Steve Player interviews Tim Carmack, CFO, Lucile Packard Children's Hospital at Stanford.

Steve Player: Could you give us some quick background on Lucile Packard Children's Hospital?
Tim Carmack: We're wholly owned by Stanford University and located on the Stanford University campus in Palo Alto. Lucile Salter Packard was the wife of David Packard, who cofounded Hewlett-Packard. The Packard family made a large gift to break ground and build the hospital, which opened in 1991.

SP: I know that Stanford also has a teaching hospital. What is the relationship between the two hospitals?
Carmack: Both of the university's hospitals are teaching and research facilities: Stanford Hospital & Clinics is the hospital for adults, while Lucile Packard Children's Hospital is for children but also provides all obstetric care for expectant mothers. Essentially, we care for children almost from conception, as well as mothers during pregnancy. Of the 5,000 to 6,000 hospitals in the United States, only about 250 are children's hospitals.

Stanford's two hospitals are separate corporate entities from one another and the University, and each has its own physical plant, although they are joined by several tunnels and bridges. We share a lot of basic infrastructure in order to save costs.

Packard Children's Hospital has about 2,500 employees and staffs 300 beds. We generate $700 million in net revenue on $1.3 billion of assets. If there is a procedure or treatment that can be done to improve the health of a mother or child, we do it. We are somewhat smaller than some of the older children's hospitals, particularly those on the East Coast, but we do almost no primary care like many of them; almost everything we touch is complex. Therefore, we are among the top children's hospitals in the United States with respect to the number and difficulty of cases that we treat.

SP: I know that there are a lot of changes in healthcare. Tell me about how you are getting requests from distant communities to partner with them.
Carmack: Sure. This is a national phenomenon that we are seeing. One of the larger structural issues in U.S. healthcare is that there are not that many pediatric physicians, particularly specialists. There are even fewer subspecialists, which is pretty much the work that we do. These physicians tend to want to work with other subspecialists due to the narrowness of their fields and the complexity of the cases that they see. This in turn leads them to aggregate around academic medical centers like Packard. Taken together, complex care for children therefore tends to be treated on a regional basis; there are simply not enough specialized doctors to be in every community, nor the case load to support them. The larger regional children's centers like Packard Children's are being asked more and more often to staff a small satellite unit at adult facilities a distance from our campus in an attempt to keep care closer to the patients' own communities. The general idea is that the simpler cases will be treated locally, and the complex cases will be sent into us. But all of this care will be led and coordinated by our medical staff simply due to the paucity of available physicians. To that end, we also train a lot of community pediatricians to care for patients after a major procedure here, such as a heart transplant.

SP: Tell us about when and how you got to be CFO.
Carmack: I joined Packard as CFO about two and a half years, ago. I've been a CFO of hospitals my entire career except my first three years out of school, when I worked on the audit staff at Coopers and Lybrand.

SP: Had you audited any healthcare institutions?
Carmack: Only once for about two weeks. But as an auditor, I found myself getting tired of always looking backward, verifying that a company made X dollars versus Y. I wanted to use numbers to think on a forward basis and ask strategic questions like, Why are we doing this and not something else? Or: How is the market responding to us? As well, right after graduating from college, I began doing quite a bit of volunteering. I initially worked with mentally disabled adults and then went from there. Combining these things, I decided that I wanted to work for an entity that was helping to change lives somehow, and I wanted to help lead it, not do the accounting for it. I did a lot of informational interviewing in the helping fields, and finally a door opened at a local hospital to work as the senior financial analyst for the CFO. My boss involved me in everything that you could think of, and it quickly felt like I was part of the success and progress of the organization. Then, to cut a long story short, I caught my boss embezzling.

SP: Not many people have that in their career resume!
Carmack: No. I've been oddly lucky that way in the past. I have found things that I've just stumbled across. I found that he was embezzling -- a couple of million bucks. Obviously, he got fired; he also did some time in prison.

