A record number of CFOs were promoted to CEO positions last year at some of America's biggest companies.
There seems to be a growing trend of CFOs moving into CEO or president roles, according to a report by Bloomberg.
As previously highlighted by HealthLeaders, this shift shows the changing nature of the CFO's role in healthcare and the need for finance leaders to possess a deep understanding of what drives growth to succeed in top leadership positions.
Historically, CFOs across all industries have been primarily responsible for number crunching and financial management. However, their responsibilities have expanded to include more operational duties, requiring a broader skill set—especially in healthcare.
This shift has helped a record number of CFOs ascend to CEO positions last year at some of America’s biggest companies, Bloomberg said.
So what are the numbers? Among the firms represented in the S&P 500 and Fortune 500, 8.4% of them promoted a CFO to CEO, according to exclusive data from Crist Kolder Associates cited by Bloomberg. That’s up from 5.8% a decade ago.
“CFOs are taking on a more operational role in those businesses, ingratiating themselves,” Josh Crist, a co-managing partner at Crist Kolder, told the outlet. “The more you can grab as CFO, the more likely you will have chances at the top gig.”
OK, But What About Healthcare?
The same sentiment rings true. From a strictly operational perspective, the pandemic has significantly increased the workload for most healthcare CFOs—but this could have really benefited them for future roles.
This shift includes handling and accounting for rounds of stimulus money, complying with new regulations, and managing skyrocketing accounts for healthcare services.
In fact, HealthLeaders has spoken to multiple CFOs on just that.
"My role as CFO has become much more active as I try to balance the normal work of the monthly financial statement process; the annual budget process; year-end and audit preparation; and cost reports, with managing the additional funding received as a result of COVID—how to effectively and appropriately expend it; and analyzing new services along with market evaluation of pay structures," explained Terry Lutz, CFO at Scheurer Hospital, a 25-bed critical access hospital in Pigeon, Michigan.
On top of COVID, the Great Resignation also played a part in the expansion of the CFO role.
"[The great resignation also] forced me to think about things that are not 100% germane to finance numbers," said Carlos Bohorquez, CFO at El Camino Health. El Camino Health includes two nonprofit hospitals: Mountain View Hospital and Los Gatos Hospital, as well as urgent care, multi-specialty care, and primary care facilities.
Bohorquez said he now needs to have a strong grasp on human resources issues, including recruiting and retention—issues that have also been on the top of finance leaders’ minds in our HealthLeaders Exchange community.
So How Can CFOs Move Forward (And Up)?
CFOs who take on a more operational role within their organizations increase their chances of eventually becoming CEO, Crist said to Bloomberg.
In order to advance to the CEO role, hospital and health system CFOs can take several steps.
CFOs can continue to focus on broadening their skill set to include more operational expertise. This may involve gaining experience in areas such as supply chain management, revenue cycle management, human resources, and overall strategic planning—areas that I have seen most CFOs already prioritize.
On top of this though, building strong relationships and networking within their organization and the healthcare industry can help create opportunities for growth.
But, while the path to CEO is becoming more attainable for CFOs, serving as a COO still remains the clearest route to the top leadership position, Crist Kolder says. In fact, nearly 50% of CEOs who rose from within their organization previously held COO-type roles. This means gaining experience in operational leadership positions can provide valuable insights and experiences that translate well into the CEO role.
Sanford Health System's new CFO will be facing challenges head on by investing in multiple areas of the business.
Low reimbursement, staffing shortages, low patient volumes, regulatory barriers, and COVID-19 disruptions all played a role in the shuttering of 136 rural hospitals between 2010 and 2021, including a record 19 closures in 2020.
Unfortunately, a lot of these challenges have not let up as rural hospitals contend with rising costs for labor, inflationary pressures, and more.
For these reasons and more, Sanford Health System, the largest rural health system in the United States, faces a unique set of financial challenges that make serving the small communities in which they operate more difficult than their larger counterparts.
To hear how Sanford’s new CFO Scott Wooten plans to address these challenges, I chatted with him on the third day in his new role. By placing a focus on its investments and long-term success and stewardship, Wooten is confident in Sanford’s financial future.
Scott Wooten, former CFO at both Baptist Health and AdventHealth, has big plans for financial success in his new role.
Sanford Health, the largest rural health system in the United States, recently tapped Scott Wooten, FACHE, MBA, as its CFO following a comprehensive national search process, but the financial landscape he is stepping into won’t be without its hurdles.
As we know, rural health systems like Sanford face a unique set of financial challenges that make serving the small communities in which they operate more difficult than their larger counterparts.
But, Wooten told me on the third day in his new role, between building relationships with his new team and placing a focus on its investments and long-term success and stewardship, he is confident in Sanford’s financial future.
