On Monday, national supermarket giant Kroger announced that it had reached a definitive agreement to sell its specialty pharmacy business to insurer Elevance Health, which plans to fold the business into its CarelonRx pharmacy benefit manager (PBM) division. Kroger’s in-store retail pharmacies and walk-in clinics are not included in the deal, which could close in the second half of 2024. Kroger’s specialty pharmacy is the sixth largest by revenue, serving two percent of the US market. The planned sale comes as Kroger pursues a merger with rival supermarket chain Albertsons, which also operates a specialty pharmacy, although the Federal Trade Commission (FTC) recently announced that it’s challenging that merger.
The Gist: With total pharmacy spend up 25 percent since 2019, including a 34 percent growth for specialty drugs, Elevance is capitalizing on a booming market by pushing into pharmacy services, following last year’s acquisition of BioPlus, another specialty pharmacy.
Administering high-cost drugs to patients with rare or complex diseases, specialty pharmacies now account for more than half of all prescription drug spending despite making up only around two percent of total prescription volumes.
On Tuesday, the 8th US Circuit Court of Appeals ruled against the pharmaceutical industry after its PhRMA (The Pharmaceutical Research and Manufacturers of America) trade group sued to prevent Arkansas from requiring drug manufacturers to distribute discounted drugs to 340B contract pharmacies. The judge’s decision, seen as a win for hospitals, affirmed state authority to establish regulations on top of the federal 340B law, which does not actually reference contract pharmacies. A Louisiana law similar to Arkansas’ is currently being challenged.
The Gist:This rulingcould encourage other states to pass laws protecting 340B contract pharmacy discounts. Contract pharmacy sales have swelled in recent years, prompting at least 20 major drug manufacturers to refuse to provide 340B discounts for drugs dispensed through contract pharmacies.
This issue is currently the subject of myriad lawsuits as courts have issued conflicting rulings.
As finance departments undergo seismic tech-driven changes, controllers are poised to play a crucial role as the CFOs’ right hand.
Today’s finance chiefs are making strategic decisions and driving digital transformation, but to execute their changing roles successfully, they need to be supported by an equally resilient, adaptive team.
New technologies, ways of working and shifting business needs are impacting the day-to-day roles not just of the CFO, but of other crucial financial executives as “at the highest level, the entire finance organization is [undergoing] a seismic shift in ways that they haven’t seen ever,” said Sanjay Sehgal, advisory head of markets for Big Four accounting firm KPMG.
Taking a look at the evolving new responsibilities that controllers — as well as other staff in finance departments — must embrace will be crucial for finance chiefs who must build modern finance teams capable of tackling the upcoming challenges of 2024.
Trusted advisor
The controller “is really becoming and has become the trusted advisor to the CFO,” Sehgal said in an interview.
As with many jobs, the role can vary depending on the company. But generally controllers oversee their company’s daily accounting operations, along with payroll and the accounts payable and receivable departments, according to human resource consulting firm Robert Half. It can also entail preparing internal and external records, handling the firm’s general ledger and taxes as well as reconciling accounts, coordinating audits and managing budgets.
Already, the importance of the controller position is reflected in compensation trends: the role ranks among the most well-paid members of the finance team, with corporate controllers in the 75th percentile — meaning they take home salaries greater than three-quarter of financial professionals — in compensation earning annual average salaries around $210,750, according to data from human resource consulting firm Robert Half.
Controllers rank among top paid financial professionals
Starting salaries for corporate accounting executives in the 75th percentile
Central to the role too is the responsibility controllers take for their company’s close activities, ensuring the business is “producing information in a controlled fashion, to report to the street and to the Securities and Exchange Commission for a public company,” said Kevin McBride, corporate controller and chief accounting officer for software-as-a-service company ServiceNow.
In his capacity as controller for the Santa Clara, California-based SaaS company, McBride oversees global payroll, accounts payable, travel, collections, and credit, he said in an interview. The role of controller and chief accounting officer can also have some overlap, but don’t need to be combined; a CAO can be another name for a principal accounting officer as required under the Sarbanes-Oxley Act, for example, McBride said. A CAO typically focuses on more broad corporate governance, therefore, while a controller’s focus is more narrowly on processes such as the close and ensuring financial statements are compliant with GAAP.