This happened while the hospital I worked for was searching for a new CEO, and the CFO was in line for the CEO job. The CFO essentially allowed me to act in his role while he positioned himself for the potential move up. It was while I was doing the job that I found the embezzlement.

After this happened, we had all of these candidates interviewing for the CEO job. They were asking whom they would talk to about finance, since there was no CFO. The board had each of them meet with me. And the guy who eventually got the job said, "You seem pretty sharp, would you like to be the CFO?," to which I replied, "Well, if you're looking for 15 years of experience, I don't have it, but I know that I can do the job, and yes, I'd like to give it a crack." He said, "If I get the job, we'll talk." About a month later he did, and he walked in the first day and made me the CFO. I had just turned 29.

When you're 29 years old and you are the CFO of a 250-bed, well-respected hospital in Orange County, some people think that you just got lucky. Over the next couple of years I worked hard, not just at the hospital but also in outside forums to show that I could indeed do this job and do it well. I also took advantage of many opportunities to continue to learn, especially about leadership. I was in the right place at the right time, yes, but you have to take advantage of such an opportunity and be the right person.

SP: You have to be working hard, and you have to be looking for the opportunity...
Carmack: Right. After that, I just moved on to bigger and bigger hospitals throughout the Los Angeles basin. I finally ended up at large, 500-bed, trauma center. Then, one day while in my mid-40s, I decided to leave. I wanted to try some other things in life before I got much older -- working more closely with people, especially the poor. Initially, I went to Vietnam and taught English just to clear my head.

SP: Just to recharge?
Carmack: It was a combination of things. As I noted earlier, I've always been involved, all the way back to my college days, with volunteering in some manner. I mentioned mentally disabled adults, but I have also been a Big Brother and played a couple of seasons of softball at a prison, among many other things. Through the years, I got to know some people who run World Vision, the world's largest Christian nongovernmental organization.

When I returned from Vietnam, the CEO of their international office asked me if I would help them to look at ways of reducing their overhead worldwide. They are an international partnership in over 100 countries and have grown their programs and fundraising dramatically by pushing decision-making out to the edges of the partnership. With that, however, came a multiplication of their overhead. They wanted more money to go to the children that they served instead of to their back-office functions. I helped them to set up a work redesign project, which led to the engagement of Booz Allen Hamilton since the effort was on a worldwide scale. World Vision hired me to help initially set it up and then participate in measuring and monitoring its progress.

At about that same time, I also began to get phone calls from several healthcare organizations and ended up doing consulting with the Camden Group, a healthcare consulting firm out of Los Angeles. I was doing all of this on a part-time or contract basis while flying back and forth to Vietnam to spend time with the people whom I had became involved with there, still thinking about life and where I wanted to land.

Finally, in the midst of all of this I was offered the opportunity to interview for the CFO role at Packard. It fit me. It was a hospital for children, and a renowned one at that, being part of Stanford. I know hospitals, and if you follow a theme through much of my life, it's that I love children.

SP: When you got there, philosophically what role did you think that finance ought to be playing, and how did you go about establishing this?
Carmack: At the highest level, I saw the role of finance as that of an agent of change, including helping to drive the organization toward an adaptive management model. From a clinical perspective, Packard functions at an elite level, but when I arrived, some of the administrative functions felt like they were still in the 1980s. The focus had always been on the clinical and research side, and administrative functions were not given much importance until the hospital grew dramatically after certain key physician recruitments were made in the early to mid 2000s. Then it became clear that some important support areas simply did not function at the same speed as the clinical side.

In being a change agent, I want to make clear that I don't care about change for the sake of change -- that's just creating a lot of work and angst if it is without a purposeful endpoint. When change is needed, finding the appropriate key that resonates with people to unlock change is vital, and this varies at each organization. At Packard, for example, I may see what I think is waste and bring that up to the attention of those involved. At times, when I first did this I had people look at me as a typical CFO only concerned about margins. I'd explain to them that, in the end, some little kid's mom pays for everything that we do; the CFO does not really pay the bills. And it is amazing how the conversation turns when you reframe it in terms that everyone cares about. They were no longer debating with the CFO, but rather with a colleague who cared about the same things that they did.

