Ep. 126: Bob Kolodgy - Building Organizations Ready for the Future
Bob Kolodgy, Executive Vice President and Chief Financial Officer for the Blue Cross Blue Shield Association (BCBSA), joins Count Me In to talk about the role of the CFO when building organizations ready for the future. Bob is responsible for the Blues’ Federal Employee Program (FEP), which covers more than 5.4 million members across all 50 states and abroad. He oversees the National Employee Benefits Administration, which manages $13 billion in retirement plan assets for 38 participating BCBS entities nationwide. In addition, he has overall accountability for BCBS Brand management, including brand strategy and protection, as well as the Association's finance, licensure, enterprise information technology and information security areas. In this episode, he shares his perspective and expertise when it comes to innovation across the organization and implementing change. With a particular focus on data and technology, Bob discusses how innovation creates real value for the business as it seeks to succeed into the future. Download and listen now!
About Bob Kolodgy: https://www.bcbs.com/about-us/leadership/robert-kolodgy
Bob's Interview for Forbes CFO Network with IMA's Jeff Thomson: https://www.forbes.com/sites/jeffthomson/2020/02/07/the-finance-leader-in-health-care-an-interview-with-the-cfo-of-blue-cross-blue-shield-association/?sh=418e829169ac
FULL EPISODE TRANSCRIPT
Welcome to episode 126 of Count Me In. Thanks for coming back and listening to IMA's podcast. I'm your host, Adam Larson and today's expert guest is Bob Kolodgy. Bob is Executive Vice President and Chief Financial Officer for Blue Cross Blue Shield Association, a national Federation of 35 independent community-based and locally operated Blue Cross Blue Shield companies. In his role, he is responsible for the blue's federal employee program, oversees the national employee benefits administration, and has overall accountability for Blue Cross Blue Shield brand management, and the associations finance, licenser, enterprise information technology, and information security areas. During his conversation with my co-host Mitch, Bob discusses the role of the CFO in building organizations ready for the future. Keep listening to hear his perspective on innovation, data, and value.
So for our conversation today, we really want to emphasize the role of the CFO and making sure that they are capable of building organizations ready for the future. Now, innovation certainly is a term we use often in accounting and finance as organizations seek to create and increase value. So to start off, I would really like to know what innovation means to you.
Yeah, thanks Mitch and thanks for the opportunity to address IMA today, it's a great group and I love to be part of your events, so thank you for that. You know, with respect to innovation and accounting, let's put it in perspective and I've always said this at the beginning of innovation conversations with finance people. It's like, well, we don't want you all to be all that innovative, I mean, your accountants after all. And you need to be careful, right? So there's all kinds of, accounting principles and things like that. And we don't want you to be creative with that now, maybe be creative about how you do what you do, right? And so how can you as an accountant, or a finance person in an organization, actually innovate in a way that creates value. And so, when we try to take that apart, I look at value as the sum of three things, cost or efficiency, quality, and service. And so anyone can apply those principles to what they do I think, and add value. And so for me, innovation, particularly in accounting and finance in those disciplines really is focused more on those things and keeping them in balance, right? So innovation can accelerate any one of those things and as long as it does that without detracting from the other two, it's adding value. So for me, it's kind of that simple. And, when you look at what we've been in for the last, 14 or 15 months with the pandemic, it really sort of dots the eye on the need for innovation, right? We had to pivot in so many ways that we never would have expected so quickly and, you know, true innovations have come out of that in many forms and now its a matter of advancing those and in some cases bringing them to scale. There were certain things that came out of the pandemic that were really innovative and they're going to stick whether we expected that to happen or not. The time after the pandemic will be, not like anything we expected or planned on our prior trajectory.
Yeah, I completely agree, among these different conversations that I have, I've certainly seen many organizations who have explained that they will be adapting some of these ongoing principles moving forward and making it part of their business, because of how they had to pivot and adapt in the last year plus. My next question, continuing on this topic, as far as innovation goes and the different components that you spoke about, what is specifically the CFO's role when it comes to initiating this change, enabling innovation and driving the anticipated results, evaluating those results, where does the CFO really make an impact?
