Arm Yourself for a Shootout on Executive Row

With this arsenal of health benefit bullets, it doesn't have to be a slaughter. In fact, it doesn't even have to be a battle when you want the CEO and CFO to invest in people.

By Katherine H. Capps, Sandy Mau for National Business Coalition on Health

Nightmare No. 1: You're marching confidently down the corridor to the CFO's office, crisp copies of the new benefit satisfaction survey neatly tucked into your portfolio. You're ready.

The door swings wide, and you see the CFO's face through a bizarre fog. The CEO and even some board members are there as well, in blurry outlines. You glance down and realize there's a huge red target painted on your chest. As the shot rings out and you're swallowed by the darkness, you distinctly hear a voice saying, "Here's what I think of your ‘competitive benefits package!'"

Nightmare No. 2: You're staring at the spreadsheet on your computer. Frustration mounts as you watch the numbers tick upward. The production manager walks in, hands outstretched, chanting softly. The human resources executive follows. Then come ranks of managers, beseeching, voices, chanting: "More money! More money! More money!"

While juggling the need to attract and maintain a productive workforce, human resources executives also face the reality of a strained economy and tight budgets. The sobering reality that their company is paying an average healthcare expenditure of $2.71 per active employee per hour (extrapolated from Mercer's National Survey of Employer Sponsored Health Plans 2002 Results, annual $5,646) is not an easy message to take to the corporate CFO and CEO. And with every rise in health care premiums, the HR executive bears the risk of becoming the bearer of bad tidings, the messenger to be shot. How can the benefits manager dodge the "kill the messenger" mindset?

Bullet No. 1: Understand Roles

It's important to know that most CFOs are doing a juggling act of their own.

"When you're the CFO, somebody always has a hand out, and priorities are always set by someone else," says Barry Knight, who spent 18 years as a CFO at health care facilities and as a corporate executive managing CFOs. "There are always multiple competing calls on available cash."

Human resources is a vital piece of the corporate puzzle, but it's not the only piece. Knight says the best human resources executives are part of the senior management team and understand how to be a team player. They stay in front of the CFO and attend executive meetings with other senior leaders.

The HR executive needs to stay very connected to the business. According to one HR executive we spoke with, it is important that HR executives see themselves as business people as opposed to HR specialists. An essential part of this is positioning themselves to help lead the strategic change within the organization, especially when working with an issue as costly and volatile as health benefits.

"I think that the HR manager has to be able to understand the core business and what is important to that core business," advises Dennis Richling, MD, president of the Midwest Business Group on Health and formerly assistant VP of Health Services at Union Pacific Railroad. "While there are CEOs and CFOs that know buying based on quality and managing health is the right thing to do, there are others that are looking for more concrete outcomes information like ROI, cash impact and bottom-line impact."

Important in getting their message out is the ability of the HR manager to speak the language of the CFO and CEO. "Speaking the language in order to indicate the importance of this issue to their bottom-line is essential," Richling says, "and HR executives need to translate recommended interventions into real ROIs."

According to Richling, in today's business environment CEOs and CFOs are making decisions about investing in their core business activities and forgoing investments in other activities. And they are making decisions about those investments based on simple math, asking: "What yields the highest ROI?"

"It is important for HR executives to understand that if they want to sell senior management then they have to be able to show what the investment in human capital will return in relation to other business opportunities," adds Richling.

Peer relationships are optimum, according to Bill Wilson, vice president for human resources for Respironics, Inc., a medical device manufacturer employing 2,700 worldwide and member company of the Pittsburgh Business Group on Health.

"Obviously, the CFO is an important ally, because he or she probably understands the issues of compensation better than most operational executives," says Wilson. "The CFO is an individual who can help from a financial perspective, and help make the knowledge transfer to the senior executives on the team."

Being an ally doesn't begin and end with a request for funding, Knight observes. Human resources executives should keep in contact after a new initiative is launched, and report back on progress.

"Then say thank you," he adds.

Conversely, the CFO should recognize that the average human resources executive has more to consider than the cost of health care benefits. As in-house experts on the labor market, employee relations and employee communications, they constantly check the pulse of employee welfare.

