Enron, Tyco and WorldCom have become as well-known a trio as Peter, Paul and Mary. The difference is that while the latter is known for harmony, the former is known for disharmony-between reported and actual financial health.
By now, savvy healthcare executives know they cannot just read about financial scandals in the newspapers, comfortable in the knowledge that "it can't happen here." Healthcare has its own litany of high-profile business failures, tinged with confirmed or alleged impropriety. Most of us probably recall the collapse of Allegheny Health, Education and Research Foundation in the 1990s, along with details of the accounting fraud that's part of the story. We monitored the billing fraud investigation of Columbia/HCA and the subsequent settlement. Then came more billing fraud charges-this time against Tenet-and now accounting fraud charges against HealthSouth, with allegations of billions in inflated earnings.
And if those closer-to-home cases are not enough to get our attention, let's not forget the Sarbanes-Oxley Act. Although this 2002 law arose from nonhealthcare scandals and targets only public companies, the statute-along with the scandals that engendered it and continue to make headlines after its passage-should make healthcare executives at organizations of all types take notice, learn the issues and act. Sarbanes-Oxley and the climate that surrounds it give us an opportunity to demonstrate our integrity.
The most basic ingredient in successfully running a healthcare organization is not the possession of a law degree, knowledge of the intricacies of Sarbanes-Oxley, or even an understanding of accounting standards and practices (begging pardon of my fellow members of the Healthcare Financial Management Association). The No. 1 ingredient is integrity.
A hotly competitive environment such as healthcare brings with it many challenges that can be met with technical knowledge and business acumen. But with intense competition also comes temptation, and that is where integrity comes in. Healthcare is a mission-driven business. We are in this business to serve others. One would think that this desire to serve would bring with it a strong sense of ethics and integrity. But when we see the names of healthcare organizations popping up in the news not for their good works but for alleged fraud, it's time to remind ourselves that integrity is a foundational principle.
Whether building a senior management team or hiring a new college graduate, healthcare executives should make integrity a prerequisite. Ask candidates to describe ethical dilemmas they have faced and how they handled them. Ask references about a candidate's character. And let's not forget the team you already have. Make sure they understand that integrity, not financial success, is job one.
Others have written more authoritatively than I can about the role of the audit committee, identifying conflicts of interest and other nuts-and-bolts issues of corporate responsibility. But I believe most of the actions healthcare organizations must take to walk the talk of corporate responsibility fall within two basic principles: providing appropriate oversight and ensuring transparency and reliability.
"The board of directors was denied important information that might have led it to take action, but the board also did not fully appreciate the significance of some of the specific information that came before it." Those words come from the 2002 report of the Enron board's special investigative committee. We all might want to post a copy on our bulletin boards.
The issue of board oversight has come up again and again in high-profile corporate accountability cases. Let's show that in healthcare we get the message. Some healthcare organizations may have some special challenges related to their boards. Board members may not have the financial expertise necessary to understand the nuances of healthcare financial management. As a result, management must carefully assess the board's level of fiscal knowledge, provide the necessary education and ensure that the board understands all the material presented to it.
That last phrase, "presented to it," emphasizes another point: Management must ensure the board receives all necessary financial information and the information is presented in such a way that it fully discloses the organization's financial state and allows informed strategic decisionmaking.
Reliable reports are transparent reports. They are prepared with appropriate internal controls to ensure accuracy. An independent group oversees and conducts the organization's audits. And senior management should be confident in certifying their accuracy.
Sarbanes-Oxley requires chief executive and chief financial officers of publicly held corporations to certify financial statements. Even if you don't work for a public company, this requirement may be coming your way via state law or pressure from other stakeholders. Consult appropriate advisers about steps necessary to certify the veracity of annual financial statements.
Another significant Sarbanes-Oxley requirement pertains to the existence, role and composition of the audit committee, the goal being to ensure that an independent group (that means no management involvement and no conflicts of interest) oversees the audit process. If your organization doesn't have an audit committee, consider forming one. If one exists, determine whether it's truly independent.
I am proud to be in healthcare and I am proud to be in the business of healthcare. Corporate responsibility truly is not a problem but an opportunity-an opportunity to show that we are in this business to do the right thing.
David Canfield is the incoming chairman of the Healthcare Financial Management Association. He also is president and CEO of Accounts Receivable Services for PHNS in Anaheim, Calif.