Cover Finance
The New Era CFOIn today’s hospital, just focusing on finance doesn’t cut it
When Scott Hamlin signed on as assistant vice president of finance of Cincinnati Children’s Hospital Medical Center in 1988, the finance department was a sleepy backwater where he and his colleagues were valued for their technical accounting expertise. As he climbed the ladder and eventually became CFO, senior vice president and treasurer in 1998, he got busier but his focus was still primarily on finance. Sure, there were new issues, but the noise surrounding health care spending wasn’t deafening.
Today, the environment in the finance department couldn’t be more different. While technical expertise is important, it’s increasingly dwarfed by the need for Hamlin and his team to think and plan strategically in concert with other departments at the 475-bed facility. “My main role is to define how we as a health care institution are creating value and where we are creating value for our various stakeholders,” he says. “These include the community that has granted us tax-exempt status, the families who come to us for care, the payers and the practitioners that work here.”
Barriers that used to keep Hamlin and other CFOs pigeonholed are falling. Finance, operations, information technology, medical and nursing staff executives must collaborate for an institution to move forward. Hot-button issues such as price transparency, pay for performance, regulatory compliance and quality are blurring operational lines.
“Integration is the key word,” says James Anderson, CEO at Cincinnati Children’s. “We just put a new strategic plan together and a major theme is integrating all of the components of the hospital to achieve our strategic goals. No department, including finance, can work in isolation.”
So striking is the transformation that Larry Fitzgerald, CFO of the University of Virginia Health System, which includes a 500-bed hospital in Charlottesville, believes that today’s ideal CFO is a health care executive with a bent toward finance, not the other way around. It’s someone with a broad understanding of all aspects of health care including physician issues, operations and marketing.
“CFOs who are overly focused on finance won’t succeed,” he asserts. Other C-level executives, the board and the institution as a whole also must understand how the CFO’s role in strategic planning and day-to-day operations has evolved and grown.
Macro vs. Micro View
While CFOs always had their fingers on the financial pulse of a health system from the macro point of view, what they’re looking at has changed. “The role of the CFO used to be focused on balancing the books and achieving some type of marginal revenue and then you were done,” says John Chessare, M.D., interim president and CEO of six-hospital Caritas Christi Health System in Boston. “Now the stakes are much higher. Our health system needs a much more diverse person who can interdigitate with the leaders in our system who are actually providing the patient care.”
That sea change has shifted the skill set CEOs want in their financial gurus. In terms of education and experience, a certified public account was formerly a requirement for anyone hoping to ascend to the CFO position; not so today. “I’m seeing more would-be CFOs graduate with a master’s in health administration,” says Ann McGeorge, national managing partner of the health care industry practice at Grant Thornton LLP, and an adjunct faculty member in the school of public health at the University of North Carolina. “It used to be that CEOs and COOs would acquire that degree while CFOs were stuck in accounting.”
Financial officers are also expanding their knowledge of such management techniques as Six Sigma. “Health care has a lot to learn from companies like Wal-Mart and Toyota, and CFOs are hungry for exposure to these techniques,” says Russ Rudish, principal, life sciences and health care, at Deloitte & Touche USA LLP.
Departmental Lines Blurring
As they extend their reach, CFOs have to expand their knowledge base as well.
“One thing that has been important in terms of my success as a CFO in the past year has been my understanding of the operation,” says Theresa Larivee, CFO of the Fox Chase Cancer Center, a 100-bed cancer hospital in Philadelphia. “I need to understand what services we offer, who is providing them and how the patients are feeling about them. Only then can I get to the level of storytelling that I need to be at so I can explain where our financial resources are going and why.”
The convergence of financial, operational and clinical aspects is driving positive change. “Especially between finance and clinical staff, there can be an us-versus-them mentality,” says Robert Guyon, CFO of Caritas Christi. “We want the clinical staff to view us as a partner, to understand that our job is to get them the financial resources they need to do their jobs. We’ve had success in that area with RNs who also have MBAs and who serve as the finance department’s ambassador to the clinical world.”
At the same time, the CFO still must act as the steward of the hospital’s financial resources. “The other executives in the health system must recognize that the CFO still has a certain responsibility to ensure that the financial strength of the institution is as strong as it can be,” says Mark Teresi, CFO of 866-bed Presbyterian Hospital of Dallas. “This often necessitates hard decisions that aren’t necessarily very palatable to other departments.” By working closely with the CEO, COO, CNO, CIO and other executives, such decisions can end up being made on a cooperative—rather than adversarial—basis.
Internal transparency is vital to balancing financial discipline while funding the hospital’s growth. “When I’m as transparent as possible in regard to our financials and am willing to answer the tough questions that my peers are—and should be—asking me, I gain credibility as well as the confidence of my peers,” Larivee explains. “Then they will respect my position on something like financial reserves and refrain from trying to raid them.”
