Implement Strategic Financial Planning in Healthcare

Strategic and financial planning are two critical processes that work hand in glove to guide a healthcare organization’s long-term success. Strategic planning defines a company’s vision and goals, while financial planning sets fiscal objectives and creates a road map to achieve them. A combined strategic financial plan, therefore, brings together financial resources with strategic priorities, incorporating financial data and insights into the strategic planning process. While this may sound obvious, it isn’t always easy, especially in the ever-changing healthcare industry, where balancing the needs of patients and stakeholders requires close collaboration and a disciplined process. This article explores the key components and benefits of strategic financial planning in healthcare, including how to develop and implement a strategic financial plan.

What Is Financial Planning in Healthcare?

Financial planning in healthcare is the process of developing a comprehensive outline to manage a healthcare provider’s financial resources in alignment with its mission and long-term goals. Financial planning involves analyzing financial and operating data, developing budgets and forecasts, and identifying opportunities to increase revenue, reduce costs and improve overall financial performance. Modeling and scenario analysis are fundamental tasks. An effective financial plan sets operating targets and guides healthcare leaders when allocating resources and making investment decisions. The key components of a financial plan for healthcare organizations typically include a budget, forecasts, a capital plan and a risk management plan. Together, these elements form a cohesive road map to help healthcare organizations deliver quality care and value to their patients and stakeholders.

Key Takeaways

• Strategic financial planning is an ongoing process that aligns financial resources with organizational priorities, helping healthcare management drive long-term success.
• It offers numerous benefits, including improved financial health, enhanced decision-making and better risk management.
• Implementing a strategic financial plan in healthcare requires a structured approach, beginning with defining the mission and values and ending with monitoring planned progress.
• Collaboration among finance, clinical and operational leaders is essential for successful strategic financial planning in healthcare.
• Leveraging technology, including cloud-based forecasting and data analytics tools, is key to effective strategic financial planning.

Healthcare Financial Planning Explained

At its core, healthcare financial planning shares many similar tasks with financial planning in other industries, including budgeting, forecasting and financial modeling. However, several distinct characteristics and challenges of the healthcare sector demand a tailored approach. First and foremost, the nature of the services that healthcare companies provide for their customers requires an elevated emphasis on quality performance. Financial planners are tasked with balancing financial sustainability with the delivery of high-quality patient care. This necessitates close collaboration between finance and clinical leaders to develop strategies that optimize both financial and clinical performance.

Additionally, certain aspects of the healthcare business model set healthcare financial planning apart, such as the complexity of revenue streams and reimbursement. Even the smallest healthcare organizations have to navigate a multitude of payment models, such as fee-for-service, value-based care and capitation. At the same time, healthcare companies must manage reimbursements from various sources, such as government programs (Medicare and Medicaid), private insurance companies and self-paying patients. This complexity requires the financial planning and analysis team to have significant expertise to effectively budget and forecast revenue and cash flow. Furthermore, healthcare financial planners must stay up to date with a constantly evolving regulatory landscape to account for the impact of changes in healthcare laws and regulations.

To address these challenges, healthcare financial plans often rely on specialized tools and techniques in addition to industry specific key performance indicators (KPIs). For example, a healthcare organization could use a cost-accounting system to accurately measure the cost of delivering care and calculating gross margins. It could also employ decision-support tools to model the financial impact of different initiatives for increasing efficiency or expanding offerings.

Why Is Strategic Financial Planning Important in Healthcare?

Unlike financial statements that report on past performance, strategic financial planning focuses on the future. It’s a vital aspect of a healthcare company’s overall financial management and stewardship, enabling the organization to proactively maximize operations and address industry-specific challenges, while investing in initiatives that support its vision and mission. Industry challenges that can be mitigated by strategic financial planning include shifting payment models, rising costs and labor shortages.

Strategic financial planning can help healthcare companies acclimate to the significant shift from traditional fee-for-service payment models to value-based structures, which tie payments to the quality of care providers deliver and the health outcomes of their patients. By using strategic financial planning, organizations can identify and model the financial impact of various strategies, including focusing on preventive care, partnering with other providers, redesigning care-delivery models or providing education to increase patient self-care. Each strategy has its own scenario of investment, ongoing costs and related impact on revenue, which can be effectively evaluated and prioritized through the strategic financial planning process.

