A Healthy Respect for Quality

The finance department can be a valuable asset in the effort to maintain costs at a health care organization.

ANITA DENNIS is a Journal contributing editor.

  • IN THE HEALTH CARE INDUSTRY, the effort to save lives is made in the midst of increasing pressure to lower expenses. CPA Peggy Scott used strategic innovations and technology to help maintain a lean yet effective organization.

  • WHEN SCOTT JOINED LOUISIANA-BASED General Health System in 1989, she found a need for greater technical resources, particularly in Medicare and Medicaid reimbursement, tax, GAAP and regulatory reporting, and internal audit. Rebuilding the staff helped increase Medicare and Medicaid revenues, and stepped-up tax and financial planning provided significant savings.

  • THE DEPARTMENT'S REENGINEERING projects enabled it to make the most of emerging computer technologies and finance best practices in order to reduce time spent on transaction work. To interpret and explain new accounting standards to the organization's management team, Scott creates real-life examples to illustrate their purpose.

  • TO OTHER CPAs WORKING IN HEALTH care, Scott advises keeping up with technology; integrating finance and accounting more closely with strategic planning; and promoting the finance area.

CPAs working in business and industry usually are on the frontlines in the battle to control costs while retaining quality. The best demonstration of this conflict is in the health care industry, where the effort to save lives or improve health is made in the midst of increasing pressure to lower expenses. At one Louisiana health care provider, CPA Peggy Scott has used strategic innovations and technology to help maintain a lean yet effective organization.

General Health System (GHS), a private, regional health care system in Baton Rouge, has been a part of the community since 1900, when the city's first hospital was opened. Through its subsidiaries, which include both for-profit and not-for-profit entities, GHS provides primary, acute and long-term care as well as chemical dependency and psychiatric services. It has a full-service health plan, including Medicare and a traditional health maintenance organization, plus a variety of preferred-provider and third-party administrator services.

Problem: How to lower costs but maintain quality at a health care services organization.
Solution: Install a top-notch finance staff; improve technology; promote cooperation between finance and clinical approaches.

"One of the most challenging aspects of GHS is the breadth and diversity of our operations," says Scott, who is senior vice-president of corporate services and CFO. Her responsibilities include all finance, accounting and treasury functions (accounting, reimbursement, tax, financial planning, patient accounting, decision support, managed care). As an indication of the breadth of a CPA's abilities, she also oversees the strategic planning effort, human resources, information systems, risk management and the system's fund-raising arm. Scott also has served on the company's HMO and laboratory companies' boards.

"GHS spans the entire continuum of care—providing services from birth until the last stages of life," she says. "This diversity means complexity, since we are affected by almost any change in the health care industry, whether it is regulatory or market-driven. Another challenge—and concern to my CFO responsibilities—is the mandate to balance the internal organization's many needs and the external parties' demands with a cost structure GHS can afford."

When Scott joined GHS in 1989, she assessed the finance group's core competencies and found a need for greater technical resources, particularly in Medicare and Medicaid reimbursement, tax, GAAP and regulatory reporting, and internal audit. She spent the next several years building a staff that would gain a reputation for credibility and dependability. Scott says, "we were then able to add value to the organization with this infrastructure." For example, the reconfigured staff understood better how to increase Medicare and Medicaid revenues, and stepped-up tax and financial planning provided significant savings.

The department's reengineering projects enabled it to make the most of emerging computer technologies and finance best practices in order to reduce time spent on transaction work. "Also," Scott says, "we are a learning organization, training our staffs on concepts of quality improvement and planning." By hiring quality staff members and encouraging them to question existing practices, "we were able to challenge many of the activities that have been a part of GHS finance for years. In the last year alone, we completely revised the reporting packages internal management uses, our monthly close-out schedule and our reporting to the board. For example, we now report daily through e-mail on the progress of our monthly close-out so senior management is informed almost instantaneously of significant budget variances. Additionally, our flash reports identify key indicators so management can monitor our organization's strategic and tactical initiatives."

A knowledgeable staff also was crucial in implementing new accounting standards. "Our biggest challenge is retaining quality staff who can respond rapidly and proactively to the multitude of new accounting standards. In an organization our size, it takes training and manpower to meet those requirements. We cannot rely on external auditors to meet them."

To build a top-notch staff, Scott looks for candidates with backgrounds in both public accounting and health care, networking with contacts in the largest accounting firms as well as with professional organizations such as the Healthcare Financial Management Association. Scott also formed relationships with the Louisiana State University accounting department, offering intern opportunities to accounting and finance majors. "Many of our permanent hires are interns who demonstrated their abilities to us through the intern program.

"Also, we believe we should spend the time to retain the people we have, so we look for staff retention ideas to minimize the need for outside recruiting. We always promote from within if at all possible."

