Edward J. Giniat
Over the past nine months, I've read headline after headline on the front pages of major newspapers questioning the performance, pricing policies, and even the purpose of not-for-profit healthcare organizations.
The articles take issue with levels of charity care and community benefit, executive compensation, billing and collection practices, the size of investment portfolios, and the operating efficiencies of complex healthcare organizations. Regardless of whether these views are perception or reality, recent market conditions demonstrate the fragility of our nation's healthcare systems. The country is experiencing a recession unlike any other in terms of its effect on health care. At the same time, the new administration promises to deliver reform to the healthcare system as we know it. What are some lessons from all of this? What should leadership do in looking forward?
Lesson 1: Tell the Story Better.
The first lesson is that not-for-profit providers need to do a better job of telling their story to their stakeholders. Although much of the relevant information exists, it can be nearly impossible to find. Do people believe that it won't make a difference if reporting is relevant, reliable, and transparent? It will! Maybe not today, but certainly going forward. The industry just needs a framework. One long-standing example is FASB Statement of Financial Accounting Concepts No. 4: Objectives of Financial Reporting by Nonbusiness Organizations (CON 4). The statement actually talks about private not-for-profit hospitals, which often possess certain distinguishing characteristics of both business enterprises and nonbusiness organizations. In fact, the key reporting objectives that CON 4 prescribes appear to respond very well to current criticisms about the performance, pricing, and purpose of not-for-profit healthcare organizations. CON 4 reporting objectives include providing:
- Information useful in making resource allocation decisions
- Information useful in assessing services and the ability to provide services
- Information useful in assessing management stewardship and performance
- Information about economic resources, obligations, and net resources
- Information about organization performance, including service efforts and accomplishments
- Information about liquidity
- Management's explanations and interpretations about reported information
In fact, the KPMG Healthcare & Pharmaceutical Institute team recently looked at the public reporting around these objectives by certain AA+/AA-rated healthcare systems and concluded that their reporting in general was both opaque and inconsistent. The CON 4 framework certainly provides an interesting way to tell the story consistently and holistically.
Lesson 2: Use Only Trusted Information.
The second lesson is that before reporting information externally, leaders of an organization need to ensure that the information can be trusted. For example, only a handful of not-for-profit healthcare organizations formally report on their internal controls over financial reporting. Perhaps more important, as more and more reporting of nonfinancial information is needed, even fewer organizations report on their internal controls over clinical reporting. Have you ever counted the number of reports with nonfinancial data or repurposed financial data that go out publicly from any one institution within a year? I would imagine it is in the hundreds, if not thousands. Does your organization truly have good governance over its clinical data?
Lesson 3: Anticipate the Next Big Surprise.
The third lesson can be described as "lessons not yet learned." The current environment and the dramatic impact it has had on providers' operations and financial condition reinforce the need to rethink strategic planning from top to bottom. Unfortunately, health care still operates in a "detect and correct" mode, reacting to each new surprise that comes along. Industry leaders need to do a better job of managing risk in a way that helps better anticipate and prevent the next big surprise. One could argue that there is still a great distance to go, but the discipline around enterprise risk management is advancing rapidly.
A Call to Action
At the end of the day, the business leaders of health care need to do a better job of telling their story. Further work needs to be done on just how to do this. It starts within each organization and, I would suggest, requires support from the top down. New tools, such as business intelligence and continuous monitoring, are making information available for decisions on a real-time basis, with real-time benefits. At the same time, risk and controls need to be properly managed. Processes need to be in place to ensure that information is relevant, reliable, and, ultimately, transparent.
The final question is, does it matter if healthcare organizations do a better job of telling their story? Will the payers and the regulators care? Perhaps the question is not if it makes a difference, but when. I am convinced that industry leaders working together need to take the initiative in communicating to stakeholders the good things they do. The time to start is now.
I want to close with a comment from a report issued by the CEOs of the six largest global accounting firms in November 2006:
Over the longer run, experts agree that current systems of reporting and auditing company information will need to change-toward the public release of more nonfinancial information (some or much of which may be industry-specific) customized to the user, and accessed far more frequently than is currently done. It is time, therefore, for all global capital market stakeholders involved to launch a process that will lead to the development of a new business reporting model, with a clear identification of the role of the independent audit and requirements dictated by that model.
With the reputations of not-for-profit healthcare systems at stake and demands for new information rising rapidly, healthcare organizations need to take the steps necessary to develop a new and more effective approach to managing information. Having the most accurate information available about clinical performance, the fairness of pricing, and the benefits to the community, especially in caring for the uninsured and underinsured, will better prepare each one to address the demands that healthcare reform undoubtedly will bring. By identifying key information and determining how to use it internally, enabled by new automated processes, not-for-profit healthcare leaders can be catalysts in this critical process-and blaze the trail for others to follow.
Edward J. Giniat, CPA, is a member of HFMA's National Board of Directors, the national leader of KPMG's Healthcare practice, Chicago, and a member of HFMA's First Illinois Chapter.
This article represents the views of the author only and does not necessarily represent the views or professional advice of KPMG LLP.
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Publication Date: Sunday, February 01, 2009