Yeah, I think innovation and enabling new thinking and so forth is really an area where the modern CFO can differentiate themselves from the more traditional financially focused leader, and if it's done well, the CFO can become the corporation's architect for business value. I saw an article recently from Accenture on this, and I found it very, very interesting and poignant. CFOs are uniquely positioned if they apply certain levers that they have access to, to be able to create this differentiation and be the architect of business value. And just to list off the levers quickly, visibility of the whole enterprise, the CFO typically because they deal with all parts of the company has a view into what is going on in all those parts and the ability to see where synergies exist across those verticals, the ability to do analytics and have access to data across the enterprise is really critical. CFOs, not only have access to financial data, but now more and more operational and market data and, a variety of things that they can bring together to bring insights that are actionable to the organization. Understanding enterprise risk is a critical role that the CFO or critical conversation, or are part of the conversation the CFO can bring, because they can measure risk and they know that you may be able to take risks in one area of the company and balance that off with some protection and hedge and the other areas of the company. The CFO can and should have a strong relationship with all the C-level executives in the company, right? So there should be good working relationships there and the CFO's ability to mentor and discuss things with his or her peers in a way that brings to life this greater business value. And finally the financial authorities, I mean the CFO obviously has a financial authority within the organization and can reinforce the economic basis for investment decisions, right? So the CFO can bring voice to somebody else's idea, in a way that that person may or may not be able to do. And so, these things can really be exploited by better collaboration with C-level peers, by leading in with unique insights, whether it's based on data, unique analytics, perspective on risk, or what have you, and then taking ownership for ensuring that value is extracted from all of the new technology and data platforms. These things are proliferating coming up all over the place. And I think it's the CFO's responsibility to make sure there's a value equation attached to each of those, or if not, make sure everybody else understands that and make sure that expectations are aligned along those vectors and CFO needs to be able to cultivate a good commercial awareness and stay ahead of the curve of the industry, right? So whether it's regulatory change, federal policy changes, the business environment, changing the competitive landscape, changing or just trends and particularly important, I think is understanding what the potential disruptors are. You know, I'm in healthcare, there are disruptors all around our industry, whether you're talking about health plans, providers, pharmaceutical companies, there all kinds of people with great ideas about how to do what we do differently. And so being aware of that is critically important as you try to bring innovation and value into your organization.
That's great and I want to go a little bit further on some of the points you just made right there because many often relate innovation, they hear innovation and think of technology, right? That's one of the biggest things and in the recent year plus we've seen, regardless of the pandemic, some of the biggest technology innovation in accounting and finance has come through automation and the availability of data. So I think aligning our thoughts here on what you were just talking about as far as what innovation really is from your perspective, being able to take advantage of some technological advancements that have become available to us. But really, the value creation that you were just talking about. If it's in healthcare for you or accounting and finance professionals, how do you as a CFO go about harnessing the data, because there is so much of it at this point and truly making or creating value from that data?
