Finance: Naked Finance
Features
Written by Amy Buttell Crane   
Thursday, 26 March 2009
Finance: Naked Finance - Inside Healthcare - RedCoat Publishing
If you’re still keeping your financials under tight wraps, you may want to reconsider. Experts say exposing those numbers may be the best plan in these tough times.
If 2008 was a difficult financial year for health systems, 2009 is looking even worse. Lending markets continue to tighten up, and reimbursements are falling just when more uninsured and underinsured patients are knocking on your door.

During these difficult times, it’s tempting to keep your financial situation even closer to the vest than usual. After all, your stakeholders are anxious enough without worrying that financial troubles at your institution might lead to job losses, curtailment of charity care, or facility closings.

But many experts say the natural inclination to keep the institution’s financial problems confined to the C-suite is the wrong move. By being more forthcoming about the financial challenges your health system is facing with your stakeholders, especially your employees, you can increase transparency in a positive way so that employees feel more like owners in your enterprise. As owners, they will be more willing to improve operational efficiencies and even share the financial pain if necessary.

“If you open the books to your employees in the right way, it is one of the most powerful things you can do in an organization,” said Joe Knight, co-author of Financial Intelligence: A Manager’s Guide to Knowing What the Numbers Really Mean (Harvard Business School Press, 2006).

“The benefits are limitless. When you train your people how to look at the numbers and they see them frequently, they really understand them and your problems get solved before management has to solve them,” Knight said.

“If costs are tight, expenses go down organically because everyone knows they need to be careful,” he continued. “There is also something I call ‘psychic ownership.’ When you implement this type of financial transparency, your employees believe they are part of the company and behave as though they are owners.”

Knight, who also teaches executive seminars at the Business Literacy Institute on creating a financially transparent organization, believes that health systems are one of the most difficult places to create institutional financial transparency for two reasons. First, accountants and finance executives naturally like to keep the numbers to themselves. Second, healthcare systems have hierarchical structures that don’t lend themselves to open communication.

Still, with a commitment from upper management and consistent follow-through and training, institutional transparency can happen in healthcare. Knight sees three steps that need to take place for the process to work:

1. Prepare simplified reports that are understandable to employees and deliver them on a regular basis.
2. Set up an incentive-based compensation system so employees can benefit from efficiencies they help create.
3. Train employees so they understand what the numbers mean.

From day one
No one has to preach the benefits of institutional financial transparency to Joe Quagliata, CEO of South Nassau Community Hospital. For Quagliata, transparency has been an important facet of how he communicates with hospital stakeholders since he took over the CEO position. And it has become even more vital as the economy crumbles.

“From the first day I took this job in 1998, I put out a great deal of information for the doctors, the staff, the board for anyone who wanted to know what’s going on here,” he said. “Many people work on the basis of need to know; I work on the basis of what I think people should know. It became apparent early on that when people understood budgets, strategic priorities, values, and mission statements, all of a sudden they could disagree or agree with what we were doing, and there was clarity around what we were doing or not doing.”

As the economy worsened, Quagliata realized that employees and stakeholders needed even more information. With the housing market imploding and job losses rising, employees were concerned about their jobs, the hospital’s pension program, and how the falling stock market was affecting their retirement plan.

“When we recognized in 2008 that the markets were crashing, the first question in my mind was what was on the employees’ minds,” he said. “We realized that some of our employees were hard pressed to feed their families and meet their ongoing needs. So I wrote a letter to everyone outlining what I understood to be their concerns and how the organization was going to deal with these problems.”

After the letter went out, Quagliata held round-the-clock meetings with employees, giving about 900 of them the opportunity to ask questions and express concerns about anything in the letter. Quagliata made sure to keep employees at the hospital’s 14 off-site facilities in the loop; being away from the main campus can be isolating, and he wants to be aware of their concerns while keeping them informed.

The benefits of the institutional transparency program at South Nassau Community have been tremendous, he said. “We have an invested workforce that has an incredible level of commitment to the patient, the services we provide, and our facility. Our people are smart and they get it. They continue to step up to the plate and to make suggestions for improvements.”

He noted that the sense of ownership extends to the community at large. “The community we serve has come to understand the quality of the services that are provided at this facility and have responded accordingly,” he said. “The commitment of the community, the workforce, the physicians, and the board largely accounts for the rapid growth we have experienced, even in the difficult economy.”

Achieving institutional financial transparency may seem like a daunting task. But with the commitment of executives and the board and the appropriate education and training of employees, it’s an achievable goal.

You can start by communicating to employees through inter-office mail, e-mail, your Web site, or a corporate blog and move onto regularly sharing simplified financial statements, holding seminars and meetings, and promoting true open-door policies.

Amy Buttell Crane is a freelance writer and editor based in Erie, Pa. She can be reached through her Web site www.amybcrane.com.
 
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