“Sanford Health is an incredible organization,” Wooten said. “It has a strong team, and my job is to support the team in implementing the current plans that are already in place first and foremost,” he says.
From there, Wooten says he plans to begin to look more long-term and examine how Sanford will grow and invest.
Pictured: Scott Wooten, CFO of Stanford Health. Photo courtesy of Sanford Health.
"For example, right now we're investing huge in automation and AI to streamline how we do our work. We're also making investments in the future models of care," he says. "This includes a very large investment in virtual care to ensure that we can continue to provide access to world class healthcare in rural areas."
On top of this, Sanford is also looking at growing in the ambulatory and outpatient space.
In addition, Sanford will be making investments in growing its workforce—specifically in its graduate medical education (GME) program. “We will be adding 15 new programs to make it a total of 27 GME programs by 2027. Then, we'll have over 300 fellows and residents coming out of those programs,” Wooten says.
What comes hand-in-hand with investments, though, is capital.
Luckily for Sanford, Wooten, a seasoned finance leader with deep experience in the nonprofit healthcare sector, previously served as CFO at Florida-based Baptist Health for eight years. Wooten also held executive finance roles with Alegent Creighton Health in Nebraska, AdventHealth Central Florida, and AdventHealth North Texas.
The financial expertise he gained in those roles will help to foster the financial success of his new organization.
“What I’ve learned is every market is different, and every culture is different, so what we're going to focus on is long-term success and long-term stewardship here at Sanford,” Wooten says. “And to do that, a person needs to focus on what their balance sheet will look like in the future and then strategize on how to get there from a strength perspective.”
“In addition, that long-term stewardship sometimes creates different conversations, and Sanford has tremendous forward-looking structures in place. We're just going to align those a little bit and have some additional conversations about where we want to be in the future, both physically as well as from a balance sheet perspective,” Wooten says.
CVS Health announced a new CFO, a move that signals its commitment to adapting to market dynamics and staying ahead of the competition.
In a strategic move, CVS Health has officially named Tom Cowhey as its permanent CFO marking a significant development in the healthcare industry.
The appointment comes after Cowhey successfully held the interim CFO role since late last year, stepping in for Shawn Guertin, who served as CFO and president of health services.
The shift in leadership at CVS Health is poised to have a profound impact on the healthcare market, particularly on hospitals and health systems that view CVS Health as a major disruptor to their traditional business models.
But why does the appointment matter to other healthcare CFOs?
Cowhey could give your finance strategies a run for their money as his past brings a wealth of financial executive experience from roles in both provider and payer companies. Prior to his tenure at CVS, Cowhey served as CFO of Surgery Partners and held key positions in strategy and finance at Aetna.
His diverse background positions him to navigate the complex nature of the healthcare industry and will bring an interesting dynamic into the payer/provider landscape.
Speaking of payers, CVS Health's announcement also sheds light on its optimistic outlook for its Medicare Advantage (MA) plans.
The company anticipates surpassing its previous targets for 2024, with an expected addition of at least 800,000 new MA members. This positive forecast is attributed to growing sales and member retention, showcasing CVS' resilience and strategic positioning in the highly competitive MA landscape—and one that has been quite complex as of late.
As CVS Health continues to evolve and adapt to the dynamic healthcare market, Cowhey's leadership as CFO becomes pivotal in driving financial strategies that will shape the company's trajectory.
The ripple effect of these changes is likely to be felt across the industry, influencing the strategies of other healthcare CFOs as they navigate a landscape marked by innovation, competition, and evolving consumer expectations.
Healthcare CFOs know the pandemic cost them big, but now there's a number attached for one state.
After years of tight margins made worse by the pandemic, many hospitals are beginning to feel a measure of relief. But how much financial strain did the pandemic really put on hospitals and health systems?
In Pennsylvania, it was $8.1 billion worth of strife.
You read that right. The total COVID-19 related expenses and lost revenue reported by Pennsylvania hospitals and health systems between January 2020 and December 2022 were $8.1 billion, according to the report by The Pennsylvania Health Care Cost Containment Council and The Hospital and Healthsystem Association of Pennsylvania.
While this report only spotlighted Pennsylvania, there are a few key insights that are applicable to CFOs nationwide.
So what was the true financial impact?
As mentioned, Pennsylvania hospitals and health systems reported a staggering $8.1 billion in total COVID-19-related expenses and lost revenue during the pandemic.
Although most hospitals and health systems remained financially stable due to COVID relief funds, those funds have since dried up while the same challenges still exist.
Of this sum, COVID-19 staffing costs emerged as the most significant expenditure, reaching $1.3 billion. According to the report, other costs included:
Testing expenses: $374 million
Supplies and equipment expenses: $679 million
Construction expenses: $28 million
Housing care expenses: $9 million
Other expenses: $434 million
Revenue loss: $5.3 billion
When it comes to the staffing costs, the amount highlights the immense financial strain incurred by hospitals in responding to the staffing demands posed by the pandemic. CFOs still need to scrutinize these figures to gain a nuanced understanding of where financial resources were concentrated and explore avenues for financial resilience moving forward.