Healthcare organizations are facing rising costs across the board — drugs, medical supplies and technology, to name a few. Strategic financial planning helps companies understand the impact of these rising costs on their future profitability and develop ways to mitigate them. For example, organizations can negotiate better prices with suppliers or implement cost-saving technologies. By proactively addressing these cost pressures, healthcare companies can maintain financial stability and redirect resources to initiatives that support their missions.

Strategic financial planning is also useful for alleviating the impact of industrywide workforce shortages and attracting and retaining top talent. For example, it can help identify and reallocate funds needed to invest in workforce development initiatives, such as training, education and competitive compensation and benefits packages. Additionally, strategic financial planning can forecast future workforce needs based on projected revenue growth, market trends and evolving patient demographics and then earmark funds for the recruitment, training and professional development of skilled healthcare professionals who can meet those future demands.

Benefits of Strategic Financial Planning in Healthcare

By integrating financial planning with strategic planning, healthcare organizations can unlock a wide range of benefits that ultimately drive better outcomes for patients, staff and companies as a whole.Strategic financial planning guides investment decisions, fosters innovation, builds resilience and agility, and promotes collaboration across multiple departments and stakeholders. Here are seven main benefits of strategic financial planning and how they can help healthcare organizations achieve their mission in today’s dynamic and competitive landscape.

• Improved financial health: Creating a strategic financial plan leads to improved financial performance and a more deliberate financial position. This is achieved through analyzing financial data, identifying and modeling areas for improvement, and quantifying the impact of targeted investments. These efforts can lead to increased revenue, reduced costs and enhanced profitability. For example, as a result of financial planning, a hospital could uncover opportunities to consolidate supplier contracts, resulting in significant cost savings that can be reinvested or harvested as additional profit.
• Enhanced decision-making: A strategic financial plan gives healthcare leaders the information they need to make informed, data-driven decisions. By integrating financial information and fiscal rigor into strategic decisions, leaders can better understand financial implications and allocate resources more effectively. For instance, a healthcare system might use strategic financial planning to evaluate the feasibility and potential return on investment of opening a new clinic in an underserved area.
• Better risk management: Financial risk may be unavoidable, but it’s more manageable when proactively identified. Strategic financial planning can help healthcare companies regularly assess financial performance, monitor industry trends and develop contingency plans to preemptively manage risks. Consider a community clinic that uses strategic financial planning to develop a risk management strategy that includes diversifying revenue streams and creating an emergency fund to weather unexpected financial challenges.
• Optimized resource allocation: Resources are limited for most healthcare organizations, so it’s beneficial to follow a thoughtfully laid out plan to allocate them effectively. When the financial plan is aligned with strategic priorities, organizations can feel more confident that they’re investing in initiatives that support their missions and drive long-term success. For instance, a dental practice could rely on its strategic financial plan to prioritize investments in new medical technologies that improve patient outcomes and reduce costs.
• Increased efficiency: Healthcare providers of all sizes need to squeeze the most value from their resources. The strategic financial planning process can help them streamline their operations and increase overall business efficiency. When waste or inefficiency is uncovered, part of the planning process is to develop and document targeted improvement plans. As a result, organizations can improve productivity and increase the quality of care they provide without adding costs. For instance, a hospital could uncover duplicate ordering in its supply chain, which, when eliminated, results in reduced medical stock inventory costs and improved operational efficiency.
• Improved regulatory compliance: Strategic financial planning pushes organizations to proactively identify and address potential compliance risks and to implement corrective actions as needed. By incorporating regulatory considerations into the planning process, healthcare companies can allocate resources to ensure adherence to standards, such as the Health Insurance Portability and Accountability Act (HIPAA), Occupational Safety and Health Administration requirements and billing regulations. For example, a physician’s office may set aside funding for staff training on patient privacy protocols and invest in secure technology systems to protect sensitive data as part of its strategic financial plan.
• More collaboration across the organization: Healthcare organizations benefit from increased communication and collaboration among finance, clinical and operational leaders. This is a fortuitous by-product of involving all these stakeholders in the strategic financial planning process, breaking down silos and fostering a more cooperative culture in the process. Furthermore, when financial goals and objectives align with clinical and operational priorities, it encourages shared ownership of financial outcomes and promotes a culture of financial stewardship. To facilitate this coordination, healthcare companies should create cross-functional committees, hold regular joint planning sessions and use shared data and analytics to inform decision-making.

