and economic environment, the credit rating agency said. 

15. Intermountain Healthcare has an “Aa1” rating and stable outlook with Moody’s. The Salt Lake City-based health system has exceptional credit quality, which will continue to benefit from its leading market position in Utah, Moody’s said. The credit rating agency said the health system’s merger with Broomfield, Colo.-based SCL Health will also give Intermountain greater geographic reach.

16. Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s. The Boston-based health system has an excellent clinical reputation, good financial performance and strong balance sheet metrics, Moody’s said. The credit rating agency said it expects Mass General Brigham to maintain a strong market position and stable financial performance. 

17. Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The credit rating agency said Mayo Clinic’s strong market position and patient demand will drive favorable financial results. The Rochester, Minn.-based health system “will continue to leverage its excellent reputation and patient demand to continue generating favorable operating performance while maintaining strong balance sheet ratios,” Moody’s said. 

18. MemorialCare has an “AA-” rating and stable outlook with Fitch. The Fountain Valley, Calif.-based health system has excellent leverage metrics and a strong financial profile, Fitch said. The credit rating agency said it expects the system’s leverage metrics to remain strong over the next several years. 

19. Methodist Health System has an “Aa3” rating and stable outlook with Moody’s. The Dallas-based system has strong operating performance, and investments in facilities have allowed it to continue to capture more market share in the fast-growing Dallas-Fort Worth, Texas, area, Moody’s said. The credit rating agency said it expects Methodist Health System’s strong operating performance and favorable liquidity to continue.

20. OhioHealth has an “AA+” rating and stable outlook with Fitch. The Columbus, Ohio-based system has an exceptionally strong credit profile, broad regional operating platform and leading market position in both its competitive two-county primary service area and broader 47-county total service area, Fitch said. 

21. Parkview Health has an “Aa3” rating and stable outlook with Moody’s. The Fort Wayne, Ind.-based system has a leading market position with expansive tertiary and quaternary clinical services in Northeastern Indiana and Northwestern Ohio, Moody’s said. 

22. Presbyterian Healthcare Services has an “Aa3” rating and stable outlook with Moody’s and an “AA” rating and stable outlook with Fitch. The Albuquerque, N.M.-based system is the largest in the state, and it has strong revenue growth and a healthy balance sheet, Moody’s said. The credit rating agency said it expects the health system’s balance sheet and debt metrics to remain strong. 

23. Rady Children’s Hospital has an “AA” rating and stable outlook with Fitch. The San Diego-based hospital has a very strong balance sheet position and operating performance, and it is also a leading provider of pediatric services in the growing city and tri-county service area, Fitch said. 

24. Rush Health has an “AA-” rating and stable outlook with Fitch. The Chicago-based health system has a strong financial profile and a broad reach for high-acuity services as a leading academic medical center, Fitch said. The credit rating agency expects Rush’s services to remain profitable over time. 

25. Stanford (Calif.) Health Care has an “AA” rating and stable outlook with Fitch. The health system has extensive clinical reach in a competitive market and its financial profile is improving, Fitch said. The health system’s EBITDA margins rebounded in fiscal year 2021 and are expected to remain strong going forward, the crediting rating agency said. 

26. ThedaCare has an “AA-” rating and stable outlook with Fitch. The Neenah, Wis.-based system has a focused strategy, strong financial profile and robust market share, Fitch said. 

27. Trinity Health has an “AA-” rating and stable outlook with Fitch. The Livonia, Mich.-based system’s large size and market presence in multiple states disperses risk and the long-term ratings incorporate the expectation that Trinity will return to sustained stronger operating EBITDA margins. 

28. UnityPoint Health has an “AA-” rating and stable outlook with Fitch. The Des Moines, Iowa-based health system has strong leverage metrics and cash position, Fitch said. The credit rating agency expects the health system’s balance sheet and debt service coverage metrics to remain robust.

29. University of Chicago Medical Center has an “AA-” rating and stable outlook with Fitch. The credit rating agency said it expects University of Chicago Medical Center’s capital-related ratios to remain strong, in part because of its broad reach of high-acuity services. 