Sure. You know, health insurance is a huge data business. We have records and you can imagine, Blue Cross Blue Shield provides health insurance for 110 million people in the country. And so we have all the claim records for them, for their medical care and for the pharmacy use. And so we know a lot, but what we know is relatively thin, right? So we know, a person went to the hospital and they went to the ER and had an x-ray and got their broken leg set, but we don't have the x-ray results. We don't have the depth of the diagnostics and stuff that were done in the hospital. So not only are we looking at our own data, which is enormous, but we're bringing in, we call it nonconforming data from other sources, right? So connecting with hospital systems, electronic medical records, for instance, to import data that makes what we have even richer and gives us the ability to do way more with the data. And I'm going to talk about a couple of those things. So just in terms of examples, one of the things that the Blue Cross Blue Shield association strives to be as a thought leader in healthcare. And so we developed this health of America report series that is a data-driven set of analytics and we do publications periodically on different topics. So using our data and the insights from our data to try to identify challenges in healthcare space, right? So last year, maybe it was even a year and a half ago, we did a study on millennials and try to understand their relative health compared to prior generations and what particular health issues were prevalent for millennials and we had some really interesting findings. First of all, millennials are more likely to have some certain chronic conditions and perhaps less likely to live a long and healthy life then the prior generation, which was a startling finding. And then additionally, a lot of behavioral health issues from millennials were evidence which enables us to say, okay, well, if that's a population cohort that we want to take care of and take good care of, then we need to adapt certain things, we need to adapt certain chronic care management approaches that are particularly important for millennials and we need to build a better behavioral health or mental health system to accompany the physical health part, right? And so it's things like that and our ability to take huge data sets and study different population cohorts within them, come out with findings that are creating actionable insights that we can build into our products, build into our service set and so forth to achieve our mission of taking better care of people for the health of America. This whole thing rides on, as I was describing earlier, the ability to combine data from disparate sources, right? So interoperability is a huge issue in healthcare. Interoperability in healthcare is really kind of scarce right now, right? So what I described, it's really easy to say, oh, health plan, it's going to just go to the big hospital systems in their network and they're going to connect with their electronic medical records systems and they're going to import all this deep rich data about people, we're going to go out and buy a market data prism clusters, whatever to understand the socioeconomics of a population and we're going to combine all that stuff and come up with all these rich insights, but there's not a standard and we're working on it. And, again, with our footprint in the industry being pretty big we can help drive interoperability solutions so that data is exchanged in a consistent way that when you particularly hit on data elements and a report, it means the same thing no matter what system you're in and that it's safe and secure. So those things are critical to interoperability and that's one of the underpinnings that we're working on, in terms of our data approach. Finally, I'll call out a few companies, the Blue Cross Blue Shield companies, and there are now 35 of them domestically and hundreds internationally. The 35 domestics that joins to do corporate venturing. And so we're in our fourth corporate venture fund right now with a total of about 900 million of assets under management and I'm just going to highlight a couple of the companies that are in the blue venture fund portfolio that are doing really interesting and relevant things with respect to data. So advocacy insights is a cloud-based data management and interoperability platform that's specifically built for healthcare. So it's able to connect the payers and the providers and the other participants in the healthcare ecosystem in a unique way. There's a company called Alacura, which provides data analytics and network optimization for services about aeromedical transport. So, you see the copiers and the airplanes that are taking people either, with respect to the helicopter, it might be from what they call a scene run. So if there was an accident on the highway, someone's really in bad shape they’ll call a copter instead of an ambulance so that they can get to the critical care center more quickly. And there are a lot of, transports of critically ill people for, transplant operations and high level things where they have to be moved from place to place really quickly. So this platform matches up air medical transport and medical capabilities. And then finally, a company called Prove. Prove provides, mobile focused identity authentication and data management platform, which improves member engagements. It reduces operating costs and streamlines digital processes. The origin of Prove was this two-factor authentication. So, Prove has tons and tons of cell phone numbers in it. So it knows if you're in a call center and you've got Prove kind of bolted onto your inbound calls. It can tell you who the person is and then your system can match that to a member record so that, that call center operator is click, click right into the information about the person calling. So really valuable and it alleviates the need to do some additional authentication when the person calls, right? So, a lot of times you call and they say, okay well, what's your mother's maiden name? Or, you know, what's the name of your first pet you had when you were a kid or something along those lines. So, Prove is another platform that the venture funds have invested in that are really helping us move in this data space.
