Al Naqvi — CFO and executive vice president of Decatur, Ill.-based Illinois Health & Science, the nonprofit holding company of Decatur Memorial Hospital and several other assets — focuses on solving complex strategic and financial problems in the face of reimbursement cuts.
Mr. Naqvi draws on his background and experience in financial management, behavioral finance, investment banking and technology to share insights on issues and challenges facing healthcare CFOs in his blog, "The Fiscal Cliff Survival Guide." He has also written a book on shareholder value, emphasizing behavioral finance and neuroscience — "Taming The Ticker: How to Link Trading Floor to Shop Floor to Improve a Company's Stock Value: A Comprehensive Manual for Shareholder Value Creation in the 21st Century."
Here, he discusses his background, the most significant financial challenges facing hospitals and health systems right now and what CFOs need to focus on to tackle those issues.
Question: You have a background in not just financial management but also behavioral finance, investment banking and technology. How does your knowledge of those various topics play into your role as a healthcare CFO?
Al Naqvi: I think having multidisciplinary skills is important to create value in this new era of value-creation in healthcare.
Behavioral finance is something that helps us understand how numbers, projections, budgets and decisions are impacted by human behavior and biases. It helps in overcoming our own biases in decision-making and hence mitigates risks and improves strategic communications.
As far as technology is concerned, we're no longer just hospitals, we are technology centers today. Technology is fundamental to everything we do and will become even more important in the future. It is the most beautiful transition happening in our industry. In a fee-for-value model, data and technology will be key to all the decisions we make. I think the entire field of hospital strategic management is now moving from a build-it-they-will-come mindset to more strategic, data oriented and analytical centric decision-making. With emerging technologies such as big data, we are now in a new era of hospital and healthcare management. CFOs are drivers of value — and understanding how to create value from data is a must-have skill.
Investment management and investment banking skills are now critical for CFOs in our industry as capital management, risk management, mergers, acquisitions and alternative investments would take a central role in overall financial management.
Q: You provide advice, analysis and insight through your blog. What made you decide to start blogging and sharing your thoughts on healthcare finance issues?
AN: The way I see it is we're trapped in this box of old-style healthcare management. Our problems, and opportunities, became enormously magnified after the change that took place in our environment. Those problems cannot be solved from inside-the-box thinking. We really have to think outside the box. We have to borrow from other industries, other fields, but also create innovative and original solutions within the industry. We need to tap into the wisdom of people who truly want to make a difference in our industry and who didn’t get a chance due to lethargic bureaucracy and red tape.
The ramifications of Patient Protection and Affordable Care Act force us to think about the new paradigms; they force us to think about data and technology — and how they relate to investment management decisions. For example, population health management and healthcare analytics would play a major role in strategy development process.
Unfortunately, we have yet to define the terms and standardized definitions of concepts that we are dealing with. For example, you may hear that we are transitioning from a fee-for-service model to a fee-for-value model. The questions we need to address are that: what is fee-for-value model, how does it impact operations, what can hospitals do to benefit from this transition and how does it make CFOs the value leaders in their organizations.
I started writing my blogs because I believe technology has given us a great avenue to share our thoughts and best practices, so we can learn from each other. I think my blog is not so much of updating on issues as much as it is discussing things that are not discussed: strategies, innovations, opportunities and best practices.
Most importantly, I want to make the office of CFO as the most strategic function in healthcare management. I think our industry still uses the old model of CFO, which is reporting numbers and doing budgets. That has to change. The CFO has to emerge as the most strategic driver of value in healthcare companies. We understand numbers, we understand data, we understand strategies, and most importantly we understand value. With renewed focus on microsystems of value creation within hospitals, CFOs are best positioned to connect strategies with value-creation.
Q: One of the issues you've tackled in your blog is ICD-10. How are you and Decatur Memorial approaching ICD-10 at this time? How would you advise other hospital executives/CFOs to proceed in light of the delay?
AN: DMH is ready to make the transition. My advice to the industry is to define "readiness" broadly. Preparation means not just on the tactical side…it absolutely means that our physicians should be excited about the change. And that's the hard part to get, because it requires significant change management.
In terms of readiness assessment, I think that's the critical point: if you can have…say 90-plus percent of your physicians saying, "This is a great thing, we can handle it, we're excited and we're ready to do it" — that is being ready.
So it is important to make a distinction between readiness on the transactional side and readiness on the change management side.…In the extra time that we have gotten, we should focus on training our clinical side and physicians, and on getting their buy-in and making them comfortable. And that, in some ways, is the hardest part of the job, because you have to understand and address their concerns. To go out and just tell them, well, it's a regulatory mandate…is not enough, in my opinion. I think that change management is about understanding concerns and addressing them. Change management is about implementing projects successfully by eliminating silos and not forcing things upon people. It is about people wanting to do things because they see value in them.
Q: Aside from ICD-10, what are the biggest issues you and other healthcare CFOs are facing right now, particularly in the nonprofit space?
AN: In general, the fiscal cliff, the reimbursement cuts, the [PPACA-related] model change, as well as formation of ACOs. These are radical changes in our industry. I observe three levels of how our industry is responding to these changes.
The first level is a state of denial or a delusional model…which is either saying this is not as bad as we think it is…or saying that regulations will change, something will happen…all of this will disappear.
The second level is reactionary, which is "Oh my God, what has happened?" These hospitals find themselves in a state of panic and are making very hasty decisions — often resulting in mergers, acquisitions, shutdowns or mass layoffs
The third approach, in my opinion, comes back to a data-driven approach, a rational, analytical approach. You create a rational, well-thought-out fully analyzed strategy for how you would function in this environment. The most important thing is that you must have a rational, strategic outlook, which is not based on fear or emotion or reaction, and it's not based on denial. Every chaotic, risky situation always creates opportunities. One has to know how to identify those opportunities and how to function in the new environment, and I think that is key to survival as it is key to managing your business. As much as the [PPACA] is a challenge, it's also an opportunity.
Q: Overall, what's your advice to other healthcare CFOs right now?
AN: Operating with a value-creation mindset requires deploying a strategic risk management model. At an enterprise level, incorporate risk management, which by definition implies value management also. Everything should be viewed as investment. Because a lot of things could be at risk, and fundamental to financial risk is your cash. And the second part of risk management is your ability to create value for patients. Never undermine that, and never make it a secondary issue. That is primary.
In our industry, risk management was just not a priority for a very long time. I think that now everything has to be very much geared to risk management; it's just a new state of awareness. In the good old days, we were all making plenty of money…but the world has changed now, so now it is about quality of care, value for patients and risk management. Dollars will be tight. My belief is that a changing time is the best time to be in an industry, because that's when the opportunities emerge. You can take the example of 2007 and 2008. A lot of people lost money, but there were a lot of people who acquired value-priced assets at that time and made great returns. Chaos is the best source of opportunity if you know how to function through it.
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