Another tough responsibility is explaining new standards to—and interpreting them for—the organization's management team. "Many times these regulations appear as simply more mandates that are imposed on a department manager. We work very hard at educating our organization in the benefits of the standards, but this can be difficult." Scott says the standards often seem more helpful in industry comparisons than they are for daily operations. "So, we try to create a real-life example, even if it is not related to health care, to illustrate why a standard exists. Also, we rely heavily on our internal audit team to work one-on-one with the operational managers so they understand the value of consistency and credibility in our industry reporting."

Technology plays an important role in juggling conflicting demands at GHS. "Recently, we replaced 10-year-old mainframe technology with state-of-the-art client server financial information systems," Scott says. "We established this initiative in our five-year information systems strategic plan as one of GHS's first steps to address the year 2000 issue. More important, we were not getting what we needed from our old technology—timely information that allowed effective reporting. We needed to move the finance team from a transaction-based group to one that was analytically based.
"The new technology, built on our extensive wide area and local area networks of PCs, allowed us to maximize our existing technology investment and complement our desktop software environment, Windows 95. Then we purchased software that uses some of the leading-edge technology applications, such as work flow, enhanced security and more of a 'paperless' environment."

Company Profile

Name: General Health System.
Location: Baton Rouge, Louisiana.
Date founded: 1900
Net revenues: $430 million.
Number of employees: 4,000 full-time equivalents
Form of organization: Private not-for-profit and for-profit companies.
What we do: Deliver health care services and provide health insurance.
Our customers: The community—the patients we care for and the people we insure.

The most valuable technology for GHS's finance group was the work flow functionality. "It allowed us to complete massive reengineering within the finance arena. Tasks that once were extremely labor-intensive can now be streamlined and result in a simple e-mail to a desktop that, for example, allows a manager to approve a list of journal entries before they are posted. Supporting documentation can be attached to this e-mail electronically, and all approvals and audit trails for posting are electronic and easy to substantiate."

Another initiative that is still in process is imaging technology. The organization has tried to be at the forefront in adopting this application, particularly in the patient billing area. "We believe it has much potential for future efficiencies," Scott says, but it has been difficult to implement. However, "some of the early benefits improve workflow, such as better and faster processing, greater accuracy, reduced days in accounts receivable. We already have seen much of this. In addition, we eliminated many paper files and no longer have to hunt for misplaced information. Ultimately, imaging advances our companywide strategy of electronic patient records and improved quality of care and service to our physicians."

Although improved resources augmented efficiency, the managed care pressures in the local market create a challenge to providing quality services while still investing in the necessary technology, people or intellectual property to meet the many challenges her department faces, Scott says. At the same time, the system faces continuing cutbacks in Medicare reimbursements. "One legislative bill can result in millions of lost revenues to our system," she says.

The CPA has encouraged adoption of a variety of approaches to combat these pressures:

Monitor and streamline . Scott works closely with physicians and other providers to design clinical approaches that result in more efficient care delivery. "Reduction in the variations in the delivery of care enhances quality and reduces costs," Scott says. For example, she says, "in the past, operating room physicians established preference lists for the specific surgical supplies they wanted to use in their procedures. By having the finance group explain the costs of the various supplies, physicians and clinicians are usually willing to standardize, choosing fewer brands. This not only reduces the overall costs but also allows us to order from one vendor in larger quantities, thereby further reducing expenses.

"Additionally, we use financial data to evaluate new technology and constantly upgrade surgical supplies so the best, most cost-effective item is used for the patient."

In another scenario, "in the care delivery process, 95% of the physicians may require one set of laboratory tests to diagnose and care for a patient group with one particular illness. The other 5% may require three sets of laboratory tests for patients with the same illness. When we encourage physicians to share information about this variation and the related costs, they can analyze their processes and learn from each other. If a patient then receives one test instead of three, the quality of care is improved and the costs are reduced."

Expand opportunities . "Through strategic planning initiatives, we seek new niches to deliver services and thereby enhance our revenue streams as well as better serve our community." That means, for one thing, seeking chances to work with other facilities. "As an integrated delivery system, we look for new alliances to broaden our patient population. We work closely with the state-run Charity Hospital System to assist it in providing the highest quality of care in the best setting. The Charity System may move some of its patients into our hospital beds."

Developing new products from the system's health plan to expand the potential patient population is another opportunity. Additionally, "as the population ages, we are increasing our continuum of care and services within the home health and long-term-care areas."

Advocate prevention . "Through our HMO, we seek to identify and manage patients who are at risk or who have serious illnesses so we can assist them in staying well and avoiding hospitalization. This both improves their quality of life and reduces costs within our HMO."

In health care, Scott concludes, "the need for continuous improvement has never been greater." She foresees continued integration of finance with clinical processes as well as an increasing demand for timely data that have direct value in decision making. She has this advice for other CPAs working with health care organizations:

  • Keep up with the constant changes in technology and advocate those that are most beneficial to the organization.

  • Integrate finance and accounting more closely with strategic planning. Automate transaction work so the finance department can spend more time on overall company strategic initiatives that add value.

  • Promote the finance area. "We as accountants have a responsibility to communicate to all levels of an organization about the value achieved through the work of the finance department. We really need to become much less modest about our worth."


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