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Armchair Finance

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It's Not a Zero-Sum GameThere's a natural suspicion between clinicians and those in the finance suite at most hospitals-they often see each other as working at cross purposes. The big picture many perceive is that the docs are trying to improve patient care at all costs while the finance guys are trying to hold down spending on the gizmos and bricks in order to maintain the credit rating and keep the business viable. Such competing interests can be healthy. But it's up to the CEO and the board to find the appropriate balance between the two perspectives. How many times has the CEO had to referee disagreements over spending money on a new piece of fancy equipment or a new building a powerful doctor is screaming about over the arguments of the CFO who exclaims, "We just can't afford it!"Of course I'm overdramatizing-and oversimplifying-here, but my point is valid. All CEOs have limited resources. If we're going to spend capital dollars, many executives say, we're going to put it into improving quality of care rather than looking at internal controls. But that decision, long term, doesn't have to be either/or. Hospital senior leaders have to make difficult decisions every day about where to invest their scarce capital dollars. Imagine a theoretical capital planning meeting where $3 million is on the table. It's going to be spent somewhere, and everyone has his or her pet project. For instance, should we spend $3 million on a PET/CT scanner? Maybe we should spend it on a new outpatient center in the fast-growing suburbs? Or ... what if we forego the scanner or the outpatient center for a year or so and spend a couple million on implementing better financial controls?It may seem a little boring, but that last option can pay off. The bottom line is that you can have it all-or at least most of it. If you spend the money on financial controls this year, you might find enough inefficiency and waste to buy two PET/CT scanners in 2008. Or you could buy one and open the outpatient center, too. Ask Toyota if this works. I realize I'm preaching to the choir here, but spending on financial improvement isn't money wasted. The hard truth is that many nonprofit hospitals still have a long way to go to implement best practices in internal financial controls. Bondholders want transparency. The reward is better borrowing power if you give it to them. Ask Bob DeMichiei, CFO at University of Pittsburgh Medical Center, whether achieving Section 404 compliance with Sarbanes-Oxley paid off (HealthLeaders, October 2006). Granted, UPMC is a huge system with $5 billion in annual revenue. Maybe as a community hospital leader, you don't need to bite off an exercise that ambitious. But look at what works for you. A thorough outside audit of your financial processes can pay off bigger than you might expect.-Philip Betbeze