Two Lawsuits. Two Issues. One Clear Message.

Posted on by • Posted in Business Practices, Community Benefit, Competition, Health System, Hospital, Hospital Industry, Lawsuit, Market Consolidation, Market Power, Pharmacy Benefits Management, Price Transparency, Profit Motive, Public Good, Public Trust, Self Insured Employer Liability, Self Insured Employers • Leave a comment
Two Lawsuits. Two Issues. One Clear Message.

Last Monday, two lawsuits were filed that strike at a fundamental challenge facing the U.S. health system:

In the District Court of NJ, a class action lawsuit (ANN LEWANDOWSKI v THE PENSION & BENEFITS COMMITTEE OF JOHNSON AND JOHNSON) was filed against J&J alleging the company had mismanaged health benefits in violation of the Employee Retirement Income Security Act (“ERISA”). As noted in the 74-page filing “This case principally involves mismanagement of prescription-drug benefits. “Over the past several years, defendants breached their fiduciary duties and mismanaged Johnson and Johnson’s prescription-drug benefits program, costing their ERISA plans and their employees millions of dollars in the form of higher payments for prescription drugs, higher premiums, higher deductibles, higher coinsurance, higher copays, and lower wages or limited wage growth… Defendants’ mismanagement is most evident in (but not limited to) the prices it agreed to pay one of its vendors—its Pharmacy Benefits Manager (“PBM”)—for many generic drugs that are widely available at drastically lower prices.”

The issue is this: what liability risk does a self-insured employer have in providing health benefits to their employees?

Is the structure of the plan, the selection of providers and vendors, and costs and prices experienced by employees subject to litigation? What’s the role of the employer in protecting employees against unnecessary costs?

On the same day, in the District Court of Eastern Wisconsin, an 85-page class action lawsuit was filed against Advocate-Aurora Health (AAH) claiming it “uses its market power to raise prices, limit competition and harm consumers in Wisconsin:

  • Forces commercial health plans to include all its “overpriced facilities” in-network even when they would prefer to include only some facilities.
  • Goes to “extreme efforts to drive out innovative insurance products that save commercial health plans and their members money.”
  • Suppresses competition through “secret and restrictive contract terms that have been the subject of bipartisan criticism.”
  • Acquires new facilities, which then allows it to raise prices due to reduced competition

… without intervention, the health system will continue to use “anticompetitive contracting and negotiating tactics to raise prices on Wisconsin commercial health plans and their members and use those funds for aggressive acquisitions and executive compensation.”

The issue is this: is a health system’s liable when its consolidation activities result in higher prices for services provided communities and employers in communities where they operate?

Is there a direct causal relationship between a system’s consolidation activities and their prices, and how should alleged harm be measured and remedied?

Two complicated issues for two reputable mega-players in the U.S. health system. Both lawsuits were brought as class actions which guarantees widespread media attention and a protracted legal process. And each contributes directly to the gradual erosion of public trust in the health system since the plaintiffs essentially claim the business practices of J&J and Advocate-Aurora willfully harm the individuals they pledge to serve.

In the November 2023 Keckley Poll, I asked the sample of 817 U.S. adults to assess the health system overall. The results were clear:

  • 69% think the system is fundamentally flawed and in need of major change vs. 7% who think otherwise.
  • 60% believe it puts its profits above patient care vs. 13% who disagree.
  • 74% think price controls are needed vs. 7% who disagree.
  • 83% believe having health insurance that’s ‘affordable and comprehensive’ is essential to financial security vs 3% who disagree.
  • 52% feel confident in their ability to navigate the U.S. system “when I have a problem” vs. 32% who have mixed feelings and 16% who aren’t.
  • And 76% think politicians avoid dealing with healthcare issues because they’re complex and politically risky vs/ 6% who think they tackle them head-on.

The poll also asked their level of trust and confidence in five major institutions “to develop a plan for the U.S. health system that maximizes what it has done well and corrects its major flaws.”

Clearly, trust and confidence in the health system is low, and expectations about solutions fall primarily on hospitals and doctors. Lawsuits like these widen suspicion that the industry’s dominated first and foremost by Big Businesses focused on their own profitability before all else. And they pose particular problems for sectors in healthcare dominated by not-for-profit and public ownership i.e. hospitals, home care, public health agencies and others.

