What would you do if someone walked into your office, grabbed all of your petty cash, and started lighting $100 bills on fire? Ask them to stop? Tackle them? Have them arrested?
Whatever the response, I bet, it would be immediate and you’d ensure the unwanted guest doesn’t continue burning up cash. However, what happens when the perpetrator isn’t so obvious and the cash isn’t going up in smoke right before your eyes?
CFOs around the country are faced with this same dilemma every year. These CFOs have to try and add certainty and predictability to the bottom line. But they find themselves continuously battling shrinking profit margins, even during periods of increasing revenues.
The Answer Lies in the Balance Sheet
Somewhere there is cash burning up within the balance sheet. Still, finding who or what is behind this financial arson isn’t so obvious until you take a peek inside selling, general, and administrative (SG&A) expenses. It’s here where the perpetrator hides, slowly burning net profits.
The healthcare budget continues to spread like a wildfire. And now, most CFOs are now facing an all-out five-alarm blaze. However, it’s very clear why the fire continues to rage. Every year, organizations fail to realize they’re granting employees access to an unlimited company credit card. And that this credit card has few if any, effective controls to optimize its utilization.
Employees journey through the healthcare system swiping their medical ID card to make healthcare purchases. But your staff is making these purchases from suppliers who aren’t required to disclose cost and quality information. Employees who stay within network parameters can shop wherever they want and spend whatever they want. As a result, the healthcare budget continues to balloon.
Yet, every year the discussion between CFO and insurance broker is the same. Conversations aren’t focused on employee spending habits and those supplying the healthcare services. Rather, these discussions continue to revolve around those supplying the insurance coverage; those supplying the no-limit credit card.
As a result, CFOs continue accepting “less bad” premium increases in the name of “well, that’s the best we can hope for.” But, the only certainty this brings is a fatter waistline for the healthcare budget. Hope is not a strategy.
Under this philosophy, the only way to reduce costs is to reduce the quality of the benefit through increased out-of-pocket expenses and premium contributions. Consequently, these decisions result in predictably bad outcomes and only throw more gas on the fire. Insurance isn’t the problem.
Medical ID card utilization is the problem. As my mastermind colleague, Bob Gearhart Jr, states, “You don’t bring an insurance solution to a supply chain problem.” Eliminating this financial fire from spreading requires a CFO to shift attention away from those supplying the insurance coverage to those supplying the healthcare services.
By healthcare services, I am talking about the hospital, outpatient facility, and medication purchases employees are making every day. Incorporating financial strategies to create efficiencies within the healthcare supply chain gives a CFO the opportunity to extinguish the flames and create newly-found EBITDA (Earnings before interests, taxes, depreciation, and amortization).
The Wrap
Stop negotiating with the health insurance suppliers and start negotiating with the healthcare suppliers. Instead of settling for the 6% rate increase, CFOs can measurably generate cost reductions, without having to sacrifice any benefit quality.
Ya see, when you focus your energy and attention on mitigating the financial waste produced by the healthcare supply chain, you create outcomes, smothering the fire engulfing SG&A and restoring the health of the bottom line.