While promising opportunities are arising for healthcare chief financial officers, there may also be formidable challenges ahead.
This insight comes from a BDO Healthcare CFO Outlook Survey of 100 healthcare CFOs, revealing that approximately 80% of them expect improved profitability in 2024 following a similar upturn in 2023. However, regulatory pressures, COVID-era funding clawbacks, and challenging loan and covenant agreements should remain top of mind, as they may result in misplaced optimism in some cases, as noted by the report authors.
Emerging care opportunities, the potential of AI and hopes of a return to dealmaking are also, however, contributing to such overall reasonable optimism.
“The healthcare industry is still in recovery mode in many ways, and CFOs are revisiting strategy and investment in a proactive approach to support resiliency in their operations,” said Brad Boyd, national co-leader of the BDO Center for Healthcare Excellence & Innovation. “Their clear focus on cash flow, cost optimization, and risk management will be critical to prevent disruption of care to their patient communities.”
Dealmaking is on the agenda for 72% of the respondents to BDO’s survey; however, CFOs will need to demonstrate flexibility amid a persistently uncertain market, potentially delaying transaction plans. The report highlights that factors such as geopolitical crises, inflation rates, the upcoming U.S. presidential election and consumer uncertainty will continue to influence the execution of deals.
Promising sectors for dealmaking include specialty services, home care, ambulatory services and telehealth. In contrast, more than 40% of CFOs said they are considering cutting investments in primary care and behavioral health.
The report authors recommend that healthcare CFOs be well prepared for potential transactions, ensure a clear understanding of the value opportunity and be ready for seamless integration once a transaction is executed.
In terms of getting their own houses in financial order, strategic cost reductions and improved revenue cycle management will remain key areas of focus for healthcare CFOs this year.
Even as labor shortages persist, more than one-third of organizations are planning to implement strategic cost reductions, including staff cuts. Still, 48% of organizations say they will increase spending on recruitment, and the same number will enhance training spend. A similar number, 46%, say they will increase compensation and benefits for their staff in 2024.
AI is all the buzz right now, and, per the report authors, healthcare leaders will need to continue to pinpoint where AI can deliver the greatest beneficial impact in areas such as customer satisfaction, supply chain optimization or enhancing physician productivity.
But while AI can help, healthcare leaders need to be careful about proper data and must keep humans in the loop to ensure AI and other technology are working as planned.
“Healthcare leaders must keep in mind that AI doesn't have a medical degree,” said Kirstie Tiernan, principal, data and AI at BDO Digital. “It requires clinical oversight to make sure it’s working as intended.”
Fundamentals such as cash flow and liquidity should remain top of mind, and CFOs will need to show a lot of flexibility amid continued uncertainty.
“Healthcare CFOs have sound strategies for the future—they will simply need to be vigilant and resilient in how they navigate risks to fully realize their potential,” the report concluded.