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Since the Deloitte Center for Health Solutions began surveying healthcare finance leaders in 2020, cost reduction has consistently been a top three organizational priority or concern. But in 2024, cost reduction dropped to the lowest priority among 17 options, while the current economy, cybersecurity and the upcoming U.S. election took the top three spots, the newest report showed.
The findings come as the healthcare industry has been facing low profitability recently: operating margins for many organizations have been averaging between 1% and 4% for the past five years, the report states.
“The reason [cost reduction isn’t a top priority] may be in the realization that solely focusing on cost reduction to improve margin is not enough,” said Tina Wheeler, vice chair and health care sector leader at Deloitte, in an email. “About a quarter of the CFOs said their organizations fell short of their margin goals in the past three years, so these findings suggest a recognition by CFOs that something needs to change.”
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What Healthcare Can Learn from Costco
The path forward is clear: employers must evaluate their health plan the same way they do their Saturday shopping excursion.
Deloitte’s survey, released last week, included more than 60 finance leaders from U.S. health plans and health systems. It also found that finance leaders have “ambitious plans” for improving their margins over the next three years. About 32% aim to improve their margins by three or more percentage points, 48% hope to improve their margins by one to three percentage points and 20% plan to improve their margins by less than one percentage point.
For achieving these margin goals, finance leaders expect to use a mix of levers across four major categories:
- Strategic growth: Enhance reach, scale and impact by introducing new products and services and reaching new demographics
- Revenue growth: Improve value capture of current products, services and populations
- Cost reduction: Enhance operations and input costs to “reduce cost to serve”
- Capital deployment: Maximize returns from the capital portfolio
“This indicates that CFOs are looking beyond just cost reduction and considering a more strategic approach to transforming their operating margins,” Wheeler said.
Wheeler added that CFOs should consider “overlooked opportunities to improve margin.” These include doubling down on digital and AI technologies, searching for outsourcing and offshoring opportunities and optimizing product and service mix. Payer and provider finance leaders should also pursue value-based partnerships, market-based alliances and capabilities-based ecosystems.
“Cost reduction remains important, but it must be done in tandem with a broader strategy to improve revenue, deploy capital more efficiently, and grow,” Wheeler said. “Today’s CFOs are well positioned to not just be financial stewards of their organizations but also valued strategic c-suite partners who can help steer their organization into the future.”
Photo: santima.studio, Getty Images