Becker's Hospital Review

7 CFO / FINANCE 'We exceeded our budget expectations': Wisconsin health system CFO on 2023 fiscal year By Madeline Ashley Madison, Wis.-based UW Health finished the 2023 fiscal year in the black. e integrated academic health system's operating margin came in at 1.4%, total operating revenue at more than $5.1 billion, and operating expenses at over $5 billion, according to a Jan. 5 UW Health press release shared with Becker's. "We exceeded our budget expectations in fiscal '23," Bob Flannery, CFO of UW Health, told Becker's. "We've actually been doing better than we anticipated in fiscal '24 for the first five months of the fiscal year as well." UW Health consists of six main hospitals, one joint operating agreement partner hospital in Madison, and two hospitals inside its main Illinois hospital. e health system also has over 90 clinics across Northern Illinois and Wisconsin, according to its LinkedIn page. Mr. Flannery said the health system's 2022 operating margin was 3.9%, but he feels good about how it navigated difficult times. "We saw our revenue grow year over year 9%, and our expenses grew 12%. In that situation, it just doesn't end in the way that you want it to. When expenses are outpacing revenue increases, it's a recipe for problems," he said. "I think that we navigated them well. We put some programs in place to help with some of the workforce recruitment issues that are out there. At the same time, we made some significant investments in our organization and our workforce over that time frame." Mr. Flannery attributed a dedicated leadership team and patient demand increase to what helped keep the health system at a 1.4% margin in 2023. Around 808,700 patients received care at UW Health in the 2023 fiscal year, with over 3.7 million outpatient appointments, 221,700 emergency department visits, and 83,500 surgeries. e health system also added over 1,000 new employees to its workforce in the 2023 calendar year, the release said. Mr. Flannery said the targeted margin for UW Health's fiscal year 2024 is between 2.3% and 2.5%, but he's hoping to beat that. Mr. Flannery urged other hospital and health system CFOs to focus on expenses and look for efficiencies for a strong 2024 financial year. "I also think we need to make sure that we're paying attention to our revenue side and making sure that we actually are getting our services documented appropriately and coded appropriately. en, really working with the payers to make sure that they recognize the increase in cost that our organizations as providers have actually experienced, and actually work with them on actually getting kind of a reset on reimbursement rates to make sure that they're covering the cost of services that we're actually providing to their members," he said. n Hospitals with revenues under $500M likely to struggle this year By Alan Condon D espite a modest turning point for some hospital and health system margins in 2023, this year is expected to be another "make or break" year for much of the sector, particularly among smaller hospitals with annual revenues under $500 million, according to outlooks from Fitch Ratings and S&P Global Ratings. Four things to know: 1. Core credit drivers for the sector will remain challenged as staffing shortages and salary/wage/ benefit pressure continues to hinder margins for a sizable portion of the sector, even as other core credit drivers — specifically volumes and overall liquidity — begin to improve, according to Fitch. 2. High labor and operating costs — which have not been entirely offset by generally improving revenue trends — low reimbursement and slow recovery of cash flow are key factors contributing to negative outlooks for the hospital sector, according to S&P. While contract labor expenses have decreased in recent months, many hospitals and health systems are still battling an imbalance between the rate of growth across expenses and revenue. 3. As long-term capital plans and strategic investments get back on track, additional spending or debt issuances could also be a factor influencing credit quality — depending on balance-sheet strength and the rate of cash flow improvement, S&P said. The pace of margin recovery, supported by labor management, throughput and efficiency gains, and performance improvement plans, coupled with balance-sheet and enterprise strengths, will be key for hospitals to maintain credit quality. 4. Staffing shortages, cited as the number one challenge facing hospitals and health systems, will remain a pain point for the foreseeable future yet slowly resolve, with the expectation for added incremental operational recovery in 2024, according to Fitch. The ratings agency also anticipates a notable portion of the sector to lag significantly behind any recovery. n

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