Beyond Calculators

Most hospital executives can only dream of building a hospital from scratch.

But Craig Kinyon is living that dream.

For the past several years, Kinyon has worked to make sure that when The New Reid, a hospital in Richmond, Ind., comes out of the ground, the business relationships that will secure its financial future will already be cemented in place. Before the replacement campus was designed, the hospital reached out to surgeons, primary-care physicians, radiologists and cardiologists to initiate investment opportunities designed to avoid the competitive rancor that now threatens the financial future of so many inpatient facilities.

“We’re locking everybody into the same destiny,” says Kinyon, chief financial officer at Reid Hospital and Health Care Services. “All are getting in the same ship so people won’t go off and do their own thing.”

Kinyon’s responsibilities in designing the new hospital campus have included risk assessment, strategic planning, relationship building, negotiating and other tasks that the hospital CFO of yesteryear would not expect to see on a job description. He and others say that as hospitals face new competitors, new payor models and new types of accountability, the CFO’s position is undergoing a transformation. Merely being competent with a calculator no longer cuts it.

“In the old days, that position was really a typical green eyeshade accounting job, and the folks that filled that job were very competent, but they were sitting at their desk looking at numbers,” says Hank Wells, managing director at Tampa, Fla.-based Navigant Consulting Inc., and a former hospital CFO. “To be successful today, one has to be a true business executive and has to understand a whole lot of issues that in the past weren’t so important to the CFO.”

Indeed, after surveying hospital CFOs last year, the Healthcare Financial Management Association offered a tongue-in-cheek job description that illustrates Wells’ point:

Visionary Leader Sought: Multihospital system seeks a persuasive, flexible, creative coalition-building educator and strategic thinker with strong communication skills. Must have a broad understanding of all hospital systems, extensive experience working with physicians, and a track record as a successful negotiator. Must be a team player and able to represent the organization to a wide variety of constituencies.

Almost as an afterthought, the fictional ad continues:

Must also be good with numbers.

A title befouled

This increasing level of responsibility comes at a time when, in the world outside of healthcare, the very job title of CFO has been dragged through the mud. Former hotshot CFOs at WorldCom Inc. and Tyco International Ltd. are cooling their heels in prison while the erstwhile CFO at Capital One Financial Corp. fights civil insider trading charges and infamous Andrew Fastow, late of Enron Corp., sleeps on a prison cot when he isn’t trying to help the government convict his former colleagues.

In addition to besmirching the job title they shared with thousands of honest individuals, dirty-dealing CFOs left their more honorable brethren with a new burden to bear. The Sarbanes-Oxley Act of 2002, passed by Congress after accounting scandals hurt employees and investors, has turned out to be so complicated and costly that some public companies are going private to escape it.

Nonprofit hospitals are not subject to Sarbanes-Oxley, but many of them are being encouraged by debtholders and board members to adopt a number of its provisions.

“We’re implementing almost all of Sarbanes-Oxley, and I think that’s fairly common around large hospital systems around the country,” says Chuck Robb, senior vice president and CFO of Saint Luke’s Health System, a 10-hospital system based in Kansas City, Mo. “Healthcare CFOs are becoming more like public company CFOs. There is more transparency, more accountability than when I got into the business” 15 years ago.

New accountability

Richard Clarke, the HFMA’s president and CEO, says the top challenges that his members face are topics that, just a few years ago, were rarely mentioned in healthcare.

“No. 1 is the issue of safety and quality, and No. 2 is pricing,” he says. Underlying both those issues is a willingness to embrace the new healthcare buword: transparency.

“The old school of thinking was, ‘tell people as little as possible to get by,’” says David Oppenlander, vice president of finance at 170-staffed-bed St. Luke’s Hospital in Maumee, Ohio. By contrast, St. Luke’s is working on a patient-friendly billing initiative that thrusts Oppenlander and his work before the public.

“We’ll probably end up having a couple of community forums to say, ‘Here is the typical hospital bill. What do you think, what do you need, what do you want out of this bill?’” he says.

However, the public is only one of Oppenlander’s audiences. Being able to communicate financial information that can be used in decision-making by top executives, directors and line managers is equally important. “We want to empower all of the middle-level managers to make the right decision,” he says. “If they have no financial information, they’re always going to make the wrong decision.”

That connection between finances and operations is why Kinyon, at Reid Hospital and Health Care, has made information technology a top priority for the past decade. An information systems director reports to Kinyon, who then uses a return-on-investment analysis to advocate to the board of directors for investments.

“To me, the business of a hospital is at the bedside, and if we’re going to be effective, CFOs need to be providing information and tools for the people who can actually affect the operations of the hospital,” he says.

Co-opting competitors

When discussions about replacing Reid’s aging facility first began, Kinyon undertook another kind of business analysis. He considered the impending capital investment in conjunction with the possibility that physicians might open competing facilities.

“I raised a red flag. We can’t go into a building project with that level of risk, so we kind of fast-forwarded the relationships,” he says of the hospital-physician business partnerships that are increasingly common in healthcare.

The New Reid campus will open next year with an ambulatory surgery center owned jointly with surgeons, an imaging center in partnership with radiologists, a cardiac diagnostics center and a cardiac catheterization laboratory in conjunction with cardiologists and a medical office building owned primarily by physicians.

“We can do a lot more by working together to grow the whole pie,” Kinyon says. “The joint ventures...really structured the entire design of the campus.”

The increasing responsibilities for CFOs come with increased salaries. The HFMA survey found that average total compensation for hospital and health system CFOs hit $172,000 in 2005, up from $151,000 in 2003.

Wells, whose recent assignments include serving as interim CFO at University of Missouri Health Care in Columbia, and as interim CEO at Martin Luther King Jr./Drew Medical Center in Los Angeles, thinks CFO salaries are increasing a bit faster than those of other healthcare executives.

“The CFO who possesses extraordinary leadership qualities is in great demand and short supply,” he says.

Lola Butcher is a Springfield, Mo.-based freelance writer and a frequent contributor to HealthLeaders.