Healthcare Office of the CFO: Kodiak Solves Complex Challenges

Hospitals and health systems are operating in a more complicated financial, operational, and regulatory landscape, and this growing complexity extends to the many duties of the Office of the CFO.

As such, investors are targeting software and solutions businesses that address a broad range of healthcare CFO challenges, including revenue cycle management, financial reporting, supply chain optimization, vendor management, contracting, and compliance.

Below, senior professionals from our Healthcare & Life Sciences Group and Technology Group discuss what's driving higher investor interest across the hospital and health system Office of the CFO ecosystem. In addition, they highlight why recent Harris Williams client Kodiak Solutions—a leading financial planning and analysis provider and division of Crowe—is a prime example of the segment’s value-creation opportunity.

A Growing, Unmet Need

Consolidation of hospitals and health systems continues to complicate the industry’s financial environment and the management of net revenue. Meanwhile, large healthcare networks are facing rising margin pressure, leading CFOs to seek new avenues for alleviating these strains. By implementing Office of the CFO solutions that identify and optimize revenue more quickly and accurately, healthcare finance leaders can ease a host of pain points.

One common challenge for healthcare CFOs is revenue forecasting and, in particular, accurate assessment of outstanding receivables each month. This task has been a consistent headache due to high transaction volumes and variability in a dynamic reimbursement environment. Hospitals and physicians bill thousands of procedure types from a large pool of providers to hundreds of payors, all under contractual arrangements that vary by site of care.

James Clark, a managing director, says that for many health systems, performing a month-end report is spreadsheet-based and time consuming, requiring thousands of estimates and significant employee intervention. “It’s tough to estimate net revenue, calculate monthly reserves, perform lookback and variance analyses, and reconcile to the general ledger by relying on human power alone,” he says.

“For leading hospitals and health systems, it's increasingly important to contain costs and optimize business performance. Software tools and tech-enabled services help perform these vital tasks by addressing complex finance, reimbursement, revenue cycle, vendor management, supply chain, and risk and compliance issues,” adds Dan Linsalata, a managing director. “Software and solutions supporting healthcare CFOs across this wide range of needs are highly sought after by HCIT investors.”

Tyler Bradshaw, a director, also points out that the healthcare Office of the CFO market is largely un-vended. “Healthcare CFOs are typically managing their tasks in-house rather than using a tech-enabled solution for their problems. This approach creates significant growth and value-creation opportunities for software providers focused on the segment.”

Kodiak: A Solution of Choice

Kodiak offers a full suite of tech-enabled healthcare Office of the CFO solutions, ranging from software-only products to fully outsourced managed services, including its flagship SaaS-based Revenue Cycle Analytics (RCA) platform.

RCA, a solution of choice in the industry, leverages proprietary data and state-of-the-art technology to provide CFOs with net revenue visibility faster and with greater accuracy. Many of the company’s tools, platforms, and services—for example, its range of automation technology solutions that help customers increase their return on investment in risk mitigation—produce highly recurring revenue streams.

Beyond its product and recurring revenue advantages, numerous value drivers made Kodiak an attractive investment opportunity. Kodiak has deep subject matter expertise across finance and reimbursement, revenue cycle, and risk and compliance, which make up the backbone of its robust professional services offering.

At the same time, Kodiak’s broad access to trusted healthcare data underpins its suite of leading solutions. This data enables Kodiak to solve complex problems and address critical pain points for customers, such as by offering unique payor performance benchmarking solutions, categorized by market and payor at the most granular or macro level. "There’s tremendous potential in this proprietary data and the view of the market it provides,” notes Clark.

Furthering Kodiak’s value proposition is the fact that the Office of the CFO is a powerful access point into large healthcare organizations. Kodiak’s direct access to healthcare CFOs, backed by master service agreements, allows it to expand the solution set it provides to existing customers.

Linsalata says there is plentiful cost- and revenue-side decision making that flows through the CFO. Once a company has solved one problem for a client, it has a disproportionate advantage in being chosen to solve other challenges. “Companies can cross-sell many complementary services through the Office of the CFO, particularly within enterprise health systems looking to consolidate vendors,” he adds.

Lastly, Kodiak separates itself in the space by tailoring its solutions to each customer’s needs. Whether a solution takes the form of do-it-yourself software tools, managed services, or value-added consulting, Kodiak's model maximizes every client’s value from both the software product and vendor relationship. “From an investment standpoint, this helps Kodiak create strong revenue opportunity and multiple ways to win in the market,” explains Clark.

Addressing Problems, Amplifying Results

Kodiak is just one example of the growth opportunity for software and tech-enabled products and solutions serving the healthcare Office of the CFO. Clark highlights that the most successful businesses in the space tend to leverage multiple strengths. “First, their tools and services are built upon comprehensive data sets. They also can pair a software tool with managed or professional services, so they can meet the customer where they are and address a full set of needs,” he explains.

Linsalata adds that leading companies have a proven ability to organically build new products and services while expanding their solution offering to solve more CFO problems. This can include a pipeline of M&A targets to expand the product suite, service capabilities, and geographic footprint.

For example, there are companies that have tools to solve CFO challenges but lack access to the channel. “Once integrated with the Office of the CFO, the ability to introduce more solutions amplifies the opportunity with any given customer,” he says. “Leaders can also consistently land new customers and demonstrate a track record of both strong customer retention and the ability to expand existing accounts.”

A Powerful Access Point

The Office of the CFO is a large and growing market for HCIT investors as health systems navigate complexity while focusing on containing costs and optimizing results. “Kodiak is an exemplar of the investment opportunities in the space, and there are many other interesting ways to participate,” says Linsalata. “With growing CFO needs for technology enablement, there is plenty of white space for new entrants, and the future looks promising.”

To discuss value creation opportunities within the healthcare Office of the CFO and HCIT more broadly, please contact our senior professionals.