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Intersection of Financial and Regulatory Forces is Broadening Roles of Healthcare CFOs
Date:6/24/2008

Ernst & Young Report Reveals Healthcare CFO Perspectives on Top Industry

Challenges

LAS VEGAS, June 24 /PRNewswire/ -- With the US healthcare system on the threshold of change, healthcare chief financial officers feel the need to anticipate change and begin the process of business transformation before the arrival of any public policy mandates. CFOs face daunting challenges, and their insights on the state of the industry are revealed in a new report released today by Ernst & Young LLP: Healthcare change: Reform or transformation? A CFO perspective.

Based on confidential and candid discussions in two forums with 23 CFOs from leading US healthcare systems earlier this year, the report provides a picture of an industry in financial distress through the eyes of healthcare financial executives.

"As resource pressures mount and regulatory oversight intensifies, CFOs can expect their financial management skills and their policy management expertise to be sharply tested," said Rick Wallace, Managing Partner for Ernst & Young's Health Advisory Services practice. "Leading CFOs now must embrace their role as change agents, analyzing risks and strategies to help guide their companies through a difficult transition, which is nothing short of an industry overhaul."

The forum participants concurred on seven critical issues likely to reshape the industry in years to come.

Paying for healthcare: Hospital finances are being eroded by the growing numbers -- now 47 million -- of uninsured and underinsured. Aging populations, expensive drugs and technology, rising labor costs and hospital obligations to provide care -- regardless of ability to pay -- have combined to create a perfect storm for the industry. Stepping up workforce productivity is seen as the only last chance to improve margins. CFOs agree that curbing the escalating costs must be at the core of healthcare reform.

Access to capital: While many hospitals are experiencing a construction explosion -- with spending on new hospital facilities up 47% over the last five years -- capital is not growing as fast as demand. Lower credit ratings and tighter credit markets have both played a role. With few options, CFOs are seeking greater consolidation of resources and organizations. Merging hospitals can bring savings, potential gains in technology, more leverage with suppliers and power to negotiate with large insurance companies.

Physician relationships: CFOs are seeking to develop more mutually beneficial relationships with physicians to gain a competitive advantage and align with this stakeholder group on reforms. To this end, CFOs see the need to move toward hospital employment of physicians and joint ventures with physician-owned businesses.

Workforce issues: With supply of nurses and other hospital workers falling far short of demand, the cost of labor is skyrocketing. While numbers of qualified applicants to nursing schools is on the rise, dwindling numbers of faculty mean many applicants are turned away.

Quality and pay-for-performance (P4P): While P4P proponents have argued that initiatives will drive dramatic reform in the delivery system, CFOs see goals falling short with incremental improvements at best. CFOs have invested significant sums on quality measures, yet there are few measures to gauge long-term outcomes. The need is great, participants said, to involve doctors in the fabric of hospital leadership and to collectively take ownership for quality.

The race for new technologies: CFOs observe that pressure on providers to invest in new clinical and information technologies is unprecedented. Yet CFOs say new technologies, often enormously expensive, do not always produce improved outcomes or a return on investment. In response, CFOs see scale as one answer. As hospitals consolidate, duplication will be avoided, and expenses and technology purchases can be better leveraged.

Transparency and community benefit: The demand for transparency is great in areas of patient safety, quality of care, and costs and charges. And not- for-profit hospitals are required to disclose even greater detail on bad debts and collection policies, charitable care and community benefit. CFOs point to a very full and growing compliance agenda that must be managed and integrated into business operations.

"The urgency is accelerating to find solutions that better align the interest of payors, consumers, employers and providers," said Ian Morrison, healthcare futurist and leader of one of the Ernst & Young CFO forums. "Deep reform is needed to solve the issues of affordability and quality -- transforming the delivery system to make it better, faster and cheaper than the one we have today."

For a copy of the report, or for more information on Ernst & Young's healthcare provider practice, visit our website: http://www.ey.com/us/healthsciences.

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 130,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.

For more information, please visit http://www.ey.com.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. This news release has been issued by Ernst & Young LLP, a member firm of Ernst & Young Global Limited.


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