Hospital chief financial officers are likely to experience increased scrutiny of their organizations’ finances as a result of more publicity around healthcare fraud and abuse.
Ethically grounded leadership in accounting and finance makes it a priority to consider how to make good and moral choices in regard to the preparation, presentation, and disclosure of financial information. An important part of disclosure is establishing a clear line between what organizations regard as facts and what organizations regard as opinions, perspectives, and even myths, as well as falsehoods. This is not the pursuit of the philosophical truth but rather the pursuit of integrity, which begins in many cases with the approach CFOs takes in relation to the stages of moral development.
During the past two decades, a series of financial reporting scandals in organization such as Enron has brought these issues to the forefront. Understanding accounting and financial ethics issues helps healthcare finance leaders ensure they are considering the implications of their actions.
Fraud and abuse are ongoing problems throughout the healthcare sector. It is widely publicized that some of the arguments to repeal and replace the Affordable Care Act focused on reducing healthcare costs by eliminating fraud and abuse with a specific focus on Medicare, Medicaid, and to a lesser degree workers’ compensation. Hospital CFOs have not escaped scrutiny and legal suits.
Are there pressures to lower costs and maximize financial margins? Yes. Are there incentives targeted at individual CFOs that allow them to increase their annual incomes and long-term deferred compensation if the financial metrics reach or exceed targets? Yes.
Achieving Financial Targets
The financial goals as measured by various metrics are not the issue. The issue is: How do CFOs and other financial leaders achieve those targets? In general, there are four ways a CFO may seek to hit those numbers.
By any means necessary. Business is business. Business is lean and mean. Those that embrace this approach may say, “You gotta do what you gotta do.” Ethical egoism is the norm that is often followed in this approach or a complete lack of ethical awareness.
Don’t get caught. This approach revolves around Kolberg’s Theory of Moral Development. Kohlberg found that children will often do what they know is right if the risks of getting caught are high. Yet, if the risks of getting caught are low to nil, then children consciously decide to “cut corners.” This type of ethical decision making is deliberate. It is conscious. Unfortunately, there are adults who use the same risk-based moral compass as children. This approach is obviously not recommended.
Stay out of court. Staying out of court is a laudable goal. Yet, it is essential that ethically informed financial leaders differentiate between illegal and unethical decisions. There are cases when both criteria apply, such as when money is landered through a hospital-owned venture. And there are instances in which only one criterion applies, such as going beyond what the law dictates.
Kohlberg theorized that there are three progressive stages of moral development beginning with preconventional, which focuses on avoiding punishment, and ending with postconventional, which focuses on universal principles. The middle stage of development is conventional, which focuses on upholding laws. As such, financial leaders who are focused legally have not progressed beyond the conventional stage of development, and those who solely are afraid of financial penalties or going to jail are stuck in the preconventional stage.
Do the right thing. Kohlberg’s post-conventional stage describes “do the right thing” because the focus is above and beyond the fear of punishment and a myopic focus on the law.
Examining Ethics Codes
Many ethics codes are interpreted as “don’t get caught” or “do the right thing,” depending on the individual’s stage of moral development. People who are concerned about being punished because they consciously violate the code or who mistakenly violate the code and seek to “cover their tracks” are operating at the preconventional stage. On the other hand, professionals who fully embrace the code and have internalized it as their way of doing business are operating at the post-conventional stage.
Presenting Financial Information
One of the specific provisions of the HFMA Code of Ethics is “striving for the objective and fair presentations of financial information.” Consider the following scenario, thinking about the four ways of seeking to hit the numbers and the stages of moral development.
Imagine that a CFO is presenting the financials to the audit committee or the investment committee of the board, and a board member challenges the source and/or veracity of the financial information presented and the CFO responds, “Well, there are many ways of reporting net income. We have decided to use this methodology because the other methodologies are biased and not appropriate given our context.”
Then, another board members says, “I understand, but I am curious why we are not universally using this net income methodology across the enterprise.”
The CFO replies, “It is assumed that we select that methodology appropriate for the setting.”
The question on the table is which net income methodology is appropriate and what is the basis of appropriateness. Is it a statute? Is it a generally accepted accounting principle standard? Is it a customary way of doing business? Is it solely up to the CFO to make the determination based upon the situation? Is it driven by the incentives and disincentives that the CFO may enjoy or not enjoy?
Seeking the Truth
Fair financial reporting is not objective because it often begins with the personal integrity and professional conduct of individual finance leaders and the collective mores that arise from these individual financial actors. Audiences may believe information is correct because they trust the source who says the information is truthful, correct, and irrefutable. Or an audience might decide not to place complete trust in the source and instead verify the facts.
The bottom line for ethically grounded financial leaders is to first model financial reporting behavior that sends the signal to other senior leaders, to the board, and to others within the finance function that your numbers can be counted on for being right—both objectively and ethically. Furthermore, as a financial leader, it is your affirmative duty to create a set of processes, procedures, and policies not to mention a culture where all members of the financial team are also approaching their work from the point of view of doing the right thing.