The Role of the Finance Teamin Managing Hospital Operations

Eric MelchiorExecutive Vice President & CFOGreater Baltimore Medical Center

March 30, 2012

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Agenda

• Finance – What Really is it Anyway?– How we can be labeled– Primary functions/responsibilities

• The Role of the CFO – Transcending Financial Management into Business Operations– Core competencies (it’s broader than we think)– The characteristics of a successful CFO

• A Day-in-the-Life

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Presentation Objective

To walk-away with an appreciation for the comprehensive role that the Finance Team plays in helping to achieve the Strategic Vision and Mission

of an organization

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The Traditional Perspective

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The Traditional Perspective

• Accounting & Finance department are “bean counters”, fulfilling the required functions of financial reporting (profit & loss statements), payroll and accounts payable Not actively involved in the development of the organization’s

strategic vision and plan Little input to daily and operational decisions…don’t really understand

how the hospital works Primary function is to serve as a behind-the-scenes service, tend to not

have a high-degree of visibility or interaction Too narrowly focused….care only about the “bottom-line”

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The Reality

• Hospitals and other healthcare providers are complex organizations, where financial management involves numerous sophisticated functions and many professionals Operate at a relatively low-margin Significant employer to local economies (added political element)

– Not-for-profits often viewed as community resource/partner Sophisticated business alignments – joint venture, equity investments High degree of federal and state regulation (Medicare/Medicaid) and

potential to impact operations significantly – Healthcare Reform High degree of publicity – quality outcomes, malpractice litigation Complex relationships with government agencies, community, patient

and providers

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Functions of the Finance Team Accounting – responsible for reporting of monthly and annual financial

statements, cash management, accounts payable, payroll and tax/ERISA reporting

Budget – develops the annual operating and capital budgets in the context of the strategic and operating plans

Rates & Reimbursement – manages the hospital charge structure and reimbursement received from 3rd parties

Patient Financial Services – generates and manages patient billing Admitting/Registration – collects and obtains necessary patient

information for clinical services and billing Business Planning & Development – models the performance of

existing services and new opportunities Internal Audit & Compliance

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Functions of the Finance Team

Accounting – Communication with Executive Management, Board of Directors and

external parties (bond rating agencies, lenders, donors, etc.) regarding hospital’s financial situation and associated relevant issues

Preparation of financial statements, governmental filings, tax filings and survey’s

Treasury management – maintaining bank accounts and the organization’s financial transactions

Interpretation of new accounting pronouncements and calculation of associated impact to organization

Maintenance of hospital investment portfolio

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Functions of the Finance Team

Budget – Routinely monitors and reports performance compared to the

established and flexible budgets Acts as a liaison to departmental management and executive

management to understand operational and environmental issues that will impact hospital performance

Educates department, as well as providers, on budget responsibilities and the implications of operational changes to the departmental and organization budget

Implements and maintains productivity systems for continual performance improvement

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Functions of the Finance Team

Rates & Reimbursement – Maintains the Charge Description Master (CDM) as the basis for

generating patient charges Interprets and models complex reimbursement methodologies (unique

and particularly important in Maryland given the rate regulation) Prepares federal (Medicare/Medicaid) and State (HSCRC) cost reports Often acts as coordinator for community benefit related activities of the

entity

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Functions of the Finance Team

Patient Financial Services – Obtains insurance authorization for numerous services to be provided

prior to patient visit to ensure payment is received for services provided

Interacts with insurance companies in order to obtain payment for billed services

Tracks and responds to insurance denials (RAC audits), including redesign and modification of operational processes as necessary

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Functions of the Finance Team

Admitting/Registration – The organization’s “front-line-of-defense” for accurately obtaining

information that allows the revenue cycle to proceed efficiently– Billing and revenue collection cannot effectively proceed without a robust

admitting/registration process Collects patient co-pays at time of admissions – recent practice that has

resulted in significantly more cash up-from to providers

Business Planning & Development – Assess the hospital’s “market” with respect to market-share and

external competitive pressures Negotiates with parties regarding new ventures and affiliations

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Functions of the Finance Team

Audit & Compliance – Oversees Corporate Compliance and HIPPA Privacy & Security

Programs Develops an internal audit program designed to audit/test areas of

high-risk for the purpose of ensuring that financial statements and management reports can be relied upon

Administers and oversees a Corporate Integrity program

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The Role of the CFO – the Traditional View

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Characteristics of a CFO – the Traditional View

• Bad Cop – enforcer of the many things unpleasant (bill collector, shrewd negotiator, savvy entrepreneur, deal/idea killer)

• Lacks Compassion • Introverted and not people focused• Tunnel Vision (can be a positive or negative attribute)• Analytical and detail oriented• No Personality or Sense of Humor• Unapproachable/aloof• Boring…no fun!!

