Improve control of information by hospital management

A recently released report by the Victorian Auditor General into Victorian hospitals concluded that that Victorian public hospitals were in reasonable financial shape, in general, though 29 hospitals were experiencing serious financial restrictions and were reliant upon a ‘letter of comfort’ from the Victorian Department of Health.

Management of public healthcare in Victoria is co-managed between the Victorian State Government (funder) and an independent Board of Governance for each hospital (control of expenditure). The auditors report suggests a part of the issue is that the Victorian Government allocates funding for capital expenditure on a strategic basis across the sector, rather than on as needed basis for each hospital. Hospital management are then left with the enviable task of financing ongoing operations. The audit shows that most manage this with some difficulty, while around 30 management teams fail to manage expenditure at all.

There has to be some sympathy for those on boards and management teams of hospitals funded in this manner. The State Governments funding practice doesn’t do the management teams any favours. On the other hand, it is a reasonable expectation that management teams will focus upon those things they have control over. That’s what they get paid the big bucks for! (I can see some of the CEO’s I know quietly choking on their coffee at that assumption)

What is it management teams have control over? They have control over how they collect data. Information is at the heart of decision making. Managing in a hospital is no different to managing a household, there are just a few more zero’s involved in the cashflow. The principal is the same; to make informed decisions you must know where money is being spent, what it is being spent upon and how expenditure creates value. The assumption of a ‘letter of comfort’ being available may serve to discourage Boards and management teams from taking responsibility for fiscal responsibility.

Let’s start with budgeting. In many instances budgeting is a senior executive activity. Maybe there is some input into the preparation by junior managers, primarily engaged in providing historical data. The new budget is then imposed upon all other staff. The problem here is that budgets are based upon historical data without any analysis of value or alternatives. Junior staff have no ownership of the budget process, it means little to them, they have no training in analysis of cost, spending patterns, impact and consequences. Most don’t even know how to prepare a simple cash flow chart. Instead of asking at the time of purchase whether an expense is appropriate, the expenditure simply takes place and is then reported back to senior management as a fait accompli; historical data. Where again, little, if any analysis of need or relevance is conducted. You cannot put the money back into the bank after it has been spent. In any business unable to rely upon a ‘letter of comfort’ this would be a recipe for disaster.

Hospital management teams must implement robust budgeting and cash flow management processes that are devolved down to junior management levels and where every manager is held accountable for their contribution. If Government wants to stem long term financial issues in healthcare then it is time to invest in hiring the right people to put in place the best processes.

Those are my thoughts for the day
John Coxon


About John Coxon

Principal consultant for John Coxon & Associates, a management consultancy working with boards and management teams in healthcare, aged care and not for profit organisations to develop effective strategic planning processes and social enterprise business plans
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