Controllership is “really getting to the numbers and the descriptors and the story behind financial performance and ensuring that process is well-controlled,” McBride said. Joining ServiceNow in November 2021, he previously logged a 21-year tenure at tech giant Intel, where he served in a variety of key financial roles including as its vice president of finance and corporate controller as well as its global accounting and financial services controller. He also spent time at the Financial Accounting Standards Board as an industry fellow before joining Intel.
Opening a path to the touchless close
In recent years, however, controllers have also found themselves branching out from a pure numbers function as part of the ongoing “seismic shift” taking place in the whole of finance — driven partly by the advent of generative AI, machine learning, cloud technologies and other digital tools which have captivated the attention of finance leaders in recent months, Sehgal said.
New technologies such as GenAI could fundamentally change how controllers operate and the purpose of the role — for example, “I can see a future where we have a touchless close process,” Sehgal said.
This would mean the entire financial close process would no longer need routine manual intervention by such people as the controller, according to a 2022 report by Gartner which noted 55% of finance executives were targeting a touchless close by 2025.
Finance teams could inch closer to making such a process a reality in 2024 as companies continue to experiment with the applications of generative AI, something that could rapidly shift where today’s controllers are directing their time and focus.
The new technologies that have filtered into accounting over the past few decades have enabled their own improvements in quality, efficiency and cost, McBride said, allowing business leaders to get the information they need to run the business at a lower cost. When it comes to the controllership, “it also gives us capacity to invest in other ways to help drive business impact,” he said.
However, it’s also important to remember that technology is “nothing new in accounting,” McBride — who started his career working on paper spreadsheets — said and that in “each one of these technology introductions, there’s the hype and then there’s the reality,” he said. Generative AI and the promise it brings remains in its early stages, he said.
As automation seeps into finance, technology opens up more time by removing routine tasks, in turn enabling the controller and the CFO to deepen their relationship. “With the CFO, we’re spending more time talking about strategic matters and how to best position not just the controllership but finance,” McBride said.
The evolution of the relationship comes as CFOs are likewise pivoting to a role more focused on driving strategy and controllers are finding themselves responsible for processes that may previously have been under the remit of the finance chief.
“As the CFO elevates himself or herself, I think the controller plays a bigger role in the organization,” Sehgal said.
Finance chiefs are serving more and more often as the “right hand” of the CEO and spending less time poring over day-to-day numbers, said Claire Bramley, CFO of San Diego, California-based AI cloud analytics and data platform Teradata. The controller and the CFO work closely together to drive an effective, innovative and forward-looking finance function, but that focus on day-to-day operations is what separates the two positions, Bramley said in an interview.
As a finance chief, “you need to make sure that you’ve got the processes in place, you understand what’s going on,” she said. However, the finance chief is now spending more time figuring out how to drive things forward at the company, she said.
Adding free cash flow forecasts
Bramley pointed to something like free cash flow as an example: because she’s now spending more time conducting strategy transformation work on part of Teradata, she’s now relying on her controller to take on free cash flow management forecasting, she said.
Controllers, critically, still serve as “the owners of the financial data, from a protocols perspective, from a reporting perspective, and the CFO and the executive teams depend on that,” Sehgal said. Indeed, taking responsibility for the numbers is still the core of the controller’s role, McBride agreed.
However, controllers are not immune to the job creep plaguing the financial function amid a lack of qualified accounting talent, emerging technologies and new business needs. As the CFO’s role evolves into a more strategic position, the rest of finance could potentially be pulled along in their wake.
“It’s very easy for a controller to be kind of put off to one side … and not be pulled into, I’ll say some of the business and strategic decisions,” Bramley said. “But if you decide as a controller that you want to be more involved in that, I think many companies give you the opportunity to build your business acumen, to build your business relationships and to be able to be an important part of managing the business.”
For example, the controller today has a huge opportunity to take point on digital transformation at a business — the controller organization tends to be the biggest team in the finance function, “so if they can drive [digital transformation], and they can be leading edge, then the rest of finance can adopt that moving forward,” Bramley said.
This can also provide a pathway to controllers to the CFO seat — Bramley spent two years serving as the global controller for HP, where she logged a 14-year tenure before making the jump to Teradata.
“The modern-day controller who is involved in strategic decision making, who is helping add business value, who is having an impact from a technology standpoint, I think, is an obvious candidate for a CFO,” she said.