My take

These lawsuits address two distinct issues: the roles of employers in designing their health benefits for employees including the use of PBMs, and the justification for consolidation of hospital and ancillary services in markets. 

But each lawsuit s predicated on a legal theory that prices set by organizations are geared more to corporate profits than public good and justifiable costs.

Pricing is the Achilles of the health system. Pushback against price transparency by some, however justified, has amplified exposure to litigation risk like these two  and contributed to the public’s loss of trust in the system.

It is unlikely greater price transparency and business practice disclosures by J&J and Advocate-Aurora could have avoided these lawsuits, but it’s clearly a message that needs consideration in every organization.

Healthcare organizations and their trade groups can no longer defend against lack of transparency by defaulting to the complexity of our supply chains and payment systems. They’re excuses. The realities of generative AI and interoperability assure information driven healthcare that’s publicly accessible and inclusive of prices, costs, outcomes and business practices. In the process, the public’s interest will heighten and lawsuits will increase.

P.S. Nashville is known as a hot spot for healthcare innovation including transparency solutions. Check out this meeting February 29: https://www.eventbrite.com/e/leaping-into-the-future-of-healthcare-2024-insights-tickets-809310819447

Resources

Lawsuit 119120873885 (documentcloud.org)

Microsoft Word – Aurora Class Action Complaint (FINAL filed Feb. 5 2024) (aboutblaw.com) February 5, 2024

Is the Tax Exemption for Not-for-Profit Hospitals at Risk?

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Is the Tax Exemption for Not-for-Profit Hospitals at Risk?

Last Thursday, Seattle-based Providence Health System announced it is refunding nearly $21 million in medical bills paid by low-income residents of Washington and erasing $137 million more in outstanding debt for others. Other systems are likely to follow as pressure con mounts on large, not-for-profit systems to modify their business practices in sensitive areas like patient debt collection, price transparency, executive compensation, investment activities and others.

Not-for profit systems control the majority of the 2,987 nongovernment not-for-profit community hospitals in the U.S. Some lawmakers think it’s time to revisit to revisit the tax exemption. It has the attention of the American Hospital Association which lists “protecting not-for-profit hospitals’ the tax-exempt status” among its 15 Advocacy Priorities in 2024 (it was not on their list in 2023).

Background:  Per a recent monograph in Health Affairs: “The Internal Revenue Service (IRS) uses the Community Benefit Standard (CBS), a set of 10 holistically analyzed metrics, to assess whether nonprofit hospitals benefit community health sufficiently to justify their tax-exempt status. Nonprofit hospitals risk losing their tax exemption if assessed as underinvesting in improving community health. This exemption from federal, state, and local property taxes amounts to roughly $25 billion annually.

However, accumulating evidence shows that many nonprofit hospitals’ investments in community health meet the letter, but not the spirit, of the CBS.

Indeed, a 2021 study showed that for every $100 in total expenses nonprofit hospitals spend just $2.30 on charity care (a key component of community benefit)—substantially less than the $3.80 of every $100 spent by for-profit hospitals. A 2022 study looked at the cost of caring for Medicaid patients that goes unreimbursed and is therefore borne by the hospital (another key component of community benefit); the researchers found that nonprofit hospitals spend no more than for-profit hospitals ($2.50 of every $100 of total expense).”

In its most recent study, the AHA found the value of CBS well-in-excess of the tax exemption by a factor of 9:1. But antagonism toward the big NFP systems has continued to mount and feelings are intense…

  • Insurers think NFP systems exist to gain leverage in markets & states over insurers in contract negotiations and network design. They’ll garner support from sympathetic employers and lawmakers, federal anti-consolidation and price transparency rulings and in the court of public opinion where frustration with the system is high.
  • State officials see the mega- NFP systems as monopolies that don’t deserve their tax exemptions while the state’s public health, mental health and social services programs struggle.
  • Some federal lawmakers think the NFP systems are out of control requiring closer scrutiny and less latitude. They think the tax exemption qualifiers should be re-defined, scrutinized more aggressively and restricted.
  • Well-publicized investments by NFP systems in private equity backed ventures has lent to criticism among labor unions and special interests that allege systems have abandoned community health for Wall Street shareholders.
  • Investor-owned multi-hospital operators believe the tax exemption is an unfair advantage to NFPs while touting studies showing their own charity care equivalent or higher.
  • Other key NFP and public sector hospital cohorts cry foul: Independent hospitals, academic medical centers, safety-net (aka ‘essential’) hospitals, rural health clinics & hospitals, children’s hospitals, rural health providers, public health providers et al think they get less because the big NFPs get more.
  • And the physicians, nurses and workforces employed by Big NFP systems are increasingly concerned by systemization that limits their wages, cuts their clinical autonomy and compromises their patients’ health.