"Most [HR staffs] are understaffed and must multi-task all the time," suggests Becky Cherney, chairman of the board of the National Business Coalition on Health. "Being able to just focus on health care is a luxury few have."

Human resources executives have expertise in understanding the workforce and how changes in benefits affect employees. That expertise is valuable to the entire management team, especially when considering how changes in the health care plan may affect employee recruitment, morale and organized labor issues.

Bullet No. 2: Be Ready with Facts

"CFOs are fact-based people by training, and usually by personality," Knight says. "Don't come to us with generalities. Don't just come in and say, ‘Our compensation package is not competitive.' Bring me some facts."

The best facts are not always easy to come by. Knight says market surveys that show competitive compensation packages are valuable. It would also be convincing to quantify the benefit of compensation dollars spent. "Try to show me some return for the investment," he suggests.

Cherney says every meeting with the CEO or CFO should be viewed as an educational opportunity, with a specific "lesson" to be presented.

"You should know the numbers," she advises. "What are you spending in health care? What diseases, hospitals, doctors, services are consuming the dollars?" You should also know what you want and what you have to have.

With health care cost and quality in the news every day, you also need to expect that CEOs and CFOs are aware of trends, too. According to Wilson, frequent communication conveys that you're the expert, and you're planning ahead.

"You need to not only get your facts straight, but you need to understand the facts," says Wilson. "You need to communicate with the senior staff early, so they're not surprised by things you talk about at the last minute. The longer the strategic horizon you have, the better off you are."

Being prepared with facts helps avoid operating in the reactionary mode. If you've seen the problem coming for a while, and communicated properly with the management team, you'll be prepared to deal with the issue when it lands on your doorstep.

When seeking a major change or program addition, you should be able to show how many employees have expressed a desire for such a program and how many employees will respond negatively if a change is made.

"Show any prior experience of anyone else that's used the program, something that was published, or case studies," advises Knight. "CFOs generally don't like to be the first to step out on something that hasn't been tried and proven in the market."

It pays to remember that CEOs and CFOs tend to be conservative by nature, especially when it comes to changes that affect employee satisfaction.

"Unless there is a considerable difference in cost or quality, I would vote not to change health benefits," Knight admits. "A lot of times there's more value in the employee relations issue than there would be in the cost savings results." While employees may not always know what they want, they frequently know what they don't want. It's a balancing act to create a compensation package that takes into account rising costs, quality issues and employee expectations.

This can be painfully true when it comes to organized labor and the potential for walkouts and strikes. When General Electric decided to pass a portion of health care cost increases onto employees and retirees beginning in 2003, the company was named "Grinch of the Year" by Jobs with Justice, a community-based coalition of groups that conducts the annual contest over the Internet. To add injury to insult, the IUE-CWA, which represents 50,000 active and retired members at GE, conducted a four-day nationwide strike against the company, during which an employee was accidentally struck by a car while picketing in a GE parking lot. Company and union representatives will come to the table in May 2003 to negotiate new contracts, no doubt still stinging from the unrest.

Bullet No. 3: Bring Solutions, Not Just Problems

If the benefits executive goes into the CFO's office with hat in hand, looking for permission to do everything, "you stand a good chance of them saying no, as opposed to seeing the relationship as a partnership with problems to solve," Wilson says.

Rising health benefit costs are a real problem, and the human resources executive needs to spearhead the development of solutions. "You have to come to the table and bring solutions, not just problems," he adds.

Knowing — and helping to shape — your company's overall strategy for health care benefits is key. Know how your company benefits are positioned for the long term. You can almost always provide cheaper benefits, but the tradeoff is a less qualified work force. In fact, it's always a tradeoff to work out the cost vs. benefits equation, says Wilson.

"You're looking for value, not just cost savings, but it's a difficult thing to quantify the value equation," he explains. "You need to have a strategy in place and make sure the actions you take support that strategy. If it's to have the cheapest benefits, that makes the equation easy. If you want to be an employer of choice, it puts a completely different variable into play."

Knowing the facts is particularly vital when presenting initiatives designed to better manage employee health care from a quality perspective.

"Know the trends," advises Cherney. "Have the data on hand to make your points. Discuss cost and quality so you present the whole value proposition."