How to Implement a Strategic Financial Plan in Healthcare

Before embarking on the development of a strategic financial plan, it’s important for healthcare organizations to be aware of the common pitfalls and misconceptions that can hinder success. One of the most prevalent misconceptions is that strategic financial planning is a one-time exercise. Newsflash: It’s not. Rather, it’s an ongoing process that requires continuous monitoring and adjustment. Another common pitfall is the tendency to view strategic financial planning as solely the responsibility of the finance department. In reality, successful implementation requires engagement and buy-in from stakeholders across the organization to ensure that financial plans are in sync with an organization’s overall strategic priorities. Finally, healthcare organizations might struggle with the complexity and volume of financial data, making it difficult to glean key insights and make informed decisions. Data analytics, business intelligence tools and other technologies can help.

Now that we’ve established what to look out for, let’s explore the 11 key steps that healthcare organizations can follow to implement a strategic financial plan effectively.

1. Define Your Mission, Vision and Values

This is the first and foundational step in the strategic financial planning process. It comprises clearly articulating a healthcare organization’s purpose, long-term goals and core principles that guide decision-making. Establishing a strong sense of direction and identity helps to align financial strategies with overall company objectives, engage and motivate stakeholders, and foster a shared sense of purpose and commitment.

For example, a large healthcare network in New York provides the following mission statement: “Our mission to care, to teach, to discover is achieved daily through a culture of exceptionalism. Our values of performance, respect, integrity, diversity and excellence (PRIDE) influence the way we show up each and every day for our patients, our students and our communities.” It should be noted that getting consensus on these elements can sometimes be challenging, particularly in large, complex healthcare organizations with diverse stakeholders.

2. Select a Strategic Planning Model

A strategic planning model is a method for assessing the current state of an organization, defining future goals and outlining the steps needed to achieve those goals. Choosing the right model can help ensure that the financial planning process is comprehensive and aligned with a company’s specific needs and goals. Healthcare companies can choose from several models, such as the Balanced Scorecard, SWOT analysis, scenario planning and the Blue Ocean Strategy, each with its own strengths and focus areas. Regardless of the model selected, their use typically involves engaging stakeholders, analyzing internal and external data, and setting priorities. They also establish mechanisms for implementation and monitoring, such as KPIs and dashboards. For example, a community health center may benefit from using the Balanced Scorecard model, which emphasizes the importance of balancing financial performance with patient satisfaction, internal processes and learning and growth. Selecting the most appropriate strategic planning model can be challenging, as it requires a deep understanding of an organization’s particular circumstances and objectives.

3. Conduct a Gap Analysis

Gap analysis identifies the differences between a healthcare company’s current financial performance and its desired future results. It involves assessing all aspects of the business model, especially revenue streams, expenses and cash flows, and pinpointing areas where an organization falls short. This, in turn, steers development of targeted action plans toward bridging the gaps and improving financial performance. For instance, a physical therapy practice that identifies a gap in its revenue cycle management processes could, as a result, decide to implement new technology and increase staff training to improve collections and reduce denials. Conducting a comprehensive gap analysis can be time-consuming and resource-intensive, requiring access to accurate and up-to-date financial data.

4. Set Strategic Financial Goals and Objectives

Setting strategic financial goals and objectives means translating the organization’s mission and vision into specific, measurable, achievable, relevant and time-bound (SMART) financial objectives. SMART goals help focus resources and efforts on the most important priorities and ensure that everyone is working toward the same objectives. This may not be as easy as it sounds: Setting realistic and achievable goals in the face of changing external factors, such as shifting reimbursement models and economic uncertainty, can be challenging. An example of a SMART goal is when a physician’s office aims to reduce its operating expenses by 10% over the next three years to free up resources for expanding its telehealth services.

Another key aspect of setting financial goals and objectives is incorporating capital planning and investment strategies. Healthcare organizations often face significant capital investment needs, such as upgrading facilities and acquiring modern technology. When setting financial goals, it’s important to prioritize capital projects based on their alignment with the company’s strategic objectives and their potential return on investment. This may require conducting feasibility studies, developing business cases and identifying potential funding sources. Companies should also consider the long-term fiscal impact of capital projects, such as ongoing operating costs and potential revenue generation. For example, that same physician’s office may need to evaluate the costs needed for new technology infrastructure to support the expanded telehealth services as part of the capital plan.