When I was being recruited, this hospital wanted someone who understood how a hospital actually functions -- someone who could talk to doctors or nurses in their language and get them to change, someone who would understand strategy and wasn't just a number-cruncher. They met at least a few people who fit that description. In the end, the thing that sold them on me, so I was told, was that I had demonstrated a love for children that rivaled the physicians'. Having that sort of connection at a values level really helps, especially when trying to deal with a lot of very smart, very busy people.

SP: Everybody, including the people in finance, needs a passion for the mission of the organization. Where do you see your biggest opportunities for finance transformation, and how are you tackling them?
Carmack: The revenue cycle at Packard was extremely fragmented when I arrived, so we have undertaken a work redesign effort that cuts across departmental lines. We are looking at revenue generation through collection as single process instead of pieces held together by several functional vice presidents.

Then there's IT support. The hospital, again, has been clearly focused on the clinical side of things to the point that we are in the upper few percent of hospitals in the United States that are utilizing electronic medical records in a robust fashion, as you might expect for a Stanford facility. We have a new CIO, and I've been working with him to build sorely lacking capacity on the finance and administrative side as well.

SP: What are you doing in the planning area?
Carmack: We are trying to get going on Beyond Budgeting. This was something that I have wanted to do at a lot of places where I've worked but never gotten to. Packard was one of these hospitals that took nine months to do the budget every year. We have cut that in half but are looking at moving past traditional budgeting altogether in the future. But by piloting it in several areas, we have determined that we need some better base systems in place before we can go forward in a big way.

SP: How well do you measure the effectiveness of your action plans and achievement of the strategy?
Carmack: Not well enough. This is another big "To Do." In fact, we are augmenting our financial planning team right now, and I am working with our chief strategy officer to better come alongside him and his team. Finance really needed to take more ownership of the numbers, so the CSO and I agreed to make that happen. As well, we still have too many sources of truth, so at times the numbers do not add up and we waste time reconciling. As a senior team, we are working on a thoughtful design to all of our analytics -- sources, definitions, maintenance, and use. The healthcare industry has been behind in this arena.

SP: As you look back, what would you like to share about your career for people coming up in finance? What would be the key advice that you would give them?
Carmack: A couple of things. One is to surround yourself with the best people you can and then support and listen to them. Don't be afraid to hire people who are smarter, more experienced, or better than you. They will make you a hero and you'll have fun working together. Work together to craft a vision with them, but then let them run with it and support them when they fall down. When all is said and done, good people are what make good things happen.

The other thing would be to get out of your office and walk around, and read widely as well. I've learned so much from other industries; for example, things like Beyond Budgeting. This didn't come out of hospitals or healthcare. If you go to a Beyond Budgeting Round Table, Southwest Airlines is sitting there and all of these other big organizations from countless industries. It's just like when I was working at Coopers and Lybrand; in the three years that I worked there, I probably saw as many ways of doing things in accounting as a lot of people see in an entire career. Most people do not have the opportunity to get around like you do at a big CPA firm; they go to work as an accountant at Disney and they know Disney cold after several years, but they have no idea what a mortgage banker does. I did. I learned from service firms and manufacturers -- everything from the real estate industry to the people who build fuel nozzles for F-16 fighters. Never stop learning. Learn from others widely and copy them. Strive to adapt and improve upon what they did.

Another great one, which I've had in my personal life much more so than in my work life, is to find mentors -- people whom you respect. I have done a lot of informational interviewing in my life. Buy someone lunch and ask them questions. People like to talk about themselves and their experiences, and you will learn a ton if you listen. Often they will open doors for you that you could never have opened yourself or that you never would have known even existed.