Companies are turning to interim financial leadership more frequently as they struggle to fill widening gaps in their accounting and finance functions.
Dive Brief:
Demand for interim financial leadership skyrocketed last year, with requests for interim CFOs jumping by 46%, according to a report by Business Talent Group, a Heidrick & Struggles company.
As well as interim CFO leadership, requests for on-demand talent with skills in key areas of finance also jumped; requests for talent that’s skilled in audit, accounting and financial controls have increased 33%, while those for FP&A and modeling skills increased 28%, the report found.
The rise in demand for audit, accounting and similar skills is “a logical consequence of the declining pipeline of accounting majors and CPA candidates,” Jack Castonguay, an assistant professor of accounting at New York’s Hofstra University, said in an email.
Dive Insight:
Competition to nab skilled accounting talent has only become fiercer in recent years amid a worsening shortage of accounting professionals, leaving companies with critical gaps in their financial leadership and function.
In addition to surging demand for interim CFOs, requests for senior vice president or vice president-level financial professionals — such as controllers and the heads of financial planning & analysis — rose by 114%, according to BTG.
When it comes to roles such as the head of FP&A or controllers, for example, “I think as you have shortages on one end, you’re going to have demand with organizations, whether it be full time or on-demand, for talent coming in,” Sunny Ackerman, global managing partner for on-demand talent at Heidrick & Struggles said in an interview. Ackerman does believe there is a link between the shortage in talent and the spike in requests for on-demand employees in these areas, she said. “So I think there is definitely a correlation for that.”
Historically, many companies have looked to fill roles in FP&A, audit, financial reporting and up to the CFO or controller chair with employees that have previously worked for an accounting firm, but dynamics have changed in recent years where many roles in accounting are now outsourced, Castonguay said.
“With accounting firm dynamics, largely insufficient salaries and work-life balance leaving firms struggling to attract people to the profession, the companies needing these people are now logically also struggling,” he said in an email. “You cannot disconnect the two.”
The narrower pipeline of new accounting graduates plus a high rate of retirement in the industry can leave the employees that are left overworked, increasing the likelihood of mistakes, according to a report by Fortune.
“Significant attrition” in the accounting department for retail brand Tupperware contributed to a delay in the company’s ability to file its annual 10-K form on time with the Securities and Exchange Commission, for example, the second consecutive year the brand will be filing late.
“Fewer grads lead to fewer public accountants which leads to fewer qualified and experienced hires for companies to place in their internal accounting-focused roles,” Castonguay said. “The dynamic makes me wonder how the temporary or outsourced staffing firms are finding candidates at their staffing firms. It’s possible that will be the next shoe to drop.”
On the labor side, changing ways of working may also be impacting how employees want to work; while there may be shortages in certain areas, the company is not necessarily seeing a slowdown of new candidates joining their platform, Ackerman said.
“So I think, even though there’s shortages in certain areas, I think talent is looking at this way of working differently than they did five years ago, and more companies are engaging with it,” she said.
Companies may also be more motivated to try out on-demand talent as they look to plug critical skill gaps in their workforces. Ninety-five percent of executives said they anticipate difficulty finding the “ideal combination of skills, capacity and expertise” inside their teams, BTG’s report said.
Today’s companies “now are starting to really open up and look at how they can blend full time talent with more independent talent and tapping into those capabilities at the desired time,” Ackerman said.
That includes how they might be approaching interim leadership; many firms are looking for on-demand talent to help provide critical support for larger-scale projects or initiatives, according to BTG, a category that makes up 27% of all talent requests.
Interim leadership can provide benefits to companies who are in transition or who are undertaking major changes, according to a 2023 CFO Dive report citing BTG data from that year.
An interim controller, for example, could take point on business process optimization for the business to successfully execute such a project; “the CFO or that finance function is quite a bit of a right hand, I would say to the executive suite,” Ackerman said.
Today is the federal income Tax Day. In 43 states, it’s in addition to their own income tax requirements. Last year, the federal government took in $4.6 trillion and spent $6.2 trillion including $1.9 trillion for its health programs. Overall, 2023 federal revenue decreased 15.5% and spending was down 8.4% from 2022 and the deficit increased to $33.2 trillion. Healthcare spending exceeded social security ($1.351 trillion) and defense spending ($828 billion) and is the federal economy’s biggest expense.