5. Design Oversight and Accountability Processes

This step involves establishing clear roles and responsibilities for individuals and teams involved in the planning and execution process to ensure that the strategic financial plan is effectively implemented and monitored. It also includes creating mechanisms for regular reporting, review and course correction. It’s important to establish a culture of accountability and transparency to keep everyone working toward the same financial goals and to address any issues or challenges in a timely manner. For instance, a skilled nursing facility might establish a financial steering committee comprising key leaders from the finance, operations and clinical departments to regularly review progress against goals and make data-driven decisions. When designing oversight and accountability processes, it’s essential to get buy-in and participation from stakeholders across the organization and have robust data collection and reporting systems.

6. Leverage Technological Advancements

Leveraging technological advancements is an increasingly important step in the strategic financial planning process for healthcare organizations. Digital transformation and advanced technologies, such as artificial intelligence, data analytics and business intelligence tools, can provide a competitive edge and better position healthcare providers for long-term success. These tools offer enhanced insight into financial performance to enable companies to create more accurate forecasts and plan for future financial needs.

When selecting technology solutions, look for those that improve financial performance by streamlining processes, reducing costs and supporting new revenue opportunities. They should also be scalable and make the financial planning workflow easier and more accurate. Seamless integration between systems, such as financial management systems and enterprise resource planning (ERP) solutions, is a must because a comprehensive view of financial data facilitates more accurate budgeting, forecasting and analysis. For example, implementing a cloud-based financial management system that integrates with other key business systems provides real-time visibility into financial performance across multiple facilities, such as a network of ambulatory care centers or physician practices.

7. Establish Metrics for Ongoing Monitoring and Benchmarking

Select KPIs that align with the organization’s financial goals and overall objectives and regularly measure and report on them. This includes standard financial KPIs that measure profitability, liquidity, valuation and efficiency, as well as pertinent healthcare-industry specific metrics, such as hospital readmission rate and average length of stay. Compare actual results with the target values in the overall strategic financial plan to measure progress. Additionally, it’s wise to compare results to industry benchmarks to gain valuable insights into the organization’s relative strengths and weaknesses and to identify possible opportunities for improvement. For example, a home health agency may track metrics such as days in accounts receivable, operating margin and cost per patient encounter to monitor financial performance and identify areas for cost savings. Healthcare organizations with complex or siloed financial systems could find this challenging.

8. Adopt Risk-Based Auditing Practices

Risk-based auditing focuses on identifying, assessing and prioritizing potential financial risks, which allows an organization to develop targeted, preventive strategies to mitigate them. Financial risks come in various forms. Macroeconomic factors, government healthcare policy changes, shifting payment methods and fluctuating patient demographics can all introduce risk and significantly impact healthcare revenue. Similarly, operational risk caused by inefficiencies in operations, such as high staff turnover, supply chain disruptions or poor resource utilization, can reduce profitability. And the risk of regulatory noncompliance with complex healthcare regulations like HIPAA can result in substantial fines, legal costs and reputational damage.

Because resources are limited for most healthcare organizations, the identified risks must be prioritized. Generally, this is done based on the level of risk and its likelihood of occurring. Only once risks are prioritized can healthcare providers make a plan to deploy resources to mitigate the risks and minimize the likelihood of financial losses. For example, a diagnostic laboratory may conduct a focused audit of its coding and billing processes to identify areas of under-coding or over-coding, which can result in lost revenue or compliance issues. It’s easy to imagine how implementing a comprehensive risk-based auditing program can be resource-intensive and require specialized expertise and tools. However, integrating this practice into the strategic financial planning process can pay great dividends and enhance stakeholder confidence by demonstrating the organization’s commitment to financial integrity and transparency.

9. Develop the Strategy Execution Plan

At this stage, it’s time to translate financial goals and objectives into concrete actions and timelines. This detailed blueprint outlines the specific initiatives, projects and supporting activities required to achieve planned financial targets. It also involves assigning responsibilities and resources to each task. It’s a best practice to break down the strategic plan into manageable components so that everyone is on the same page and progress can be tracked and measured over time. For example, a dental practice that aims to increase cash collection rates might develop a detailed execution plan for implementing a new billing and accounts receivable system, including milestones for vendor selection, system design, testing and go-live. Developing a comprehensive and realistic execution plan can become difficult, particularly as the number of initiatives, complexity, size and involved parties increase.

