Providing strategic financial leadership for integrated delivery systems

Healthcare Financial Management, July, 1998 by Don N. Kleinmuntz, Catherine E. Kleinmuntz

Reliability. To ensure information is reliable and will remain so, CFOs must validate its timeliness, accuracy, and accessibility. Often this means identifying potential causes of inaccurate or misleading information and alerting the organization to possible shortcomings in the content or the procedures used to develop it. It is particularly important that system CFOs ensure that new information systems function as intended.

In recent years, IDSs have invested tremendous capital in information technology infrastructures. As they come to rely on these strategic assets, IDSs will need to ensure that their new systems provide accurate information in a timely manner. A sobering example is the recent experience of Oxford Health Plans, which implemented a new billing system in 1996. Months-long delays in updating premium billing and enrollment files led the company to underestimate medical losses, resulting in over $90 million in unanticipated charges against earnings for third quarter 1997.(e) Although the system failures at Oxford were unfortunate, the critical problem was that top management failed to recognize that critical strategic decisions were being made on the basis of misleading information.

Clearly, the challenge is to ensure that the new systems function as intended and provide reliable information to decision makers. CFOs already have extensive experience in designing and implementing financial controls. Many of these skills also can be applied to clinical and operating systems. The goal is not to have CFOs take over the administration of these systems. Rather, CFOs should develop the means of alerting both users and information systems staff to critical inaccuracies in data, reports, and analyses, thereby ensuring the reliability and integrity of these critical information assets.

Relevance. CFOs also need to ascertain whether the information is useful to decision makers, particularly whether it has the potential to influence decisions or reduce uncertainty about the best course of action. This responsibility often requires CFOs to turn to relatively new, but untested data sources that, nevertheless, can provide critical information. One such area is the development of risk measurement systems.

A major concern facing system CFOs is the need to help board members and senior executives understand financial risk. Consider, for example, IDS investment policies. As IDSs have accumulated substantial cash reserves, boards have been reluctant to permit more aggressive investment strategies, such as shifting a greater portion of investment portfolios from fixed-income instruments to equities.(f) This conservative attitude deprives the IDS of the superior long-term returns of equity investments.

In most cases, IDS board members and executives lack the information they need to make informed risk-return decisions. Typically, investment advisors merely provide them with information about investment alternatives and the general nature of a portfolio's risk exposure. Such information can be so vague and imprecise that almost any investment can be described as a "hedge."