Along with the fragile geopolitical landscape involving relationships with China, Russia and Middle East, federal spending and the economy frame the context for U.S. domestic policies which include its health system. That’s the big picture.
Today also marks the second day of the American Hospital Association annual meeting in DC. The backdrop for this year’s meeting is unusually harsh for its members:
Increased government oversight:
Five committees of Congress and three federal agencies (FTC, DOJ, HHS) are investigating competition and business practices in hospitals, with special attention to the roles of private equity ownership, debt collection policies, price transparency compliance, tax exemptions, workforce diversity, consumer prices and more.
Medicare payment shortfall:
CMS just issued (last week) its IPPS rate adjustment for 2025: a 2.6% bump that falls short of medical inflation and is certain to exacerbate wage pressures in the hospital workforce. Per a Bank of American analysis last week, “it appears healthcare payrolls remain below pre-pandemic trend” with hospitals and nursing homes lagging ambulatory sectors in recovering.”
Persistent negative media coverage:
The financial challenges for Mission (Asheville), Steward (Massachusetts) and others have been attributed to mismanagement and greed by their corporate owners and reports from independent watchdogs (Lown, West Health, Arnold Ventures, Patient Rights Advocate) about hospital tax exemptions, patient safety, community benefits, executive compensation and charity care have amplified unflattering media attention to hospitals.
Physicians discontent:
59% of physicians in the U.S. are employed by hospitals; 18% by private equity-backed investors and the rest are “independent”. All are worried about their income. All think hospitals are wasteful and inefficient. Most think hospital employment is the lesser of evils threatening the future of their profession. And those in private equity-backed settings hope regulators leave them alone so they can survive. As America’s Physician Group CEO Susan Dentzer observed: “we knew we’re always going to need hospitals; but they don’t have to look or operate the way they do now. And they don’t have to be predicated on a revenue model based on people getting more elective surgeries than they actually need. We don’t have to run the system that way; we do run the healthcare system that way currently.”
The Value Agenda in limbo:
Since the Affordable Care Act (2010), the CMS Center for Innovation has sponsored and ultimately disabled all but 6 of its 54+ alternative payment programs. As it turns out, those that have performed best were driven by physician organizations sans hospital control. Last week’s release of “Creating a Sustainable Future for Value-Based Care: A Playbook of Voluntary Best Practices for VBC Payment Arrangements.” By the American Medical Association, the National Association of ACOs (NAACOs) and AHIP, the trade group representing America’s health insurance payers is illustrative. Noticeably not included: the American Hospital Association because value-pursuers think for hospitals it’s all talk.
National insurers hostility:
Large, corporate insurers have intensified reimbursement pressure on hospitals while successfully strengthening their collective grip on the U.S. health insurance sector. 5 insurers control 50% of the U.S. health insurance market: 4 are investor owned. By contrast, the 5 largest hospital systems control 17% of the hospital market: 1 is investor-owned. And bumpy insurer earnings post-pandemic has prompted robust price increases: in 2022 (the last year for complete data and first year post pandemic), medical inflation was 4.0%, hospital prices went up 2.2% but insurer prices increased 5.9%.
Costly capital:
The U.S. economy is in a tricky place: inflation is stuck above 3%, consumer prices are stable and employment is strong. Thus, the Fed is not likely to drop interest rates making hospital debt more costly for hospitals—especially problematic for public, safety net and rural hospitals. The hospital business is capital intense: it needs $$ for technologies, facilities and clinical innovations that treat medical demand. For those dependent on federal funding (i.e. Medicare), it’s unrealistic to think its funding from taxpayers will be adequate. Ditto state and local governments. For those that are credit worthy, capital is accessible from private investors and lenders. For at least half, it’s problematic and for all it’s certain to be more expensive.
Campaign 2024 spotlight:
In Campaign 2024, healthcare affordability is an issue to likely voters. It is noticeably missing among the priorities in the hospital-backed Coalition to Strengthen America’s Healthcare advocacy platform though 8 states have already created “affordability” boards to enact policies to protect consumers from medical debts, surprise hospital bills and more.
