In the first part of a two-part series, he discusses what he believes is most rewarding and most challenging about being involved in healthcare finance, and how the profession has evolved over the years.
Q: What do you enjoy about being a healthcare CFO, and what are the biggest challenges?
Blaine J. O'Connell: There are two major sources of enjoyment for me as a healthcare CFO:
1. I entered the field in 1977 from public accounting almost by accident. Many of my assignments as a CPA were in the healthcare industry and, during my brief three-year career as an auditor and consultant, one particular hospital and CFO stood out as a place and a person for whom I would like to work. I found the people in that hospital to be people who cared deeply about each other and about other individuals and their patients. Subsequently, I became the first "comptroller" of that hospital, reporting to the CFO.
The very same observation that made me want to work in that hospital and for that individual turned out to be one of the two most satisfying aspects of being a CFO in healthcare. I've watched that caring attitude evolve over the years into a very intentional focus on patient-centric care, placing the patient at the center of everything that we do. For the past seventeen years, I've had the opportunity to be part of an organization that has truly lived that philosophy and as such, have had the opportunity to incorporate that into the work that we do in the financial field as well.
Another major source of enjoyment has been the complexity of the work in healthcare finance. Where else does one have the opportunity to work in a major non-profit setting while interacting daily with large for-profit partners, competitors, suppliers and buyers, many of whom have very different incentives and motivations? Where else does one have the challenge of accessing tax-exempt capital markets, relying solely on a successful track record, developed in an unstable market, dominated by a governmental buyer of services who both purchases services and unilaterally sets the price? Where else has one been forced to respond so quickly to what some view as the whims of governmental price regulation and the power of national purchasers of healthcare? The position of healthcare CFO certainly is as challenging as that of any industry and successfully navigating that minefield has been a tremendous source of pride for me.
2. Healthcare finance and operations have always been challenged with controlling costs and, ultimately, the prices to the consumer. Over the years, it has been no secret that hospitals constantly juggled pricing based upon their financial needs after taking into account government-imposed pricing for services provided to Medicare patients. We refer to this as cost shifting, a hidden tax on insurers and paying patients. Today, as our nation moves toward healthcare and pricing reform, it is pretty clear that our operations will have to be streamlined to operate even more efficiently. Cross-subsidization (cost-shifting) is quickly becoming a thing of the past. I know that, as institutions, we have always worked hard to operate efficiently and hold down costs. But today, the situation is entirely different and I believe that our approach to cost reduction will have to be totally different. With governmental payors accounting for 50 percent of the patients that we serve, I believe that it is imperative that the industry creatively change its approach to the provision of care and learn to operate at a cost level that will permit it to at least break even on Medicare payment rates. I don't know how that will be done but clearly we need to bring our physicians and hospital leaders together to transform the provision of healthcare.
Q: How has the role of CFO evolved in the time you've been involved in healthcare finance ?
BO: The role today is very, very different from what it was when I entered the field in 1977. Then, we were focused much more on pure financial matters, accounting, financial reporting, budgeting, capital financing. We were still trying to get our hands around Medicare funding and cost reporting for what was then a relatively small portion of our business. Managed care was non-existent in most parts of the country so we simply set our prices to cover our costs. And, in most hospitals, the CFO and finance operated parallel to and, in some respects, in conflict with the operation's leaders. We often found ourselves at odds with the operational leaders.
Today, while the CFO still has the same accounting and reporting responsibilities, s/he also has assumed much greater responsibility for being an integral part of the hospital's operational leadership and strategic leadership. I believe this evolution occurred as a natural outgrowth of the refinement of our operational leaders into true business professionals, having a greater understanding of finance and business than was the case thirty years ago. Today's successful operational leaders understand that, while their main focus is serving the patient, they are doing so in the context of operating a business and that understanding blends into all of their decisions. The successful CFO recognizes and appreciates that change and, consequently, can see him or herself as an integral part of that operational leadership as opposed to a supporting partner.
Today's CFO in successful organizations has also become a much more integral part of the strategic planning leadership. No longer is s/he viewed as being responsible solely for finding a means to finance other's ideas. As operational and financial leadership has evolved, we have come to appreciate the interwoven nature of the two. I believe that planning and implementing a strategy and tactics without knowing that you have means to finance it is sheer folly. Similarly, financing major initiatives without appropriately planning and strategizing can be a waste of money. As we have come to know and understand this, we as leaders have been driven together to form a much more cohesive and effective strategic planning team than ever before.
Q: What is the achievement you're most proud of as a CFO?
BO: For me, personally, my most proud achievement would have to be the transition of Milwaukee County's John L. Doyne Hospital into Froedtert Hospital in 1995 along with the seamless transition of the County's General Assistance Medical Program (GAMP) from one based solely at Doyne and Froedtert Hospital to one that was served by providers, citywide.
Prior to the end of 1995, Froedtert Hospital and John L. Doyne Hospital existed side by side with physical connections on the Milwaukee County Medical Center campus. Froedtert and Doyne were each "half hospitals" with each providing some but not all services or specialties. Together, the hospitals represented the major teaching affiliate of the Medical College of Wisconsin. Milwaukee County had suffered major financial losses at Doyne Hospital for three straight years and, early in 1995, the County Board decided that it wished to transition away from being a provider of care. While Froedtert was anxious to become a full service hospital, it also was concerned that, with Doyne Hospital closing and with Froedtert remaining as the only provider of indigent care under the GAMP program, it could soon be viewed as the new county hospital.
We spent most of 1995 negotiating the terms of a deal to purchase the assets of the Doyne Hospital and to transition GAMP from a program focused on the provision of care on Froedtert's campus to one that provided care closer to the patients' homes with other hospitals throughout the county participating as providers in the program. Negotiations were difficult as would be expected. Milwaukee County forecasted a rosy future for the new, combined entity. But, with the county's poor financial performance in the three prior years and the massive levels of free care that Doyne Hospital had been providing, Froedtert forecast a much more risky future. Ultimately, we structured a rather unique payment for the county's hospital assets, including a small payment at closing and an annual payment, based solely on the financial success of Froedtert over the next twenty-five years. Thus, neither party felt disadvantaged with each sharing in the risk of success or failure of the new full service Froedtert Hospital. I can say that Froedtert has been more successful than even we dared envision and that Milwaukee County has, in fact, received a payment for 14 straight years.
Click here to read the second installment of Mr. O'Connell's interview about his experience as a healthcare CFO and challenges future CFOs will face. Learn more about Froedtert & Community Health.