The report also shed light on how the pandemic has exacerbated workforce shortages in Pennsylvania's healthcare sector.
Hospitals reported an average statewide vacancy rate of over 30% for key clinical positions, such as registered nurses, nursing support staff, and medical assistants, by the end of 2022.
This intensification of workforce shortages continues to pose an ongoing challenge to hospitals, hindering their ability to provide comprehensive care and potentially impacting patient outcomes. And as we know, these staffing shortages have been the catalyst to the increasing number of workforce strikes.
As mentioned, CFOs must strategize to address staffing shortages, focusing on recruitment, retention, and workforce optimization.
But what about other states?
A previous study showed that COVID-19 care prompted higher operating expenses and rapidly escalating labor costs for CFOs nationwide. In fact, hospitals in the United States experienced a total loss of over $200 billion because of an estimated 45% decrease in operating revenue just between March and June of 2020.
Pennsylvania's data through 2022 gives healthcare CFOs across the nation a granular look into these costs, providing valuable insights into the continued long-term financial repercussions of the pandemic.
The report's focus on COVID-19-related expenses and lost revenue underscores the continued need for robust financial planning and risk management, especially as many CFOs are still clawing their way out of the red.
CFOs should conduct thorough audits of their institutions' pandemic-related financial data, identifying areas for potential cost containment and revenue enhancement. Leveraging data can not only assist CFOs in forecasting future financial scenarios and implementing proactive measures, but help them push their current margins in the right direction.
The CFO of Montage Health detailed three financial priorities for his hospital.
CFOs need to remain vigilant in their financial planning, and Matt Morgan, MBA, FACHE, FHFMA, CFO of Montage Health’s Community Hospital, will be doing this by prioritizing three key items for his hospital.
From growing responsibly to evaluating capacity, one CFO has a few financial priorities for his hospital this year.
The median calendar year-to-date operating margin index for hospitals is reflecting an ongoing improvement, however, leaders are not off the hook.
CFOs need to remain vigilant in their financial planning, and Matt Morgan, MBA, FACHE, FHFMA, CFO of Montage Health’s Community Hospital, will be doing this by growing responsibly, evaluating capacity, and focusing on performance improvement.
How will Morgan get this done? Read on to find out.
Community Hospital is part of Montage Health—a locally owned, nonprofit network of healthcare providers with more than 250 hospital beds and 28 skilled nursing beds located in Monterey County, California.
The hospital is currently growing certain service lines to better serve its community and region, Morgan says.
So, supporting that clinical growth with key decisions on infrastructure, funding, staffing, and performance monitoring will be critical to its financial success.
On top of growing responsibly, Community Hospital also plans to evaluate its capacity.
“The hospital’s occupancy rates continue to climb, and forward projections suggest continued pressure on existing capacity,” Morgan says. “As CFO, active participation in evaluating service needs, structural design, patient throughput and capital forecasts are significant efforts in 2024.”
Performance improvement is also top of mind for Morgan.
“While volume and revenue growth has been excellent these past five years, forward projections suggest that cost growth may exceed revenue growth,” he says.
This means that continued detailed evaluation of performance improvement at the hospital, medical group, urgent care, and insurance settings is paramount Morgan says.
“Past financial success is not always indicative of future results!”
CFOs meticulously sift through quarterly earnings reports, but what do the results from some of the biggest in the nation tell us about the overall trends?
Now that health system financial results for the third quarter and first nine months of 2023 have all come in, it gives CFOs a chance to examine the overall trends.
With many making improvements on the back of some challenging financial years, operating losses, high expenses, and labors costs still weighed heavy on some of the biggest health systems in the nation—meaning these issues were surely exacerbated for smaller hospitals.
Several healthcare systems, such as CommonSpirit and Community Health Systems, reported increased operating losses compared to the previous year. This trend indicates continued financial challenges and the need for cost management strategies.
Revenue growth.
Despite the challenging financial environment, many healthcare systems, including Trinity Health, Christus Health, and HCA Healthcare, reported an increase in operating revenue. This suggests that there is potential for generating more income, although it is crucial to control expenses to improve overall profitability.
Higher expenses.
Most healthcare systems experienced an increase in expenses, particularly in terms of employee compensation and benefits, as well as supply costs. Hospital CFOs should closely monitor expense growth and implement strategies to manage costs effectively.
Net income fluctuations.
Net income varied among the healthcare systems analyzed. While some, like Kaiser Permanente and Universal Health Services, reported an increase in net income, others, such as Renton-based Providence, experienced larger operating losses. CFOs should focus on optimizing revenue streams and managing expenses to drive positive net income.