So it sounds like you have a tremendous amount of data, truthfully more than I could think of, but it obviously makes sense as you're explaining where it all comes from and how it all works together. As a CFO of the organization in being able to share insight like this, it sounds like it's just a tremendous amount of opportunity, right? There's a ton of opportunity with data, but just for our listeners, I think everybody also recognizes with opportunity comes challenges. So when it comes to innovation, this data, taking all of this opportunity and creating value from it, how do you navigate really through these different challenges? And, just thinking back to one of the first points you made in that last response about the health of millennials. The findings that you have from your research must prove to kind of contradict maybe some of the initial forecasts that you've had. So things like that, what goes into really leading your organization for success into the future?
Yeah. When you think about that, and particularly with financial people, it's a lot about forecasting. And so we do a whole bunch of financial forecasting, but we do all kinds of other forecasting as well. And I guess for me, the best go-to here is, our industry, right? Health insurance, and I'm going to talk about health insurance in the context of the pandemic. And I think it'll point out some things that we knew and some things that we didn't know, and probably one of the most impactful externalities that we've ever experienced in our professional careers, right? I mean, unless you're a hundred years old, you haven't been through a pandemic before. So, you know, we're not a hundred years old. What happened to us last year, when the pandemic hit was a really, a series of conflicting headwinds. So we had headwinds with our customers and our customers are the members, who subscribe and the employers who generally buy the insurance for that person, right? So it's sort of a two level customer set and what people needed because of the volatility and loss of jobs and uncertainty for business was premium relief, right? So they're asking us, “Hey, look, cut us some slack on premiums for a while”. And we did, we extended grace periods and things like that, in some cases we forgave premium for people that were in certain tough economic times and things like that. So on the customer side, that was one of the first things that came to us. So, from a financial person's perspective, oh, okay, well we're not going to collect this quickly, or we're not going to collect it all. And so what does that mean, and how much is that worth? Then it was, okay, now let's make sure that everyone has access, right? Because the last thing you want when you're a health insurer is for people, your members not to be able to get care when they need it, okay. Because that's what we're here to do. We're here to make sure you can get care when you need it, and it gets paid for. So the ability to accept access testing for COVID, the vaccines when they were available, and just services in general, right? Because the hospital system kind of shut down when COVID hit with all the elective procedures and things like that. And so we needed to make sure that people understood if they were really sick, you can still get in. You need to be protected, you need to be this and that. So it was a matter of waiving copays and some of the economic barriers in our benefit design so that people could get all of the testing and COVID treatment that they needed. And so we spent a bunch of time on there. So that's the customer step. Our supply chain, so to speak, in health insurance is the providers, right? It's the hospitals, the doctors, the drugs, the air ambulance companies, you know, all those things, the PT providers, the surgeons, et cetera. And the way we generally pay our supply chain in the industry is based upon volume, right? So they do something, we pay them, we call that fee for service, right? You go to the doctor, he checks you out, he bills us, or he or she bills us and we pay the doctor. That's called fee for service medicine. But when volume goes through the floor, like it did in March and April of 2020, we're not paying them because there's no service being provided. So providers got cash short pretty quickly and they needed help. So we put providers in some cases on interim payments, we'll pay you a certain amount per month based on what your historical spend has been, for us and we'll settle up later. So we're getting less cash from our customers and we're needing to front cash to those providers who were in kind of a tough spot. And fortunately we have the wherewithal, particularly blue plans are very well capitalized, had the wherewithal to be able to do this at least for a while. So