CFOs confront funding challenges in long-term capital needs

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Pressure is mounting for chief financial officers to meet cash flow targets in the coming years, according to a Knowtion Health's "Race for Cash: Pivoting Your Denials Strategy for a New Era" report.

The survey of more than 75 hospital CFOs and revenue cycle leaders found hospitals are focusing on rebuilding cash reserves post-pandemic by cutting costs and increasing revenue through service line management.

However, these efforts are limited by payment vulnerabilities, with revenue cycle teams facing high denial rates, underpayments, complex payment processes and resource gaps.

WHAT'S THE IMPACT?

Despite 82% of hospital CFOs and revenue cycle leaders surveyed feeling optimistic about their organizations' current trajectory, future financial challenges loom large.

Nearly 63% foresee significant hurdles in funding long-term capital needs. The pressure to meet cash and cash flow targets is expected to intensify over the next three years, with 78% of respondents anticipating greater importance for financial health.

Denial rates have surged post-pandemic, with 57% of revenue cycle leaders reporting average denial rates exceeding 10% in 2023, and 20% experiencing rates over 13%.

To address these challenges, organizations are prioritizing cash flow and accounts receivable aging, with CFOs emphasizing the need to track denial rates more closely than their revenue cycle counterparts.

Efforts to manage denial rates have become increasingly complex, requiring better data insights and more agile denial management strategies.

The report noted effective denial prevention requires understanding trends, identifying root causes and implementing efficient processes.

"The industry needs improved systems to manage denials, with technology projects in revenue cycle management ranked as high priorities," it stated.

Adoption of artificial intelligence in denials management is anticipated to grow, with 81% of survey respondents expecting to integrate AI within three years.

However, staffing challenges persist, with shortages in skilled labor for denial management and payer relations.

The report indicated some organizations are addressing these gaps by rotating job duties to prevent burnout or outsourcing specialized roles.

To enhance financial stability, the report recommended organizations first seek better alignment between CFOs and revenue cycle leaders.

"This alignment will ensure a unified approach to adapting to changes in reimbursement landscapes and leveraging AI for profitability and cash flow," it noted.

Secondly, CFOs should focus on optimizing functions and addressing skill gaps, not just staffing shortages, with upskilling, cross-training and incorporating supportive technology essential, along with outsourcing to access specialized knowledge.

The report also recommended healthcare finance leaders reassess ROI on technology and services, noting that efficiency in workflows, appeals, claim edits and root-cause analysis are critical, as is the ability to segment and prioritize claims based on payer behavior.

"Whether pursuing new technologies or process changes, hospital revenue cycle leaders should continually look to optimize their strategy," the report concluded.

THE LARGER TREND

The report comes as hospitals confront rising costs driven by inflation, prescription drug spending and behavioral health utilization, according to PwC's Health Research Institute (HRI).

This is leading healthcare CFOs to shift their financial planning priorities, and push marketing and branding strategies to the forefront of investment, as an optimized workforce persists as an important factor in achieving cost savings.

Healthcare CFOs are also prioritizing value-based care and addressing reimbursement challenges, leveraging AI and automation to navigate cost increases, changing payer mixes and staff-compensation issues amid high turnover rates.