Edward J. Giniat
With all the problems that healthcare systems and hospitals confront, this is a great time for finance officers to demonstrate their value to the business.
In successful organizations, finance plays an increasingly important role in making strategic and key operational decisions. CFOs can bring a unique view to the table-a broad, objective perspective on costs, cash, and capital, with the long-term best interest of the organization in mind.
In contrast, near-term pressures to reduce costs, better manage cash and working capital, and monitor capital expenditures have caused some finance officers to focus more on the traditional tasks of accountants. I've recently heard that some organizations are considering narrowing the CFO's role. Such a view of the value of the healthcare finance function is troubling, now and for the future. A critical need-and challenge-for the profession is to provide healthcare organizations with significant leadership and value in important decision-making processes.
The increasing risks associated with the recession and the reform initiatives from Washington and state capitals make it imperative that finance have a seat at the head table. Healthcare providers confront growing enforcement activity from Medicare and Medicaid, increasing demand for quality reporting, the task of conversion to ICD-10, and major capital and operational restructuring. These and other challenges suggest the need for broadening the CFO's role and responsibilities, rather than limiting them.
Take Responsibility for Controls over Information Management
In "Measure and Report What Matters and It Will Make a Difference" in the February 2009 issue of hfm, I wrote about the need for greater relevance, reliability, and transparency of reporting by healthcare organizations, not only for external reporting, but also for the internal management of the business. With increasing scrutiny over the reporting of clinical information and financial data, healthcare organizations need greater comfort with the adequacy of their controls over the development and use of information. At the same time, leading CFOs are embracing the use of sophisticated tools such as business intelligence and continuous monitoring to make information available for decisions on a real-time basis, with real-time benefits. This is one area where the CFO needs to take a leading role in the organization.
Support the Board
The CFO also has the opportunity to deliver value in supporting board functions, including the oversight of risk management. As boards increasingly recognize the need to identify and analyze risks more effectively than in the past, it is likely that their risk management processes will require greater, broader, and more frequent effort. Who better than the CFO to help reform the organization's approach to risk and to support to the board in its responsibilities for risk?
Learn from Leaders in Business
In the general business community, the CFO's role is being enhanced rather than narrowed. In fact, experience in finance can be part of the training to become a CEO. A recent Spencer Stuart survey of 500 CEOs showed that 31 percent had previously worked in finance.a The CFO's agenda in the business community has evolved from the historical focus on "value preservation" to one of "value creation." Yes, the CFO must still oversee traditional audit, tax, and other compliance functions (value preservation), but leading CFOs are increasingly taking on a significant, participative role in the business and related strategies (value creation).
In healthcare organizations, the CFO needs to be front and center in discussions of growth opportunities, such as entering into business ventures with physicians or expanding into new service areas. In the current economy, the opportunity to look for "bargains" and the critical importance of developing scenarios for planning reinforce the need for effective cash forecasting. Yet almost half of the respondents to a KPMG International survey of 544 senior executives in companies around the world reported that the reliability of their financial data for forecasting was merely adequate or worse; only 12.5 percent thought it was excellent.b The area of cash forecasting is one where CFOs can step up to serve their organizations.
In addition, the selection and implementation of enterprise resource planning systems, once the sole domain of the CIO, have increasingly involved the CFO as his or her business and reporting needs have increased. Enterprise risk management, strategic planning, and investor relations-even in the not-for-profit segment of health care-require increasing input from the CFO.
Moreover, areas where the CFO has growing "influence" are on the rise. These areas, traditionally overseen by a COO, include facilities management, human resources performance management, regulatory affairs, and general operations. This growing influence may mirror a trend in general business; there are now 20 percent fewer COOs among the Fortune 500 and the S&P 500 than there were in 1999, which suggests the COO's responsibilities are increasingly moving to the CFO.c
The functional areas in healthcare organizations where the CFO is actively involved are expanding, as Exhibit 1 indicates.
Play a Strategic Role in the Business
Leading finance officers have streamlined their traditional processes and are already playing a valuable strategic role in the business. It is no coincidence that the CFOs of top-performing organizations spend less time on routine financial management and more time on delivering greater strategic insight. By successfully establishing themselves as valued partners in the business, these CFOs have earned the respect of their peers and helped their organizations to achieve a significant competitive advantage.
Help Develop Scenarios for the Future
As the reform initiatives evolve, it is imperative that finance bring its unique perspective to help the organization develop scenarios for the future. A clear understanding of the costs and complexities of each organization is an essential foundation for change. Otherwise, the unintended consequences of the various proposals could backfire if not put in the proper context. This is an area where finance professionals need to assert themselves.
What Does the 'P' in CPA Stand For?
This is no time to narrow the role of CFOs and their finance organization. Instead, finance officers should expand the scope of their activities and reinforce the value of their contributions to their organization and to the industry as a whole. When asked what role finance officers can play in transforming our healthcare system, David Walker, the former U.S. comptroller general and now CEO of the Peter G. Peterson Foundation, said to remember what the "P" in CPA stands for. This is great advice.
Although the challenges ahead are large and will put great stress on the finance function of health systems and hospitals, they will also create opportunities for people who are willing to take personal risks-to step up and help their organizations manage risk effectively. This is where CFOs can provide great value. Given the effects of the recession, the movement for reform, and the questions about the benefits that healthcare providers deliver, it is critical that the CFO be afforded a broad role and a seat at the head table.
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 (firstname.lastname@example.org).
This article represents the views of the author only and does not necessarily represent the views or professional advice of KPMG LLP.
All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity.
a. 2008 Route to the Top, Spencer Stuart, Chicago, Nov. 5, 2008.
b. Forecasting with Confidence: Insights from Leading Finance Functions, the Economist Intelligence Unit for KPMG International, 2007.
c. The Volatility Report 2009, An Analysis of C-level Movement, Crist|Kolder Associates, Hinsdale, Ill., 2009.