My take:

The big picture is this: the growth and prominence of multi-hospital systems mirrors the corporatization in most sectors of the economy: retail, technology, banking, transportation and even public utilities. The trifecta of community stability—schools, churches and hospitals—held out against corporatization, standardization and franchising that overtook the rest. But modernization required capital, the public’s expectations changed as social media uprooted news coverage and regulators left doors open for “new and better” that ceded local control to distant corporate boards.

Along the way, investor-owned hospitals became alternatives to not-for-profits, and loose networks of hospitals that shared purchasing and perhaps religious values gave way to bigger multi-state ownership and obligated groups.

The attention given large NFP hospital systems like Providence and others is not surprising. These brands are ubiquitous. Their deals with private equity and Big Tech are widely chronicled in industry journalism and passed along in unfiltered social media. And their collective financial position seems strong:  Moody’s, Fitch, Kaufman Hall and others say utilization has recovered, pandemic recovery is near-complete and, despite lingering concerns about workforce issues, growth in their core businesses plus diversification in new businesses are their foci. (See Hospital Section below).

I believe not-for-profit hospital systems are engines for modernizing health delivery in communities and a lightening rod for critics who think their efforts more self-serving than for the public good.

Most consumers (55%) think they earn their tax exemption but 34% have mixed feelings and 10% disagree. (Keckley Poll November 20, 2023). That’s less than a convincing defense.

That’s why the threat to the tax exemption risk is real, and why every organization must be prepared. Equally important, it’s why AHA, its state associations and allies should advance fresh thinking about ways re-define CBS and hardwire the distinction between organizations that exist for the primary purpose of benefiting their shareholders and those that benefit health and wellbeing in their communities.

PS: Must reading for industry watchers is a new report from by Health Management Associates (HMA) and Leavitt Partners, an HMA company, with support from Arnold Ventures. The 70-page report provides a framework for comparing the increasingly crowned field of 120 entities categorized in 3 groups: Hybrids (6.9 million), Delivery (5.8 million) and Enablers 17.5 million

“At the start of the movement, value-based arrangements primarily involved traditional providers and payers engaging in relatively straight-forward and limited contractual arrangements. In recent years, the industry has expanded organically to include a broader ecosystem of risk-bearing care delivery organizations and provider enablement entities with capabilities and business models aligned with the functions and aims of accountable care…Inclusion criteria for the 120 VBD entities included in this analysis were:

  • 1-Serve traditional Medicare, MA, and/or Medicaid populations. Entities that are focused solely on commercial populations were excluded
  • 2-Operate in population-based, total cost of care APMs—not only bundled payment models.
  • 3- Focus on primary care and/or select specialties that are relevant to total cost of care models (i.e., nephrology, oncology, behavioral health, cardiology, palliative care). Those exclusively focused on specialty areas geared toward episodic models (e.g., MSK) were excluded. –
  • 4-Share accountability for cost and quality outcomes. Business models must be aligned with provider performance in total cost of care arrangements. Vendors that support VBP but do not share accountability for outcomes were excluded.

HMA_VBP-Entity-Landscape-Report_1.31.2024-updated.pdf (healthmanagement.com) February 2024

Three Must-Haves for Every Rating Presentation

Posted on by • Posted in Board, Bond Default Risk, Bond Rating, Bond Rating Agency, CFO, Credit Quality, Credit Rating Committee, Credit Rating Process, Credit Ratings, Debt Capacity, Debt Covenant Default, Debt Default, Debt Issuance, Debt Levels, Debt Service Covenants, Debt Service Coverage Ratio, Health System, Hospital, Hospital Industry, Key Credit Metrics, Key Metrics, Key Performance Indicators, Key Ratios, Leverage, Non-Recurring Revenue or Expenses, Operating Expenses, Operating Income, Operating Margin, Operating Margin Drivers, Operating Metrics, Operating Performance, Operating Revenue • Leave a comment
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Creating a great rating agency presentation is imperative to telling your story. I’ve probably seen a thousand presentations across the past three decades and I can say without a doubt that a great presentation will find its way into the rating committee. Show me a crisp, detailed, well-organized presentation, and I’ll show you a ratings analyst who walks away with high confidence that the management team can navigate the industry challenges ahead.