30. Yale New Haven (Conn.) Health has an “AA-” rating and stable outlook with Fitch. The health system’s turnaround efforts, brand recognition and market presence will help it return to strong operating results, Fitch said. 

Why are fewer hospital admissions coming from the emergency department?

https://mailchi.mp/ad2d38fe8ab3/the-weekly-gist-january-6-2023?e=d1e747d2d8

At a recent health system retreat, the CFO shared data describing a trend we’ve observed at a number of systems: for the past few months, emergency department (ED) volumes have been up, but the percentage of patients admitted through the ED is precipitously down.

The CFO walked to through a run of data to diagnose possible causes of this “uncoupling” of ED visits and inpatient admissions. Overall, the severity of patients coming to the ED was higher compared to 2019, so it didn’t appear that the ED was being flooded with low-level cases that didn’t merit admission. Apart from the recent spike in respiratory illness brought on by the “tripledemic” of flu, COVID and RSV, there wasn’t a noteworthy change in case mix, or the types of patients and conditions being evaluated in the emergency room. (Fewer COVID patients were admitted compared to 2021, but that wasn’t enough to account for the decline.) The physicians staffing the ED hadn’t changed, so a shift in practice patterns was also unlikely. 
 
A physician leader attending the retreat spoke up from the audience: “I can diagnose this for you. I work in the ED, and the problem is we can’t move them. Patients are sitting in the ED, in hallways, in observation, sometimes for days, because we can’t get a bed on the floor. The whole time we are treating them, and many of them get better, and we’re able to discharge them before a bed frees up.”

With nursing shortages and other staffing challenges, many hospitals have been unable to run at full capacity even if the demand for beds is there. So total admissions may be down, even if the hospital feels like it’s bursting at the seams.

The current staffing crisis not only presents a business challenge, but also adversely impacts patient experience, and makes it more difficult to deliver the highest quality care. A good reminder of the complexity of hospital operations, where strain in one part of the system will quickly impact the performance of other parts of the care delivery continuum.

Wage growth looks healthy but not inflationary

The Goldilocks nature of these jobs numbers is particularly apparent in the wage data.

By the numbers: Average hourly earnings rose by 0.3% in December, and are up 4.6% over the last year. Over the last three months, worker pay rose at a 4.1% annual rate.

  • Wages are rising, but unlike a year ago, the pace is consistent with the economy settling into the 2% inflation that the Fed seeks.
  • For example, there were stretches in 2018 and 2019 that featured wage growth similar to that in Q4 paired with low inflation levels — which meant rising real wages for workers.
  • In other words, current pay growth, if sustained, would help diminish the Fed’s fears of an upward spiral of wages and prices. Also, it sets workers up to see gains in their real compensation, if and when inflation comes down.

The intrigue: It appears that a surge in earnings initially reported in November was a head fake. The Labor Department revised those numbers to show a 0.4% rise in hourly earnings, not the 0.6% first reported.

  • The original figures had been a source of alarm among Fed watchers, suggesting the central bank might need to step up its monetary tightening campaign.

It is a good reminder  for both policymakers and those of us in the media — to not overreact to single-month shifts in any volatile data series.

A superb jobs report

We really liked what we saw in the December jobs report, which made us more optimistic about the possibility the 2023 economy will hold up reasonably well. More details below.

  • Situational awareness: In less optimistic news, the Institute for Supply Management’s survey of service industry activity plunged in December, to 49.6% — down from 56.5% in November. This is the first time the index has been in negative territory since May 2020.

The U.S. labor market is extraordinarily strong, despite gloom-and-doom economic forecasts and high-profile layoffs.

  • That is the takeaway from December numbers, out this morning, that were outstanding in subtle and not-so-subtle ways.

Why it matters: If America’s economy is going to come in for a soft-landing — inflation dissipating without mass unemployment — you would expect to see numbers that look a lot like last month’s.

  • The economy continues to add a healthy number of new jobs, though the pace is moderating. Wages are rising, but not so quickly as to alarm economic policymakers. And more workers are entering the labor force, which — if sustained — could heal labor shortages.
  • The data has positive developments both for American workers — who continue to have abundant job opportunities — and for Fed officials seeking evidence that their inflation-fighting efforts are starting to cool job creation and wage growth to more sustainable rates.