Impact of investments.
CommonSpirit and Providence reported significant net investment losses, impacting their overall financial performance. CFOs should carefully evaluate investment strategies and their potential impact on the organization's financial health.
Operating margin changes.
Tenet Healthcare reported a decrease in operating income, resulting in a decline in the operating margin. Hospital CFOs should monitor and analyze their organization's operating margin to ensure financial stability and sustainability.
Positive financial performance.
Despite the overall challenging environment, some healthcare systems, including Christus Health and Mayo Clinic, reported improved operating income and net income. CFOs should study the strategies employed by these organizations to identify potential best practices.
Providence and Mayo Clinic reported higher expenses due to wage increases. Hospital CFOs should pay special attention to labor costs and develop strategies to manage these expenses effectively.
As for the future? Not much is changing in terms of strategy. Hospital and health system CFOs need to continue to focus on optimizing revenue, controlling expenses, monitoring investments, and implementing cost management strategies to navigate the complex financial landscape.
While this news shouldn’t shock CFOs, longer-range capital plans and strategic investments will still need to be of focus. In fact, S&P says that additional spending or debt issuances could be a factor influencing credit quality, depending on balance-sheet strength and the level of cash flow improvement.
Here are nine takeaways from the report that hospital and health system CFOs should take into consideration this year.
Labor expenses remain a major challenge:
Ongoing cash flow margin pressures are primarily due to labor expenses.
The slow easing of labor expense pressures is complicated by factors such as union activity, regional market difficulties, higher base labor rates, and challenges in international recruitment.
CFOs should focus on accelerating revenue growth, improving staffing efficiencies, and making non-labor expense reductions to enhance earnings and cash flow.
Potential impact on credit ratings:
The negative sector view is influenced by the strain on cash flow, with labor and other inflationary expenses contributing to ongoing challenges.
Credit rating performance will depend on revenue trends and management's ability to achieve offsetting efficiencies.
CFOs need to closely monitor credit quality trends, with a particular emphasis on the pace of margin recovery and the ability to improve operating performance.
Balance sheet considerations:
While balance sheets remain sound, they have not strengthened materially for most organizations.
CFOs may face reduced balance-sheet flexibility as they consider capital needs and spending strategies, especially if they restart deferred capital projects or utilize debt.
Strategic spending should be carefully managed to avoid additional pressure on the balance sheet and increased carrying costs.
Varying credit quality trends:
There is a higher percentage of negative outlooks across credit ratings, with ongoing uncertainties in credit stability.
Organizations in demographically favorable regions, with healthy demand, market positions, and favorable payer rates, are more likely to perform in line with rating expectations.
Cash flow recovery in 2024 will be a crucial factor influencing credit quality assessments.
Challenges for lower-rated entities:
Lower-rated entities may face a difficult 2024 without meaningful partnerships or improved labor conditions.
Sustained higher interest rates, tighter lending, and limited debt capacity could impact capital spending for lower-rated organizations.
CFOs of lower-rated entities should seek strategies to address ongoing covenant issues and strengthen their financial positions.
Industry-specific challenges:
Revenue is strained by payer and service mix dynamics, with challenges in governmental payments, Medicaid, and commercial payer rates.
CFOs should navigate the shift from inpatient to outpatient services, manage commercial payer relationships, and address difficulties in claims processing and denial rates.
Efficiency focus and operating model improvement:
Management teams are accelerating expense management initiatives to lower the cost base.
Outsourcing to third parties, increased use of AI, asset sales, service line consolidation, and reduction in operating leases are strategies to improve efficiency.
CFOs should assess these initiatives based on cash flow, growth potential, and diversification of the revenue base.
Capital spending and debt issuance challenges:
Debt issuances have slowed, but CFOs must balance the need for capital spending with rising interest rates and weaker operating performance.
Access to capital may be difficult for lower-rated entities, potentially putting them at a long-term strategic disadvantage.
CFOs should consider less cash-intensive strategies and carefully manage debt-like structures, such as operating leases.
Event risks and ongoing pressures:
Cybersecurity events, weather, and other physical risks pose ongoing pressures on organizations.
CFOs should allocate resources for planning and investment to minimize financial and operating disruption from unexpected events.
Event risks could impact financial and management resources, affecting performance improvement needed to maintain credit ratings.
There are six major challenges that are forcing CFOs to pull the plug on payer contracts.
The payer/provider battle is raging, and signaling what may be an emerging trend: More organizations are fighting back against payers by terminating their contracts completely.
What exactly has led to the turmoil? CFOs say the reasons are vast, but below are six reoccurring challenges shared to HealthLeaders by hospital and health system CFOs and CEOs.