During the pandemic, Kaufman Hall recommended that hospitals move financial performance to the top of the presentation agenda. Better presentations chronicled the immediate, “line item by line item” steps management was taking to stop the financial bleeding and access liquidity. We still recommend this level of detail in your presentations, but as many hospitals relocate their bottom line, management teams are now returning to discussing longer-term strategy and financial performance in their presentations.

Beyond the facts and figures, many hospitals ask me what the rating analysts REALLY want to know. Over those one thousand presentations I’ve seen, the presentations that stood out the most addressed the three themes below:

  1. What makes your organization essential? Hospitals maintain limited price elasticity as Medicare and Medicaid typically comprise at least half of patient service revenue, leaving only a small commercial slice to subsidize operations. The ability to negotiate meaningful rate increases with payers will largely rest on the ability to prove why the hospital is a “must-have” in the network. In other words, a health plan that can’t sell a product without a hospital in its network is the definition of essential. This conversation now also includes Medicare Advantage plans as penetration rates increase rapidly across the country. Essentiality may be demonstrated by distinct services, strong clinical outcomes and robust medical staff, multiple access points across a certain geography, or data that show the hospital is a low-cost alternative compared to other providers. Volume trends, revenue growth, and market share show that essentiality. A discussion on essentiality is particularly needed for independent providers who operate in crowded markets.
  2. What makes your financial performance durable? Many hospitals are showing a return to better performance in recent quarters. Showing how your organization will sustain better financial results is important. Analysts will want to know what the new “run rate” is and why it is durable. What are the undergirding factors that make the better margins sustainable? Drivers may include negotiated rate increases from commercial payers and revenue cycle improvements. On the expense side, a well-chronicled plan to achieve operating efficiencies should receive material airtime in the presentation, particularly regarding labor. It is universally understood that high labor costs are a permanent, structural challenge for hospitals, so any effort to bend the labor cost curve will be well received. Management should also isolate non-recurring revenue or expenses that may drive results, such as FEMA funds or 340B settlements. To that end, many states have established new direct-to-provider payment programs which may be meaningful for hospitals. Expect questions on whether these funds are subject to annual approval by the state or CMS. The analysts will take a sharpened pencil to a growing reliance on these funds. 

    The durability of financial performance should be represented with highly detailed multi-year projections complete with computed margin, debt, and liquidity ratios. Know that analysts will create their own conservative projections if these are not provided, which effectively limits your voice in the rating committee. 

    We also recommend that hospitals include a catalogue of MTI and bank covenants in the presentation. Complying with covenants are part of the agreement that hospitals make with their lenders, and it is the organization’s responsibility to report how it’s performing against these covenants. General philosophy on headroom to covenants also provides insight to management’s operating philosophy. For example, is it the organization’s goal to have narrow, adequate, or ample headroom to the covenants and why? As the rating agencies will tell you, ratings are not solely based on covenant performance, but all rating factors influence your ability to comply with the covenants.
  3. What makes your capital plan affordable? Every rating committee will ask what the hospital’s future capital needs are and how those capital needs will be supported by cash flow, also known as “capital capacity.” To answer that question, a hospital must understand what it can afford, based on financial projections. Funding sources may require debt, which requires a debt capacity analysis with goals on debt burden, coverage, and liquidity targets. Over the years, better presentations explain the organization’s capital model, outline the funding sources, and discuss management’s tolerance for leverage.

There is always a lot to cover when meeting with the rating agencies and a near endless array of metrics and indicators to provide. As I’ve written before, how you tell the story is as important as the story itself. If you can weave these three themes throughout the presentation, then you will have a greater shot at having your best voice heard in rating committee.

Don’t Let Your Hospital Be Boeing

Posted on by • Posted in Communication, Culture, Key Metrics, Key Performance Indicators, Leadership Culture, Leadership Listens, Leadership Rounding, Leadership Trust, Lean Process Improvement, Quality Control, Quality of Care, Reliable, Training • Leave a comment
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If you haven’t noticed (but I am sure you have) American business can be very unsettling from time to time, and occasionally the bigger the business, the more unsettling it gets. Exhibit A right now for this observation is, of course, the Boeing Company.