then it's like, okay, well, what does all that mean to us? So I described with that shortage of cash need, we ourselves had COVID related costs that were new to us, right? There didn't used to be that diagnosis, there didn’t used to be treatment, there didn't used to be Regeneron use for people that are impatient, all the ventilator use that was early in the pandemic and all those things were new costs for us. On the other side of it, there was this huge downdraft in terms of the cost of medical care. And so because people were deferring care and delaying elective procedures, there was an enormous amount of reduction in our expenses. And so you put all those things together and try to make a forecast. I mean, uncertainty was just more than it's ever been before, and we'd need to look to the future now and figure out, well what's next. We know what happened in 2020, the big piece of our boss went down, some pieces went up, we also had costs for ourselves because we put our workers remote. So any employer who went remote, we had to add bandwidth, we had to have people get here to set up at home and all those kinds of things so we had all of those costs. But as we look to the future and healthcare health insurance is a long-term play, you need to know what's going to happen because of all the deferred care this year, when we look at the procedures that were deferred, they were largely good preventive medicine. People weren't going to get the care that they typically would get the routine diagnostics and stuff like that, to make sure that they don't have some underpinning chronic condition or some underpinning acute event on the way. So without having that preventive stuff, that good spend going on what is going to happen to people next, and probably what will happen to people next is there'll be more acute episodes, that'll be more expensive and probably damaging to people's overall health status. But we don't know what that is yet because we're still just coming out of the pandemic and the medical consumption while it's kind of at a normal level, it's comprised of a different distribution of things, more COVID stuff and less typical elective and diagnostic stuff. So there will be long-term implications that we just don't know what those are yet, but we're still doing forecasts, it doesn't stop us from doing forecasts. We're taking our best guess. We've got actuaries all over the place, trying to figure this stuff out and understand what's going to happen with the changing utilization patterns. The other thing that happened in the pandemic in our industry, which I think is really interesting, and again, tough to project, the uptake on telemedicine. Because people didn't want to go or couldn't go to the doctor's office, doctors made themselves available to people through things like zoom and video and a bunch of other technologies that actually are good and probably going to be more the way of the future. It won't all be that way, some of it will go back to the face-to-face doctor's office stuff, but there's a fair amount of telemedicine that will continue, and that was accelerated and as a result of the pandemic. And then finally, like everybody else, we're figuring out what this return to office looks like, right? Trying to figure out when it's going to be safe to send our people, what the office is going to look like, who's going to be in, who's not going to be in or hybrid mode, or what is it going to be? And what's the cost of that, right? Right now we've got a bunch of office space we're not using. We have to rationalize that at some point in the future. So all these things go into our projections, but I've been a CFO long enough to tell other CFOs, my advice just be careful. That's all. Know what could happen, do a lot of sensitivity analysis, but just be careful and protect your balance sheet because you've got a strong balance sheet you can weather stuff like this and if you don't have a strong balance sheet, it's going to be harder.
Well, that's really the perfect way to kind of segue into this last question for you here. We certainly covered a lot when it comes to innovation and particularly the past year and a half, a lot of the changes. It was difficult, you know, 2020 and you said the last 14, 15 months, I think we can both agree that there are some positive outcomes that we can kind of focus on, as far as innovation goes and being able to, incorporate some of this into our business as sustainable operations, but just kind of closing thoughts from you, if you wouldn't mind sharing, when it comes to the role of the CFO and again, we're trying to lead organizations into the future successfully, sustainably. What does that look like? What are some of the last thoughts and pieces of advice you have for our listeners?
