By mandating common data standards and deploying common processes across the finance function, healthcare organizations can become more responsive to market changes-and better able to outperform their peers.
Healthcare organizations share a diversity of risk. Hospitals face strategic risks in their relationships with physicians. Supply chain risks can significantly affect cost per case. Staff and patient injuries can damage finances and reputation; changes in federal reimbursement policies can magnify operating risk; and natural disasters can destroy hospitals themselves.
Recently, IBM, together with the Wharton School and the Economist Intelligence Unit, surveyed CFOs-including 42 healthcare CFOs-to discover how CFOs and other senior finance professionals are affected by and handle risk. The findings suggest that CFOs use different financial management and governance models to deal with risk. Healthcare CFOs can better manage risk and meet industry and market challenges by standardizing processes for capturing and analyzing data.
About the Study
IBM, together with the Wharton School and the Economist Intelligence Unit, recently completed its third Global CFO study, surveying more than 1,200 CFOs and senior-level finance professionals in five major sectors, 79 countries, and organizations of varying size. Among the CFOs surveyed were 42 healthcare CFOs, whose insights help to inform this article.
Are CFOs Ready for a Riskier World?
A large portion of all the CFOs surveyed had experience with risk events: 46 percent of organizations with revenues under $5 billion experienced a major risk event, and 39 percent were unprepared for the event. Risk was not limited to financial risk. The study found that 87 percent of risk types that deflated a company's market capitalization was nonfinancial. Of the six major types of risk events, 32 percent of CFOs surveyed mentioned strategic risk, including that associated with markets, customers, products, and other major business categories. Geopolitical and environmental/health risks each were cited by 17 percent of CFOs surveyed, compared with financial risk, which was mentioned by 13 percent of respondents.
Hospitals, in particular, face a considerable amount of risk. But only 52 percent of hospital CFOs surveyed said their organizations have a formal risk management program. The survey findingssuggest that the likelihood of a risk event is too great for hospitals not to devote resources to developing such a program. The question is: What are the key chief considerations for risk management?
Standardization Is Key
At its core, risk management is about getting to the truth about the organization. And the best way for the truth to be told is through standardization of the way data are processed and reported. Process and data commonality opens up new dimensions (for example, new customers, channels, and suppliers) and new ways to view volumes, revenues, and profits.
Through such commonality, an organization shifts the conversation from the validity of the numbers to the best use of them for the business. In the healthcare industry, this means converting the massive amount of data generated by the industry into useable and serviceable intelligence.
Today, most major healthcare organizations maintain a portfolio of systems designed and optimized for transactional performance. Often, these systems prevent healthcare organizations from having an enterprise view of the market, which limits the organization's ability to respond quickly to market changes. For these organizations, an integrated system that enables data aggregation and analysis, the results of which could be applied in clinical and business settings to dramatically improve quality outcomes, would provide unprecedented knowledge about their operations, patients, and effectively all aspects of their businesses.
System architecture and infrastructure help create a framework to capture data easily from various areas that may appear to be disparate on the surface. Service-oriented architecture (SOA), a business-centric IT architectural approach that supports integrating one's business as linked, repeatable business tasks, or services, is one such approach. Matching clinical data to financial information may have seemed daunting in the past, but systems built on a SOA framework, for instance, allow for quick and easy data integration. These state-of-the-art systems also allow for more integrated and efficient workflows, reducing redundancy and costs and helping to establish rule sets and workflows in a proactive manner.
Action Steps for Healthcare CFOs
As "truth" owner, the CFO can help shape operational decisions and strategic direction.
Based on the findings of the study, there are four major steps that healthcare organizations-and their CFOs-can take to standardize processes for capturing and analyzing data.
Establish global standards.Two-thirds (69 percent) of all CFOs surveyed said that standardization is difficult, but imperative to achieve. Global process ownership (as opposed to process enforcement or process participation) is critical in getting past boundaries and barriers. Global process ownership establishes responsibility and accountability for the consistent design and deployment of a given process. This formalized accountability helps ensure that "everybody's job" does not become "nobody's job." Ownership also encourages best practice sharing and continuous improvement. Organizations with strict adherence to global process ownership are much more likely to have adopted process and data improvements enterprisewide.
Simplify systems and delivery models. Enterprisewide process and data standards provide greater opportunity to simplify enabling systems and delivery models. This step can help increase the speed of deployment and execution of finance activities while providing finance with greater flexibility in adjusting to changing business models. Common data definitions are an important part of this approach.
To help healthcare CFOs surmount today's challenges in their move toward process standardization, revenue cycle information systems should include the following attributes:
- Built-in 'bolt-on' capability
- Adaptability and flexibility
- Workflow rules-driven capability
- Powerful analytics
- Consumer-focused features
- Single-database structures
- Lower total cost of ownership
Orchestrate risk management. CFOs are uniquely positioned to determine and guide the overall enterprise risk profile. In publicly traded companies, they are the only C-suite members called upon quarterly to provide an aggregate picture of the enterprise. They are also personally vested in knowing where risk resides, as an increasing number of jurisdictions require certification of financial statements with their signatures. The survey results suggest that effective organizations are more likely to provide greater top-down direction about the organization's official position on risk appetite and tolerance from the board level to middle management.
Combine performance and risk management. Healthcare organizations should begin to move toward risk-adjusted performance management. Those that take control of their risk management in a formal and purposeful way are more likely to identify risk events faster, respond to them more quickly, and prepare for them better. A highly effective way to embed risk management into the organization is to use the same techniques and disciplines to assess risk as are used to measure performance.
Healthcare CFOs should exploit their knowledge of planning, budgeting, and forecasting to help set risk management strategy. Key risk indicators should be presented alongside key performance indicators, and both should be prioritized based on their material impact on value drivers. As the CFO of a North American healthcare payer observed, "Improving risk management within finance is important, but integrating it with operational performance is critical."
Steps Toward Success
By mandating common standards, building common data definitions, and deploying common processes across the finance function, healthcare organizations can become more responsive to changes in the market and industry, more flexible, and better able to outperform their peers. Healthcare CFOs are well-positioned to lead their organizations toward such standardization.
Thomas Cocozza is strategy and change consultant, Healthcare Transformation Group, IBM Global Business Services, Annandale, Va. (firstname.lastname@example.org).
Publication Date: Wednesday, October 01, 2008