For years Boeing was an iconic, high reliability company; a worldwide leader in the growth of airplane transportation. As Bill Saporito wrote in the January 23 New York Times, Boeings’ airplanes were industry-changing, including the 707 jet in 1957, the 747 introduced in 1970, and perhaps the most successful commercial plane in aviation history, the 737.

But when things go bad, they can, indeed, go very bad. The newly designed 737 MAX crashed twice, once in 2018 and again in 2019, with a loss of life of 346 people. Now this year, a door plug fell off the Alaska Airlines Boeing 737 Max 9 at 16,000 feet and subsequent investigation revealed the possibility of missing bolts. All 737 MAX 9s were grounded while a special investigation was convened. Manufacturing airplanes is a special enterprise; lives are at stake. Airlines and the flying public take these Boeing problems very seriously.

What went wrong at Boeing?

Everybody has an opinion. One popular interpretation goes all the way back to Boeing’s merger in 1997 with McDonell Douglas. Recent articles suggest that prior to 1997 Boeing had a very dominant “engineering” culture. After the McDonell Douglas merger, the Boeing culture took a more “business” turn. That is the speculation anyway.

What strikes me here is the similarity between Boeing and the American hospital industry. Boeing “manufactures” planes and hospitals “manufacture” healthcare.

Neither industry can make mistakes; manufacturing errors in both cases change lives and cause real personal and societal pain. For both Boeing and hospitals, high reliability and error-free execution is the only acceptable business model.

Why is this analogy to Boeing apt and important?

Because American healthcare is likely the most intricate enterprise humanity has ever engineered. Therapeutic interventions are increasingly effective but demand pinpoint diagnoses and precision treatment. All of this is happening within profound technological complexity. The opportunity for regrettable manufacturing error—in fact the likelihood of such error—is so significant that no American hospital can possibly take for granted that high reliability processes and culture are properly in place and remain in place.

So what can hospitals do to keep from being Boeing?

In all candor, this question is over my paygrade, so for an experienced and nuanced answer, I turned to Allan Frankel, MD. Dr. Frankel is an anesthesiologist and former hospital executive who founded Safe and Reliable Healthcare after evaluating one too many disasters in healthcare delivery. He is currently an Executive Principal at Vizient Inc. Dr. Frankel offered the following high reliability tutorial:

  1. High reliability manufacturing is directly dependent on the culture of the organization in question. Everyday excellence which leads to high reliability is dependent on the collective mindset and social norms of your workforce. Any high reliability workforce must trust its leadership and believe that the workforce values and leadership values are aligned. Further, a high reliability culture gives the workforce a sense of purpose and the opportunity to be their best professional selves on the job.
  2. In the workplace, bi-directional communication is essential. Leaders and managers must round, see the actual work firsthand, learn what it is like to perform the work, and talk to individuals about the challenges of doing the work. Under best practices senior leaders should round 10% to 20% of their time. Line managers should round 80% to 90% of their time.
  3. Workers, on the other hand, must have a sense of voice and agency. Voice means that workers are able to speak up about their concerns and ideas. Agency means that when workers do speak up, they see their ideas and concerns influence their work environment for the better.
  4. Voice and agency require that workers feel safe in the high reliability process and that when identifying defects in the manufacturing process, they will be treated fairly. And importantly, that having the courage to speak up is an organizational attribute that is perceived as worthy. Such worthiness is described by discrete concepts including “psychological safety,” just culture,” and “respect.” Each of these concepts is definable and requires focused and ongoing training.
  5. Concepts 3 and 4 require close attention and care and feeding. Functionally, this happens by robust leader rounding, robust managerial huddles, and timely feedback regarding manufacturing concerns and weaknesses. These activities need to be structural and must be built into a system of operations—such systems are often referred to as “standard work.” These changes plus the right frame of mind functionally drive improvement and change. Dr. Frankel noted “it’s not complicated, but as the Boeing example illustrates, the high reliability philosophy must be perpetually nourished.”
  6. Once all the above is in place, there needs to be an effector arm. Process improvement skills are required to take ideas and concerns and test and implement them. Quality personnel must check on the changes as they are being made and audit operations. Dr. Frankel adds that this part of the high reliability journey is very often under-resourced in healthcare organizations, with the result that the overall process feels less effective so the activities stop occurring.
  7. Training and skills are paramount. Skills come from training and reading. You should be thinking here about the “10,000 hours concept.” Worthy attitudes must be defined by your organization and then uniformly expected of all staff. Finally, behaviors can be structured, expectations set, and measures and metrics identified.

