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2015 brings big paydays for hospital CFOs

Pay-for quality doesn't just apply to reimbursements.

David Weldon, Contributor

This change in how compensation is awarded for finance pros – especially those at or near the top – is already happening at many health systems.This change in how compensation is awarded for finance pros – especially those at or near the top – is already happening at many health systems.

By all accounts, 2015 could be a very profitable year for finance executives in healthcare. But there’s a catch. How much any individual makes will be determined more by organizational success than individual performance.

This change in how compensation is awarded for finance pros – especially those at or near the top – is already happening at many health systems.

“We are seeing a continued trend toward compensation that is tied more to the overall deliverables of the healthcare system,” said Paul Esselman, an executive recruiter with Cejka Executive Search in St. Louis. “In particular, we’re seeing it tied to overall patient satisfaction, to quality, to efficiency of care. The entire C-suite of most healthcare organizations is now sharing in those objectives and goals for the health system, including the CFO, who plays a critical part in ensuring that the organization is geared toward the deliverables.”

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Sure, the CFO is still being evaluated against specific finance goals. But the role has become much more strategic. Today’s healthcare CFO must be a true partner with the CEO, the chief operations officer and the chief medical officer. How well they can master those relationships will largely determine their success.

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“The majority of the finance executives that we deal with appreciate and enjoy this mindset, because it allows them to have a greater participation and exposure into the overall health system operations,” Esselman said. “They have become more vested and engaged in the overall direction of the health system and the strategy.”

Bigger role, bigger paycheck

How CFOs are compensated is changing, of course, and their earnings potential is growing. But it may take a while for some CFOs to catch up as they get accustomed to this new environment.

2015 could be a very profitable year for finance executives in healthcare. - Tweet this

“What we’re seeing is a difference in the incentive payouts,” said Terri Houchen, associate vice president of executive search at  B.E. Smith in Lexena, Kansas. “A lot of [finance executives] who have been at organizations for a long period of time are perhaps not used to the different models that are evolving out there. Our job as an executive recruiter is to coach and mentor not only the candidates, but the healthcare organizations as well with regard to these trends. They both need to think about compensation in a different manner.”

For the healthcare organization, this means aligning CFO compensation more closely with the other members of the senior team, and with how well they perform collectively.

[Also: What CFOs think about revenue cycle]

For the CFO or finance manager, it means coaching them on how to align individual performance goals with quality of care deliverables. And for many, that can take some getting used to.

“They’re a little bit harder for executives these days to meet due to the changes in performance goals. They’re being based on different criteria than in the past: metrics on patient satisfaction, age caps, re-admissions, things like that,” Houchen said.

Beyond pay-per-performance

Finance execs can expect base pay to increase only a slight bit – around 2 percent to 4 percent -- said healthcare executive recruiter Lydia Ostermeier, also with B.E. Smith. But beyond that, incentive payouts could be handsome if the individual can take a leading role in helping to drive change and growth at the hospital or healthcare system.

“We need someone who understands the financial operations, of course,” Ostermeier said. “So the new CFO has that clinical brain, understands the clinical operations, and has an understanding of the external factors in the healthcare landscape. It is a different individual than what we have traditionally seen as a CFO.”

There is good news in all of this. Changes in the healthcare industry have already been forcing an evolutionary change in the CFO role. This has helped prepare many for this latest round.

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“I think the CFOs that we engage with and that we recruit are extremely dynamic,” Esselman said. “They are more broad-range healthcare leaders, and they have a desire to look beyond the simple finances to the long-range planning and organizational structure of the hospital or health system that they work in. They’re becoming far more dynamic in terms of their scope of responsibilities and interest than in years past.”

The message is also getting out to finance managers farther down the organization.

“Just as the CFO of a large healthcare system or medical group is asked to focus on satisfaction, service, and deliverables of the health system, we’re starting to see that slowly get pushed down to the mid-level managers, so they have a greater appreciation of what the overall organization is responsible for as well” Esselman explained. “It’s not as great as the top finance leader, but at the same time their goals and objectives are really tied to service and overall quality of care.”