The Supreme Court’s decision to uphold the Affordable Care Act, and the victory by President Obama in the November election, made it all but certain that targeted reimbursement reductions are on the horizon. The law created the Independent Payment Advisory Board (IPAB) with a mandate to drive down healthcare costs. Given that the board’s principal tool the power to modify payment rates and requirements as the board’s principal tool, providers can expect both lower payments and decreasing volumes of high-margin services. At the same time, CMS and commercial payers are actively exploring new care delivery and payment models including ACOs, bundled pricing, and pay for performance. To top it all off, consumer and payer interest in the cost and quality of care is growing as new transparency requirements mandate the reporting of outcomes and premiums rise.

All of these demands point to the need for a fundamental transformation in how we deliver care, refocusing efforts toward “better care at lower cost.” Providers can anticipate particular scrutiny on the payments for traditionally high-margin, high-volume services and need to prepare accordingly. Healthcare delivery organizations must make the care they deliver more efficient, or risk their financial solvency. Provider organizations will need to capture and analyze integrated cost and quality data, structured to provide insight into improvement opportunities. Success requires a level of clinical and financial data integration that is new for the industry.

The Changing Role of the Finance Professional in Cost Reduction
Over the years, healthcare organizations have employed numerous cost-reduction and quality-improvement strategies. Hospitals have merged to form ever-larger systems, and suppliers have consolidated. Extensive lean operations programs have been established. Simultaneously, quality assurance (QA) departments have trained small armies of nurses to sift through patient records and produce reams of reports for the complex bureaucracy of “quality improvement” committees. In spite of these efforts, costs continue rising and have been largely pushed onto the insurer, while significant gaps in quality remain. However, new payment and delivery models are poised to begin shifting this risk back to the providers. Physician decision-making, one of the largest drivers in the ultimate quality and cost of patient care, will be the focus of cost-reduction and quality-improvement efforts going forward.

Finance professionals have a critical role to play as hospitals grapple with these challenges,. The first step for monitoring and controlling healthcare delivery costs is developing an accurate understanding of the cost of care delivery. Capturing and analyzing integrated cost and quality data will be critical to deliver more efficient, high-quality healthcare. This represents a change in how financial data has been used from the past, and will require the development of new capabilities, processes, and roles.

Cost Accounting
As the clear trend toward the standardization of care accelerates, reducing variation in the cost and outcomes associated with particular procedures or protocols will be critical. Medical leadership will be pressed to improve consistency, and will need to rely on finance professionals for accurate activity-based cost data that allows them to identify outliers. These leaders will need a more refined understanding of cost than has historically been required, and simply looking at numbers rolled up at the department or even DRG level will be insufficient. Finance leaders will need to be able to identify outliers at the physician and procedure level, so they can accurately identify the reasons that treatment decisions vary and—where appropriate—eliminate unnecessary variation. 

Deploying and maintaining a detailed activity-based cost accounting system is a substantial undertaking, but the wealth of data it can provide is well worth the investment. Many healthcare systems are currently investing in costly EHR systems that will do little to facilitate a better understanding of the real drivers of high healthcare costs, but by linking activities with their costs, finance leaders will have the data they need to work with clinical leadership to drive meaningful change. 

Supporting Changes Within a Clinical Organization
Of course, having data is only the first step; affecting change within a clinical organization will require certain interpersonal and influence skills—from both clinical and financial leadership—that will allow them to serve as convincing agents for change.  As physician leaders try to drive change, one of the biggest challenges they face will be their own peers. Historically, physicians have had enormous autonomy and have operated from an entrepreneurial base, making them nearly impervious to change. Because they will have to challenge their peers regarding both the clinical and financial impact of the decisions they make, physician leaders will need support. They will need finance professionals to provide them with meaningful, trustworthy, and easy to understand financial data and analyses.

Monitoring financial results as physician leaders work to standardize their approach to care will be critical, and it will be up to finance to provide practicing physicians with insights into the financial and business implications of their clinical decision-making. Given the historical silos dividing clinical and financial leadership, this may prove challenging, but will ultimately lead to greater success for your cost and quality initiatives. 

Providing “better outcomes at lower cost” is well within our reach, but this outcome could remain elusive if finance professionals do not embrace their critical role, by linking activities with costs to manage unnecessary variability. Managing this variability will also require finance professionals to develop new capabilities and processes for engaging clinical leadership and supporting changes in clinical practice. The return—truly improved healthcare cost and quality—will be well worth the effort.