As you can see from the suggested activities, the foundations of high reliability are not rocket science. They require the right frame of mind, attention to detail, and clear accountability of all involved. No hospital should let that metaphorical 737 MAX 9 door plug fall off at 16,000 feet. It was, without question, a terrifying manufacturing moment.

U.S. economy adds whopping 353,000 jobs in January as labor market heats up

Posted on by • Posted in Economy, Employee Compensation, Employee Raise, Federal Reserve, Federal Reserve Board, Inflation, Interest Rates, Job Creation, Job Growth, Job Loss, Job Market, Labor Force Participation Rates, Labor Market, Labor Market Participation Rate, Unemployment • Leave a comment

https://www.axios.com/2024/02/02/us-jobs-report-january-2024

The U.S. economy added 353,000 jobs in January, while the unemployment rate held at 3.7%, the Labor Department said Friday.

Why it matters: 

The first look at the 2024 labor market shows it’s on fire — not slowing down as previously thought.

Details: 

The January payroll figures show hiring picked up from the 333,000 added the prior month, which itself was revised higher by 117,000.

  • Job gains in November were revised slightly higher, too, by 9,000 to 182,000 jobs added.

What’s new: 

The hiring boom last month came amid strong job gains in health care, retail and professional and business services, while mining and oil and gas extraction are among the sectors that shed jobs.

  • Meanwhile, the labor force participation rate — the share of workers with or looking for a job — was 62.5% in January.
  • Average hourly earnings, a measure of wage growth, soared by 0.6%. Over the past 12 month, average hourly earnings increased by 4.5%.

The big picture: 

The data is the latest in recent weeks to show that the economy is revving up, with fading inflation and steady hiring — a welcome development for the Biden administration that is touting its economic agenda ahead of the 2024 election.

The intrigue:

The strong growth in both jobs and earnings will make the Federal Reserve reluctant to cut interest rates soon, out of fear that labor market strength could reverse progress on inflation.

  • Already this week, Fed chair Jerome Powell threw cold water on the idea of a March rate cut.

The bottom line:

Despite high profile layoffs at media and technology companies, the report shows that broader labor market is heating up.

Healthcare CFOs explore M&A, automation and service line cuts in 2024

Posted on by • Posted in Artificial Intelligence, Artificial Intelligence Generative, CFO, Cost Management, Cost Structure, Cybersecurity, Data Breaches, Days Cash on Hand, Financial Performance, Financial Pressure, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Market Consolidation, Market Trends, Mergers & Acquisitions, Operating Income, Operating Margin, Operating Margin Drivers, Operating Metrics, Operating Performance, Service Line Profitability, Service Line Rationalization • Leave a comment
https://www.cfodive.com/news/healthcare-cfos-automation-service-line-cuts-bdo-usa/706153/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202024-02-01%20CFO%20Dive%20%5Bissue:58721%5D&utm_term=CFO%20Dive

Companies grappling with liquidity concerns are looking to cut costs and streamline operations, according to a new survey.

Dive Brief:

  • Over three-quarters of healthcare chief financial officers expect to see profitability increases in 2024, according to a recent survey from advisory firm BDO USA. However, to become profitable, many organizations say they will have to reduce investments in underperforming service lines, or pursue mergers and acquisitions.
  • More than 40% of respondents said they will decrease investments in primary care and behavioral health services in 2024, citing disruptions from retail players. They will shift funds to home care, ambulatory services and telehealth that provide higher returns, according to the report.
  • Nearly three-quarters of healthcare CFOs plan to pursue some type of M&A deal in the year ahead, despite possible regulatory threats.

Dive Insight:

Though inflationary pressures have eased since the height of the COVID-19 pandemic, healthcare CFOs remain cognizant of managing costs amid liquidity concerns, according to the report.