Yeah, I think some of the lessons learned in the pandemic relate to several areas. Infrastructure is one of those and not only within organizations, but within industries, it was fascinating to me to see in a totally unrelated to healthcare per se, but the way the supply chains work in the country created shortages of things that people wanted to hoard when the pandemic came up, right? So all of a sudden, this is an interesting example, but people were hoarding paper products and the way the supply chain was making paper products was a certain amount for industrial use or commercial use in office buildings, institutions, and things of that nature and a certain amount for home consumption. And what happened when the pandemic hit is home consumption went way up and institutional consumption went down and the supply chain wasn't ready to make that pivot. It took months and months for them to normalize that, cause it's the same product, it just comes in a different package, in a different shape for them to normalize that and get it figured out. Another infrastructure piece, and this is a healthcare specific one for the healthcare ecosystem is, the pandemic really put a spotlight on serious racial disparities and access to care. And we've known anybody who's been in healthcare has known for a long time that there are disparities and that people of modest means have a tougher time getting the same access and good health care that people with greater means may be able to obtain. And whether it's the prevalence of COVID in a particular population, which was higher again for populations that were more socially and economically challenged, particularly people of color and one relates to the other, but the outcomes the same outcome, there were many more cases and serious cases of COVID in populations of color. And that is a terrible thing, but I don't think it's a surprise to anyone in healthcare just sort of dotted the “I” in what we already knew. The good thing about it is that we're coming out with a greater focus on some of those things. I'll talk about that in a minute. The readiness of organizations to do these pivots was very unlevel. I think some organizations pivoted really well and others just kind of went out, you know, like almost went out of business and so think about restaurants, right? I live in Chicago and there's a lot of restaurants. Well, there aren't as many restaurants as there used to be. There are some great restaurants that obviously couldn't take patrons or indoor dining and so they pivoted to carry out and some of them did it really quickly, but some of them couldn't do it at all. I mean, you can really tell as kind of a finance person, you walked down the street and you just look at a restaurant that's doing a decent carry out business and one that's just boarded up and I think it again gets back to how much depth they get, right, to absorb that shock. And so being prepared for that is something that I think organizations really need to do and reinforcing the importance of having the resources and frameworks in place to deal with contingencies. Plan ahead, okay. Well, what if, I don't think anybody ever would have done a, “what if” on a pandemic, but you might've done “what ifs” on other catastrophes that would have had similar consequences and understanding if this, then that with your business is just a really, really important thing whether you're a big company, like a health insurance company or an entrepreneur, you know, running a shop on Alstead avenue in Chicago. Some of the positive things I mentioned earlier, the acceleration of tele-health, innovation was accelerated, digital transformation was accelerated because we had to, and I think those things will stick and they'll stick in just about every sector. I mean, think about the volume of things that are being bought through all of the delivery vendors, right? Amazon, whatever, you know, and all the likes of them. And again, we live in the city, you can get almost anything delivered to our house, whether it's food, groceries, supplies, tools, whatever it is, and in a pandemic, that's what everybody did. So the growth there, and I think, again, a certain amount of it isn't permanent, but a lot of it is permanent. And I think that, that in our case, in healthcare at the tele-health conversion was truly one that was pandemic driven to a different trajectory. And then for organizations, you don't realize you have to be nimble and agile at this point, then you haven't been paying attention because so many things happen so quickly. I mean, we took our workforce remote in a week and we decided to do and in a week later, it was done. And that was it. And 95% of those people haven't set foot in this office since, which is pretty remarkable when you think about it. And the ability to do that and continue your business really means being agile and being nimble, and being adaptable. And now it's a matter of resilience, right? So it's a matter of making sure your folks feel connected and that they feel strong every day because they're working in a whole different paradigm than they were before. So, I think, I don't know who said it, but no good crisis should go unattended, and crisis creates opportunity for those that are really thinking and willing to pivot and willing to act and I think that that's been true with this pandemic. There are things that you would never think you would do and people, many people thought just in terms of the office environment, we need to be in the office every day, everyone needs to be here, that's our culture, that's how we roll, that's just the way it needs to be and I think that what we've done in the last 14 or 15 months has shown us, it's not really the way it necessarily needs to be, might still be for some companies the best way, but not for all companies and I think people have found a different way to work. It's going to permanently change the workforce in this country. I mean, think about the idea of more jobs just being remote period, where you never have to go to an office. That puts the pool of potential employees for a company exponentially bigger than it used to be. Because if my company no longer requires people to work in Chicago five days a week, that opens up the entire country to us in terms of opportunities. And it opens up opportunities for people everywhere in the country that they wouldn't have had if they weren't local before. So I think it's really a lot of things here that have come out of this that are going to be decent improvements for us in the future. And everybody talks about back to normal, there's no going back to normal. We're going to a different spot. Not exactly sure what it is, but we're going to a different spot that isn't going to be what normal used to be and it isn't going to be where we are today. So that's what I kind of firmly believe in. That's the advice I would give to the audience.
This has been Count Me In, IMA's podcast providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like what you heard and you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.