Understandably, hospitals argue they’re victims. They depend on AHA, its state associations, and its alliances with FAH, CHA, AEH and other like-minded collaborators to fight against policies that erode their finances i.e. 340B program participation, site-neutral payments and others. They rightfully assert that their 7/24/365 availability is uniquely qualifying for the greater good, but it’s not enough. These battles are fought with energy and resolve, but they do not win the war facing hospitals.
AHA spent more than $30 million last year to influence federal legislation but it’s an uphill battle. 70% of the U.S. population think the health system is flawed and in need of transformative change. Hospitals are its biggest player (30% of total spending), among its most visible and vulnerable to market change.
Some think hospitals can hunker down and weather the storm of these 8 challenges; others think transformative change is needed and many aren’t sure. And all recognize that the future is not a repeat of the past.
For hospitals, including those in DC this week, playing victim is not a strategy. A vision about the future of the health system that’s accessible, affordable and effective and a comprehensive plan inclusive of structural changes and funding is needed. Hospitals should play a leading, but not exclusive, role in this urgently needed effort.
Lacking this, hospitals will be public utilities in a system of health designed and implemented by others.
A new generation of doctors struggling with ever-increasing workloads and crushing student debt is helping drive unionization efforts in a profession that historically hasn’t organized.
Why it matters:
Physicians in training, like their peers in other industries, increasingly see unions as a way to boost their pay and protect themselves against grueling working conditions as they launch their careers.
It also comes amid a wave of unionization and labor actions by nurses and other caregivers across a health care system that’s still dealing with high levels of burnout.
What they’re saying:
“We deserve an increased salary to be able to afford to live in one of the most expensive areas in the United States,” said Ali Duffens, a third-year internal medicine resident at Kaiser Permanente’s San Francisco Medical Center.
She’s among the 400 residents at Kaiser’s Northern California system filing to unionize earlier this month.
Duffens earns about $82,000 per year, while paying $3,000 a month for rent and facing $350,000 in medical school loans.
The big picture:
The Kaiser residents are part of a growing number of younger peers in medicine who have been unionizing in recent years.
The number of medical residents in unions has about doubled to more than 32,000 in three years, per CalMatters.
In the last year, residents at Montefiore Medical Center, Stanford Health Care, George Washington University and the University of Pennsylvania voted to unionize, per WBUR.
“The cost of day care … in a month is about half of my salary in total, and the cost of a nanny is essentially the entirety of my salary,” Leah Rethy, an internal medicine resident with Penn Medicine, told NPR last year.
Residents can work as much as 80 hours per week while earning far less than their older colleagues.
Yes, but: Just about 6%-7% of physicians are estimated to be in unions.
Historically, doctors have thought they could just suck up the long hours and relatively low pay in training as part of the tradition of medicine, said Robert Wachter, chair of the department of medicine at the University of California, San Francisco.
“For a new generation, they look at it and say, ‘That’s crazy. I can’t believe you did that. I want to work hard, but I also want a life and I want a family, and I want a reasonable income,'” he said.
And it’s not just younger doctors.
Those more established in their careers are also unionizing as they see the industry changing in ways that they think undermine their profession.
In recent months, attending physicians at Salem Hospital, owned by Mass General Brigham, and a Cedars Sinai-owned anesthesiology practice filed to unionize.
About 600 doctors at Allina Health in Minnesota and Wisconsin last fall agreed to form what appears to be the largest union of private sector physicians.
Zoom in:
The corporatization of American medicine is seen as a key driver. More than half of all U.S. doctors now work for a health system or large medical group rather than running an independent practice.
This shift has brought heavier workloads and less control over how they care for patients, said John August, director of health care labor relations in the Scheinman Institute on Conflict Resolution at the ILR School at Cornell.
That could mean demands to see more patients, limiting the time that doctors can spend with them.
“What you will hear from them 100% of the time in every conversation they have is they feel that they have lost control over the patient-physician relationship. I mean, every single physician says that now,” August said.
The other side:
Health systems and large practices generally say they value their doctors and the relationships they hold with patients.
Hospitals have also struggled with pandemic-era financial shortfalls, including increasing labor costs.
The bottom line:
While this is a labor issue, it ultimately trickles down to quality and safety for patients, said Rachel Flores, organizing director of the Union of American Physicians and Dentists.
“Patients should care because that’s less time to address their issues,” she said. “Patients should care because there’s not enough staff to support the physician.”
HENRY KOTULA 