The firm polled 100 healthcare CFOs serving hospitals, medical groups, outpatient services, academic centers and home health providers with revenues from $250 million to $3 billion or more in October 2023.

Just over a third of organizations surveyed carried more than 60 days of cash on hand. In comparison, a recent analysis from KFF found that financially strong health systems carried at least 150 days of cash on hand in 2022.

Liquidity is a concern for CFOs given high rates of bond and loan covenant violations over the past year. More than half of organizations violated such agreements in 2023, while 41% are concerned they will in 2024, according to the report. 

To remain solvent, 44% of CFOs expect to have more strategic conversations about their economic resiliency in 2024, exploring external partnerships, options for service line adjustments and investments in workforce and technology optimization.

The majority of CFOs surveyed are interested in pursuing external partnerships, despite increased regulatory roadblocks, including recent merger guidance that increased oversight into nontraditional tie-ups. Last week, the FTC filed its first healthcare suit of the year to block the acquisition of two North Carolina-based Community Health Systems hospitals by Novant Health, warning the deal could reduce competition in the region.

Healthcare CFOs explore tie-ups in 2024

Types of deals that CFOs are exploring, as of Oct. 2023.

https://datawrapper.dwcdn.net/aiFBJ/1

Most organizations are interested in exploring sales, according to the report. Financially struggling organizations are among the most likely to consider deals. Nearly one in three organizations that violated their bond or loan covenants in 2023 are planning a carve-out or divestiture this year. Organizations with less than 30 days of cash on hand are also likely to consider carve-outs.

Organizations will also turn to automation to cut costs. Ninety-eight percent of organizations surveyed had piloted generative AI tools in a bid to alleviate resource and cost constraints, according to the consultancy. 

“Healthcare leaders believe AI will be essential to helping clinicians operate at the top of their licenses, focusing their time on patient care and interaction over administrative or repetitive tasks,” authors wrote. Nearly one in three CFOs plan to leverage automation and AI in the next 12 months.

However, CFOs are keeping an eye on the risks. As more data flows through their organizations, they are increasingly concerned about cybersecurity. More than half of executives surveyed said data breaches are a bigger risk in 2024 compared to 2023.

Targeting the accounting shortage: 2024 tactics

Posted on by • Posted in Accountant, Accounting, Accounting Talent Shortage, Audit, Certified Public Accountant (CPA), Financial Reporting, Generally Accepted Accounting Principles (GAAP), Recruiting, Talent Competition, Talent Imperative, Talent Management, Talent Pipelines • Leave a comment
https://www.cfodive.com/news/3-tactics-targeting-accounting-shortage-cfo-trends/706071/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202024-02-01%20CFO%20Dive%20%5Bissue:58721%5D&utm_term=CFO%20Dive

CFOs and finance department recruiters have faced a workforce problem for years now, labor experts say: a shrinking pool of U.S. accounting professionals needed to close the books every quarter, complete audits, and make sure the company’s financials comply with GAAP and other regulations. 

The hits that have chipped away at accounting labor health are myriad and the statistics stark. While the number of practicing accountants and auditors in the U.S. spiked in 2019, across the past decade since 2013 the total declined by about 10% to 1.62 million last year, with roughly 190,000 jobs disappearing from the work rolls, according to the Bureau of Labor Statistics.

Meanwhile, the total number of test takers who passed the CPA Exam fell to 18,847 in 2022 from 19,544 the year earlier, and the lowest level since 2007, according to the latest numbers available from the Association of International Certified Professional Accountants. 

Studies and those analyzing the trend point to a variety of likely culprits: the onerous 150 hours of course credit — equivalent to a fifth year of college — students typically need to become a CPA, generally lower starting salaries compared to other areas of finance, and the demanding hours and rising regulations that lead some practicing accountants to look for the exits once they’re in the field. At the same time, the launch of the generative AI tool ChatGPT in late 2022 led to a new wave of questions about the industry’s future.

Tom Hood, executive vice president of business engagement and growth at the AICPA, is in the optimistic camp of those who believe the pipeline decline is poised to turn around, noting that he has seen other cycles when disruptive shocks such as Microsoft’s Excel in the 1980s damped interest and sparked doomsday talk around the possible “end of accounting.”  

“We’ve had ebbs and flows, we’ve had these shortages before and every time that’s happened we as a profession have rallied together,” said Hood, a CPA, adding that AI will automate certain tasks in accounting but will not replace accountants. “We’ve moved this needle before and I think we’re already starting to see it move now.” 