10. Execute the Strategic Financial Plan

Executing a strategic financial plan is the culmination of all the previous steps being put into action. Execution requires strong project management and leadership skills, as well as regular communication and collaboration among stakeholders, ongoing monitoring and reporting on progress. It’s during this stage when leaders must make sure resources are deployed efficiently and in alignment with the plan. They should also make time to recognize and celebrate milestones and achievements with their teams, which serves to reinforce a culture of accountability. At the same time, the execution stage requires a willingness and ability to adjust the plan and pivot in response to changing circumstances or unforeseen challenges. For example, a physician’s office that is implementing a new telehealth program may need to adjust its rollout timeline based on feedback from patients and doctors, causing a reduction in planned revenue.

11. Monitor Progress and Adjust as Necessary

Monitoring progress is an ongoing step in the strategic financial planning process, rather than just the last step. Doing so is essential for ensuring that a healthcare company stays on track to achieve its financial goals and provides alerts when execution adjustments may be necessary. A primary way to monitor progress is to regularly review financial performance data and compare actual results to planned targets. The frequency of monitoring these metrics should be determined based on their importance and the organization’s needs. Some metrics, such as revenue or cash flow, may require daily or weekly monitoring; others, such as gross profit margin, may be reviewed monthly or quarterly. For example, a pharmacy may use dashboards and analytics tools to monitor prescription volume and revenue per prescription daily, along with gross profit margin monthly, and adjust its forecast or resource allocations based on actual performance. Dashboards and automated reporting on KPIs can assist with timely identification and analysis of variances. Monitoring is made easier and more accurate when supported by robust data infrastructure and systems that automate reporting and analysis.

Drive Financial Success in Healthcare With NetSuite

Implementing a strategic financial plan in healthcare requires the right tools and technology to streamline processes, increase scenario accuracy and provide up-to-date monitoring. The comprehensive suite of solutions from NetSuite Financial Management offers all of that. As a cloud-based platform, it provides a centralized, real-time view of financial information, making it easier to analyze and rely on clean data to identify trends and make informed decisions quickly. Additionally, seamless integration with other core business systems, such as an ERP, provides a holistic view of performance that considers the full context of operations, which is important for developing accurate plans. The platform’s financial planning and budgeting capabilities, meanwhile, support collaborative, iterative financial planning and scenario modeling to align plans with strategic goals and gain cross-functional buy-in. Customizable dashboards and reports assist with monitoring key financial metrics and performance indicators to quickly identify areas of strength, weakness and opportunity, enabling data-driven adjustments when necessary.

NetSuite’s vast experience with the healthcare industry is evident in several features designed specifically for healthcare organizations. For example, built-in compliance and security features ensure data integrity and protect sensitive financial information — critical for meeting a wide range of healthcare laws and regulations. Industry-specific, preconfigured, role-based dashboards, reports, KPIs and workflows jump-start the financial planning process, from current state analysis through monitoring execution of initiatives.

Strategic financial planning serves as a road map for healthcare organizations that are navigating the complexities of the industry, guiding them toward long-term success and sustainability. Integrating financial planning with strategic planning yields many benefits — from proactively addressing industry-specific challenges and aligning financial resources with organizational priorities to investing in initiatives that support an organization’s overall mission and vision. Implementing a strong strategic financial planning process is best done using a structured approach, supported by the right technology. Embracing strategic financial planning as an ongoing, iterative process and maintaining a clear vision puts healthcare organizations in a strong position to achieve their goals.

Strategic Financial Planning in Healthcare FAQs

Why is a financial analysis important in healthcare?

Financial analysis is a crucial, comprehensive assessment of a healthcare company’s financial health, performance and sustainability. Examining key financial metrics and trends helps leaders identify areas of strength, weakness and opportunity. This information is essential for making data-supported decisions, such as allocating resources effectively, which is particularly important in a dynamic industry like healthcare.

What is the role of finance in strategic planning and decision-making?

Finance plays a critical role in strategic planning and decision-making by providing the data, insights and analysis needed to inform and support organizational goals and objectives. Financial professionals work closely with leadership and operational managers to develop budgets, forecasts and financial models that align with the organization’s strategic priorities. By integrating financial considerations into the strategic planning process, companies are more likely to achieve their long-term goals.

What is financial responsibility in healthcare?

Financial responsibility in healthcare refers to the obligation of organizations to manage their financial resources in a manner that is efficient, effective and aligned with their mission and values. This includes being good stewards of patient, donor and government funds, ensuring compliance with regulatory requirements and making decisions that prioritize the continued financial health of the organization. Ultimately, financial responsibility in healthcare is about balancing the need to provide high-quality patient care with the need to maintain financial stability and sustainability.