The headline unemployment rate, at 3.5%, matched its lowest levels in decades. If you extend the calculation out a couple more decimal places, University of Michigan economist Justin Wolfers points out, it was 3.468%, the lowest since 1969!

  • It fell even as the labor force expanded by 439,000 workers, a welcome development on the supply front after months of little progress. More Americans working means fewer of the labor shortages that have contributed to inflation.
  • An additional 717,000 Americans reported being employed, helping resolve what had been a puzzling disconnect between different sources of labor market data — and in a positive direction.
  • A stunningly low jobless rate might raise some alarm bells at the Fed over the possibility the job market is too tight, and that this could fuel inflation. But the labor force growth and benign wage data (more on that below) may take the edge off those fears.

By the numbers: Employers are still hiring at a rapid pace — 223,000 in December — but slowing from early last year’s unsustainable numbers.

  • The economy has added roughly 247,000 jobs per month on average in the last three months, slower than the 366,000 in the prior three-month stretch, and less than half of the 539,000 jobs added each month in Q1 2022.
  • Evidence of tech layoffs did show up somewhat in the report, with the information sector shedding 5,000 jobs. Temporary help services employment fell by 35,000, the clearest sign employers are paring back demand for workers.
  • But most other sectors, including leisure and hospitality, construction and health care, continued to add jobs.

The bottom line: If we keep getting numbers like these, 2023 may not be such a rough year for workers after all.

Hospitals average 100% staff turnover every 5 years — Here’s what that costs

Hospitals have been paying astronomical prices for staff turnover, according to the “2022 NSI National Health Care Retention & RN Staffing Report.”

It covers 589,901 healthcare workers and 166,087 registered nurses from 272 facilities and 32 states. Participants were asked to report data on turnover, retention, vacancy rates, recruitment metrics and staffing strategies from January to December 2021. 

The survey found a wide range of helpful figures for understanding the financial fallout of one of healthcare’s hardest labor disruptions:

  • The average hospital lost $7.1 million in 2021 to higher turnover rates.
  • The average hospital loses $5.2 to $9 million on RN turnover yearly.
  • The average turnover cost for a staff RN is $46,100, up more than 15 percent from the 2020 average.
  • The average hospital can save $262,300 per year for each percentage point it drops from its RN turnover rate.
  • To improve margins, hospitals need to control labor costs by decreasing dependence on travel and agency staff, but only 22.7 percent anticipate being able to do so.
  • For every 20 travel RNs eliminated, a hospital can save $4.2 million on average.

In the past 5 years, the average hospital turned over 100.5 percent of its workforce:

  • In 2021, hospitals set a goal of reducing turnover by 4.8 percent. Instead, it increased 6.4 percent and ranged from 5.1 percent to 40.8 percent. The current average hospital turnover rate nationally is 25.9 percent, according to the report.
  • While 72.6 percent of hospitals have a formal nurse retention strategy, less than half of those (44.5 percent) have a measurable goal.
  • Overall, 55.5 percent of hospitals do not have a measurable nurse retention goal.
  • Retirement is the number four reason staff RNs leave, and it is expected to remain a primary driver through 2030. More than half (52.8 percent) of hospitals today have a strategy to retain senior nurses. In 2018, only 21.6 percent had one.

Historically, RN turnover has trended below the hospital average across all staff. For the first time since conducting the survey, this is no longer true: 

  • In the past five years, the average hospital turned over 95.7 percent of its RN workforce.
  • Close to a third (31.0 percent) of all newly hired RNs left within a year, with first year turnover accounting for 27.7 percent of all RN separations. Given the projected surge in retirements, expect to see the more tenured groups edge up creating an inverted bell curve.
  • Operating room RNs continue to be the toughest to recruit, while labor and delivery RNs are trending easier to recruit than in the year prior.
  • Hospitals are experiencing a dramatically higher RN vacancy rate (17 percent) compared to last year’s rate of 9.9 percent.
  • The vast majority (81.3 percent) reported a vacancy rate higher than 10 percent.