In 2024 professional associations and lawmakers are working on numerous initiatives as well as legislation to close the cracks that have leaked talent from the field. In the meantime, companies have found ways to get the staff needed to get their finance work done. CFO Dive talked to experts about some notable tactics that are likely to shape the accounting workforce this year. 

States, CPAs and the 150-hour credit question  

Currently state regulatory bodies that set the rules require those who want to to become a Certified Public Accountant to have 150 credit hours of education in accounting or related subjects to become a licensed CPA. But amid the growing shortage, there has been a controversial push by states to create another pathway to licensure which include cutting the college credit hour requirement back to 120 hours.

For example, this year Minnesota lawmakers are expected to consider new legislation introduced in the state’s Senate and House in 2023 that would allow candidates to earn a CPA certificate with only 120 hours of college credit, along with passing the CPA exam and some additional work experience or professional education. This alternative would be in addition to the current system that requires 150 hours and one year of work experience, plus passing the CPA exam.

Geno Fragnito, director of government relations for the Minnesota Society of CPAs that supports the change, notes that the current national shift to the 150 rule gained steam in the 1980s after Florida made the change amid a surplus of accountants due to many wanting to move to the state. Florida started the ball rolling by increasing the credit hour requirement to 150 hours in 1983, according to a Journal of Accountancy report.

But in recent years, the MNCPA’s members have consistently pinpointed the credit requirement as one of the main contributors to the drop in CPAs.

“I don’t think there was a meeting that either our CEO or I attended where it was not brought up organically. It was never on our agenda to discuss but it always came up,” Fragnito said. Looking ahead, Fragnito said that other states that are seeking to tweak the credit hour formula include South Carolina and Washington state. 

A “volatile year” for CPA exam takers 

Two exam-related changes are impacting accounting candidates this year in very different ways. “It’s an exciting time but I think 2024 will be a very volatile year,” Mike Decker, vice president of the CPA Examination & Pipeline Extension for AICPA, said in a recent interview. One of the changes is student-friendly: it’s designed to ease deadline pressures and address pandemic-related delays that might have affected some test takers. In a move announced last spring, the National Association of State Boards of Accountancy extended the window that a candidate has to complete the exam once they pass the first section from 18 months to 30 months. The move grew out of the AICPA’s effort to address the accounting shortage, known as its pipeline acceleration plan. 

Meanwhile, this month marked the launch of a revamped CPA Exam called the CPA Evolution. The test has both new content and structure and a greater focus on technology in an effort to combat research that found that accounting firms were hiring fewer accountants in favor of non-accountants with tech backgrounds, according to a Nov. 7 report by Michael Potenza of Becker. “It’s not that CPA Evolution is meant to be harder than the previous version of the exam, it’s simply meant to better prepare you for the skills and competencies needed in modern accounting,” Potenza, a CPA, wrote. 

Raises and remote work 

Tactics that CFOs themselves are using to meet their staff needs include sweetened offers and going offshore or considering remote workers to gain talent. With most small and medium-size CPA firms unable to find enough qualified U.S. accountants, this summer a study found that over half of firms planned to hike starting salaries by 14%, CFO Dive previously reported. Lisa Simpson, vice president of firm services at AICPA, is hearing about similar approaches taken by firm leaders she’s spoken with. In the past few years, she said, firm leaders indicated they were providing several high percentage salary increases for new hires and existing employees. Last year firms gave raises at rates above inflation as well as continuing bonuses, and business leaders said they expect to continue raises into 2024.

Meanwhile, many firms are outsourcing U.S. accounting work to professionals in India, the Philippines, and Eastern European countries like Poland, according to Matt Wood, head of global FAO Services at Austin, Texas-based Personiv, a global outsourcing provider which serves those needs. While outsourcing to other companies was previously the domain of larger firms, the pandemic has led to more companies being comfortable with remote accounting staff, he said.

The shift to hiring accounting staff outside the U.S. “has been happening for a while now, but it really accelerated in 2020. The accounting talent pool was already shrinking, and businesses were feeling the impact of that pre-pandemic. Then, all of these other pieces fell into place; teams were working remotely and protecting cashflow took priority,” Wood said in an emailed response to questions from CFO Dive.