7 Bad Habits of Hospital CFOs That Need to Be Broken

Humans are creatures of habit — one need not look further than our daily routines in the morning to confirm this.

For hospital CFOs and other healthcare financial executives, it may sometimes be difficult to strike a balance between sticking to professional training and falling into bad habits, says Doug Fenstermaker, former CFO of HealthEast Care System in St. Paul, Minn., and executive vice president of Warbird Consulting Partners. In fact, some CFOs may not even realize they have bad habits.

"Breaking a CFO's bad habit is breaking the way [he or she is] actually trained in finance and accounting, which is not easy," he says.

Here, Mr. Fenstermaker outlines seven bad habits that hospital CFOs may exhibit at times and what they can do to combat them.

1. CFOs tend to be reactive. The nature of finance and accounting requires financial executives to respond to data that is recorded. For example, on quarterly and annual reports, the CFO plays a central role in communicating to the community where the hospital's finances stand.

However, Mr. Fenstermaker says that simply isn't sufficient today. CFOs need to balance their reactive instincts with proactive plans and communication.

"For finance administrators, being proactive really means saying, 'How do you help influence and exercise leadership to the rest of your organization and among your peers?'" he says.

"It's not enough to just wait and see what happens, and then react," Mr. Fenstermaker adds, saying the Patient Protection and Affordable Care Act requires hospital executives to observe and adapt to new, emerging trends.

2. CFOs may limit their exposure to other operations and processes. Often times, finance is seen as an operational "silo" — or the wing that is engrossed with calculators and balance sheets — rather than part of the entire hospital organization. Consequently, a CFO may limit his or her exposure to areas outside of finance, such as operations, information technology and physicians.

Mr. Fenstermaker says this type of behavior can be very isolating, which can be a hindrance for any organization. Instead, CFOs should open themselves up more and interact with other areas of the hospital. Learning from operations, physicians and other departments encourages better communication and an appreciation for why each department is integral to the hospital.

3. Focused on being a "scorekeeper," CFOs may not be a strategic partner. Mr. Fenstermaker says this bad habit is a direct offshoot of CFOs being reactive.  

For example, a CFO may be comfortable in a "scorekeeper" role and will dictate how much money is available for capital projects based on quarterly and annual financial reports. However, CFOs need to go a step further and be a "strategic partner," especially for the hospital's CEO and COO.

"It's not whether we should go out and build hospital bed towers," Mr. Fenstermaker says. "CFOs need to understand [the decision] and communicate the financial implications of a new bed tower to the community and to people who make the big decisions — the CEO and COO."

The entire executive team prepares annual and multiyear strategies based in part on the hospital's financial situation, and the CFO must engage the team with not only the "score" — but also ways to improve the score.

4. Some CFOs believe everything should be defined logically. As the stereotype goes, many hospital CFOs and finance-minded executives are conservative when it comes to risk. If a decision does not fit a particular box or if a purchase does not seem to make sense on its face, CFOs may initially say "no" and are consequently considered to be naysayers, Mr. Fenstermaker says.

However, not everything makes sense in this world, and logic is occasionally trumped by emerging trends. For example, Mr. Fenstermaker says when he was a CFO in the early 1980s, the trend of acquiring physician practices was new to him. He had never been involved in the process of acquiring a physician practice, and at the time, it did not make much sense given the historical relationship between hospitals and physicians.

However, he and others grew to understand the ramifications of acquiring physician practices and moved ahead with it even though the concept previously did not fit his "logical definition" of fiscal sense.

"Every transaction isn't going to be perfectly logical and fit in a historical box of how the CFO imagines something should be done," Mr. Fenstermaker says. "CFOs need to be more flexible and understanding."

5. CFOs tend to be resistant to change. A CFO's conservative nature can also lead to the viewpoint that change is an enemy rather than an opportunity for improvement, Mr. Fenstermaker says.

"CFOs are comfortable dealing with the nitty-gritty details in terms of financial reporting, but sometimes there is a tendency for a CFO to overcontrol an organization with analysis paralysis," he says. "If you keep evaluating things to the point where it's perfect, you'll never [accomplish] your task."

The PPACA has given new avenues for CFOs and other hospital executives to change their organizations. Mr. Fenstermaker says embracing new concepts such as bundled payments will help hospitals adapt to a new age of healthcare reform, because it is coming whether people are ready for it or not.

6. CFOs may rely too much on historical data. When CFOs create annual budgets for their hospital or health system, the default maneuver has been to base projections on the prior year's volumes and revenue. However, Mr. Fenstermaker notes there are too many variables that can make that type of financial budgeting obsolete.

For example, it's clear for many hospitals there is a shift away from inpatient volumes toward the outpatient setting. Outpatient procedures do not produce as much revenue as inpatient procedures, so it's "unrealistic" to expect similar inpatient and outpatient figures year-over-year based on the prior year's data, Mr. Fenstermaker says.

Instead, he advocates that hospital CFOs use rolling forecasts instead of using annual budgets alone. Similar to how Standard & Poor's and other agencies benchmark healthcare financial performance 12 months out, hospitals can compile more frequent 30-, 60- and 90-day rolling forecasts to compare previous months' trends to the most up-to-date data. Now, more than ever, hospital CFOs can take advantage of advanced technologies to improve financial modeling, and more frequent benchmarking can allow for more accurate snapshots.

7. CFOs may have too narrow of a focus with operational management. Occasionally, CFOs may become too fixated on the obvious costs and investments of projects or acquisitions, and they may ignore the operational costs that come afterward. For example, if a hospital acquires a physician practice, the total costs of that transaction will far exceed the acquisition price tag.

"If there is no physician billing process, you have to build one, and it's different than the hospital side," Mr. Fenstermaker says. "Hospital CFOs are often surprised — and should not be — by the cost of integration strategies."

He recommends CFOs and other financial leaders include investments in non-capital-related projects and utilize external operations benchmarks.

More Articles on Hospital CFO Issues:

Where Critical Access Hospitals Fit in Healthcare Reform: Q&A With West Park Hospital CFO Pat McConnell
Scottsdale Healthcare CFO Todd LaPorte: 5 Ways to Approach Your Credit Rating Meetings
6 Traits That Define a Great Hospital CFO

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