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The Role of the CFO in Today’s Organization – Core Competencies

1. Strategic Thinking – understand the long range vision

2. Systems Thinking – think of the overall system operational effectiveness

3. Results Orientation – driven to achieve and outperform the competition

4. Collaborative Decision-making – include “relevant” others

5. Action Orientation – act decisively and boldly

6. Champion Business Thinking – business focused outcomes

7. Coaching and Mentoring – release the potential in people

8. Influence – build support, commitment, agreement

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The Role of the CFO in Today’s Organization - Skills & Knowledge

– Product line management– Managed care contracting– Patient care & outcomes understanding– High priority on Information Systems– Higher emphasis on Income Statement than

Balance Sheet– Superior planning and treasury skills– Knowledge of Medical Records– Business development

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Critical Qualifications for Today’s CFO

1. Advanced Business Acumen Understands the key business drivers, and can expertly maneuver in

order to further the organization’s Mission Acutely aware of existing and emerging financial issues and the

potential impact to the organization Ability to decipher and integrate complex analysis (including

forecasting models and budgets) in order to make business decisions that are consistent with the organization’s Mission– An ability to eliminate the superfluous

Maintains a focus on the Revenue Cycle Expert negotiator and sales person Fundraiser

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Critical Qualifications for Today’s CFO

2. Master Communicator with the Ability to Influence Is a model of integrity and ethical values

– Allows trust to be instilled– Results in the creation of trusting relationships

Can effectively explain complex financial information to various skilled audiences (Board, external interests, Executive Management, etc.)

Can develop and build a talented Finance Team (recruitment, retention, reward/recognition)

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Critical Qualifications for Today’s CFO

2. Master Communicator with the Ability to Influence Decision-Maker

– Involves others as part of the decision-making process– Maintains composure/provides an atmosphere of confidence/calm– Demonstrates decisiveness– Proven track-record of making the right decisions

Work with various teams and individuals of differing personalities and points-of-view

Demonstrates compassion towards individuals and situations Must be a good listener

– Is frequently the principal advisor and sounding-board to CEO Arbitrator

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Critical Qualifications for Today’s CFO

3. Strategic Orientation Contributes to Strategic Formulation

– Can influence strategic development by making strong financial/business arguments

– Exercises diplomacy at all levels of the organization for the purpose of advancing issues

– Always considers strategy and Mission in decision-making process Promotes and can lead organizational change

– Always looking for and evaluating opportunities that can further the organization’s strategy and Mission

– Can integrate process improvement effectively Focus always considers long-term goals (5-year time horizon) of

organization

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Today’s Model CFO

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A Day-in-the-Life

• Healthcare CFO’s are different than many other industry CFO’s in that the roles can vary widely within the industry depending on organization size and structure. Various responsibilities I’ve maintained have included:– Corporate Finance Medical Records Coding– Physician Practices Facility & Support Services– Business Development Management Information Systems– Managed Care Internal Audit & Compliance– Patient Financial Services Purchasing– Medical Records Environmental Services– Patient Access Central Sterile Supply

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A Day-in-the-Life

– Human Resources Credit Union– Telecommunications Laundry & Linen– Radiology Laboratory– Risk Management Legal– Volunteer Services Daycare– Security Pension & Benefit Administration– Real Estate/Medical Offices– Construction of Medical Office Buildings and hospital expansion

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A Day-in-the-Life

• In addition to the variety of departments/services managed, I’ve had the opportunity to manage numerous types of entities, such as:– Nursing Homes– Hospice Programs– Home Nursing Care (Visiting Nurse Association)– Medical Transportation Services– Blood Banks– Collection Agencies– Captive Insurance Companies

• Results in CFO being integrally involved with operations

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A Day-in-the-Life

• Participate in Numerous Meetings– Operational meetings (often to demonstrate support and

understanding of process, for example Department of Medicine and Surgical Services monthly meetings)

– Board Committees – Finance, Audit, Investment, Compensation and Strategic Planning

– Departmental meetings – CFO is responsible for the managing a variety of departments (Accounting, Budget, Rate & Reimbursement, Patient Financial Services, Medical Records, Coding, Business Planning, IT, etc.)

– Executive/Senior Management meetings – manage the operations of the hospital in the context of the strategic and operating plans

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A Day-in-the-Life

• Respond to External Issues– Manage the operation of joint ventures (Radiology/MRI/pharmacy,

etc.) – Further the organization’s Mission in light of political interests

(Medicaid budget shortfall)– Maintain investor relations (Address rating agencies & investors in

response to existing debt as well as for the purpose of accessing new capital)

– Manage unique business entities of a healthcare system (Insurance company, physician office buildings, etc.)

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A Day-in-the-Life

• Other Responsibilities “As Assigned”– Administrative Rounding – time spent on clinical units as a

mechanism of showing executive management support/visibility. Used to understand the issues relevant to a specific unit and/or process.

– Board Relations – critically important…the CFO doesn’t have 1 boss…he/she has numerous, including Board members and associated interests

– Fundraising – the CFO is critical to expressing the strategic goals and Mission of the organization for philanthropy purposes

– Serve as a Board Member – important to demonstrate that the CFO is a community resource

– Must be able to assume broader administrative duties if called upon

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Final Thoughts

• Days often start early and can end very late• Politics can be exhausting• Tough to manage multiple interest and personalities• To allow patients to access the care we all want for our

loved ones when receiving medical care services– Quality outcomes– A positive service experience

• Legacy – to leave behind a viable/thriving asset that can effectively meet the needs of the community we serve

• The CFO role is demanding and challenging, but exciting and never boring