Knight says it's also helpful to have a back-up plan: "Be willing to have a fallback position, or Plan B. Consider whether it's possible to do one thing now, and other things two months from now, and maybe other things a few months later." Keep in mind, he adds, that the CFO is used to evaluating projects and trying to determine the best place to put available money.

"I think any CFO understands that compensation (and benefits) is a big issue," he observes, "but don't come to us and say, ‘our competition's package is 10 percent higher, and what are you going to do about it?' You should be ready to be a part of the solution."

Katherine H. Capps is the founder of Washington-based consulting firm, Health2 Resources. Her firm works with the National Business Coalition on Health tracking changes in how employers buy, pay for and manage health care — market to market. She can be reached by phone at (703) 319-0957 or by e-mail at health2@aol.com. Sandy Mau, project manager, is a communications specialist with Health2 Resources.

Resource Links

National Business Coalition on Healthwww.nbch.org

Midwest Business Group on Healthwww.mbgh.org

Delegating Up: Problem Solving in the Language of the CFO and CEO

"We are at a point where double digit inflation in healthcare is unsustainable and we need to seriously look at a fundamentally different approach to management of cost and quality," says J. Sean Kenney, PhD, a 20-year coalition executive and currently the executive director of the Labor-Management Health Care Coalition of the Upper Midwest (LMC), headquartered in Minneapolis. According to Kenney, human resources executives should be in a position to "delegate up" and "out" bringing in labor and management early on to solve cost and quality problems, head on.

Kenney is spearheading an effort to bring market-based purchasing strategies to the purchase of specialized health care services for represented labor and their management counterparts in the same industry. The group is made up of 23 diverse Taft-Hartley heath plans from the construction industry, education and retail food. Kenney is using leveraged buying power and a model based on use of core business processes that no CEO or CFO is a stranger to — a procurement approach to buying services in much the same way components are purchased in the manufacturing sector.

"I believe HR and benefit executives are ill-equipped to implement the next generation of business strategy to deal with health care cost and quality problems," says Kenney. "This will take the attention of CEOs, CFOs and others who understand supply chain management and procurement, "he added.

But human resources executives still play a key role: "It takes human resources and benefits staff to communicate, implement and manage the approach. It's just like when someone needs accounting expertise, you lend expertise to this area to enhance their skills, and transform the overall approach."

As a first step in implementing this fundamentally different approach, his group has contracted with a pharmacy benefits management firm to deliver lower prices and rebates, all the while allowing individual funds to control how the plan is administered.

The group, which represents 123,000 employees, is now working to quantify quality of care in cardiac treatment. When measurements are then applied to facilities, LMC plans to contract with providers who can offer efficient, quality care at a lower cost.

"It is time that we delegate up," Kenney advises. "Old strategies will not work. We need to bring core business expertise around procurement and quality management, with specification driving purchasing and reducing unnecessary duplication. The only way to do this is to request the CFO and CEO lend core business expertise to the human resources department."

Businesses that continue to purchase health care "off the shelf" will get nominal performance, he concludes, but buying specific services according to specifications and using comparable metrics, within the context of large purchasing groups like business coalitions, will both lower costs and raise quality standards.

Bullets for Your Arsenal

• Know the trends — local, regional and national — and present them clearly linking them to your recommendations. Know your employment costs, and view benefits and compensation costs together as a package.

• Understand what are the cost drivers within your health plan, breaking it down into components (hospital, pharmacy, outpatient) disease areas and other useful, manageable drivers

• Arrive with solutions to your problem with viable financial projections (or needs), along with a fallback plan. CEOs and CFOs see total costs, view solutions and recommendations as "total costs" as well.

• Begin the education process necessary for "delegating up." Plant the seeds for later discussions about strategy beyond the current year.

• Communicate "up" to the CFO and CEO often, but do so deliberately and with a clear, consistent message. Make sure that you also communicated "down" to employees teaching them about total compensation.

• Present yourself as the expert on the company's most valuable resource — its employees.

Katherine Capps, Sandy Mau. Arm Yourself for a Shootout on Executive Row.

Business and Health

2003;3.