Chris Williams, a colleague of Larivee, who serves as the chief marketing officer at Fox Chase, cites the budget as an example of how the entire finance department and the CFO role have changed. Instead of working up a budget in isolation and getting a document back with spending cuts a number of months later, the budget is now a living collaborative document based on goals developed by consensus.
“I’m seeing the finance department viewing spending on a marketing campaign tied to meeting specific goals as an investment rather than just an expense,” she says.
On the flip side, other C-suite executives need to take more ownership of what were formerly finance-only issues. For Pamela Cipriano, R.N., chief nursing officer at the University of Virginia Health Systems, that means understanding how everything she does impacts the hospital’s finances—from finding ways to reduce a patient’s length of stay to the drug formulary to adopting new technology.
Hot-Button Issues
What’s causing these silos to collapse? Largely it’s the need to be more responsive to the marketplace. Consumers, regulators and payers de-mand more openness, better quality and lower costs. Hospitals need to respond, and not in the turning-an-aircraft-carrier-way of the past. Hospitals can’t make headway with pay for performance, price transparency, consumer-directed health care and regulatory compliance issues without co-opting executives from all corners of the institution.
As the reimbursement climate gets more difficult and the pressure for quality increases, pay for performance is moving front and center into focus in the executive suite. And it’s now a critical part of managed care contract negotiations.
“We need to organize ourselves at the bargaining table in terms of how pay for performance and quality relate so we are incorporating good metrics that are measurable into our managed care contracts,” Guyon says. “What Bob Guyon and the payers think is a good metric may not be. When we talk to the people who are actually in our facilities, we find that it can’t be identified, measured and reported in a way that can change behavior. This process has to begin at the organizational structural level so the finance person who is at the negotiating table has a clinical partner there or we’re setting ourselves up for failure.”
In many cases, IT systems need significant upgrades to track pay-for-performance measurements. That breaks down yet more silos, opening lines of communication with the chief information officer and the medical informatics team.
“It is not sustainable to hire talented people and ask them to get by on what are essentially Stone Age implements,” says Anderson of Cincinnati Children’s. “This happens at a lot of institutions that underinvest in their infrastructure and they end up losing their most talented people. We’ve made the commitment to that investment so the finance staff can provide the needed support to those actually providing the care.”
Pay for performance, like many other concepts in health care, can end up being a black hole where a health system puts lots of resources into building a system to support it without getting much in return. That’s because the bonus payments rarely come close to covering the expense of tracking the performance measures. Still, Hamlin says improving quality and linking pay and performance is producing benefits. He cites Cincinnati Children’s efforts to reduce surgical site infections. Each infection adds 10.6 days to a patient’s hospital stay and $27,000 in costs. Cincinnati Children’s reduced rates of surgical site infections from 1.1 infections per 100 procedures to 0.5. That translates into 33 fewer infections and a cost savings of more than $900,000 in a year.
“When surgical site infections occur that could have been prevented, they add costs for the payer and needless pain and a basically unacceptable outcome for the patient and the family,” Hamlin says. “By lowering our incidence of surgical site infections, we saved 10 patient bed days per year that we can now fill with better revenue-producing cases. This is a good example of the business case for quality.”
Price Transparency
Price transparency is another complex issue that requires a cooperative focus. “This isn’t an issue that you can just fix from the financial end,” says Teresi of Dallas Presbyterian. “In terms of government reimbursement and managed care contracts, you really have to apply price transparency simultaneously, which is difficult.”
And while price transparency is achievable for outpatient services like MRIs and CT scans, it’s not nearly as easy for complicated procedures. There are too many variables at play—how much of a discount insurers negotiated, how the hospital cross-subsidizes with other procedures, whether an unforeseen problem arises during surgery.
“I could share a range of numbers about what a particular procedure would cost but would have to put a caveat on it because that could change if something didn’t go as planned,” Fitzgerald says. “What it costs depends on the complexity of a particular patient’s case as well as how the procedure itself goes.”
To achieve price transparency, the clinical, financial and operational arms of the hospital must all work together. By breaking down the processes that make up the delivery of various services, the hospital can eliminate inefficiencies, improve quality and get a better handle on what it costs to provide services.
That is the ultimate goal. “Price transparency, pay for performance and quality are the future of health care,” Hamlin says. “The whole organization needs to have better measures of valuing the services we provide. They are the essential tools for creating, delivering, improving and sustaining the value of what we provide. These are not optional tools; they are essential to the health care consumer of the future, who has to be well-informed about who is good at what and what specific services are going to cost.”—Amy Buttell Crane is a writer who lives in Erie, Pa.
This article 1st appeared in the June 2007 issue of HHN Magazine.
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