Healthcare financial executives should be helping to build bridges between finance and quality. And nothing is preventing those bridges from being built, says Donald M. Berwick, MD, president and CEO of the Institute for Healthcare Improvement.Clinical improvements can be good for the financial health of a healthcare organization, he says.

Berwick recently talked with hfm about connecting finance and quality.

Q. We believe all healthcare financial managers would agree with you that quality is providers' most important goal, but many would also say that today's payment system is working against us. We recall that you spoke with the Medicare Payment Advisory Commission a few years ago about the disconnect between payment and quality. Do you have any words of encouragement from your experiences of the past few years?

A. Disconnections are still serious. There are forms of pure waste in healthcare processes, including processes within hospitals' walls. Hospitals are redoing lab tests, throwing out equipment, and wasting equipment and supplies. Under today's payment conditions, they would be better off if they used improvement methods to improve processes.

The problem is that the big money is in integrating care. It's in the care of chronically ill people. About 10 percent of people account for approximately 70 percent of expenditures; these are people with chronic illnesses. They're journeying through the system. They're not just in hospitals; they're also receiving home care and long-term care and care in physicians' offices and ambulatory centers. Because the payment system is fragmented, investments you make in one place may pay off in a different one, which creates incentives (or disincentives) that are quite perverse.

The words of encouragement are that we're seeing pioneering organizations make a difference. They are working hard to reduce waste and recovering money as a result. I recently saw reports, for example, from Henry Ford Health System in Detroit, which is doing spectacular work on infection control and on several other processes. They're able to show financial advantage to themselves and to the payers. But having pioneers like Henry Ford Health System isn't enough. We need to get the entire healthcare system organized around much more rational payment.

I see many financial managers who know that they're part of the quality system and want to make a difference. That gives me optimism. I don't have a green eye-shade view of the financial managers in hospitals. I think they want to help, and I think their help is badly needed to improve the quality of care.

Q. Healthcare financial executives have been increasingly interacting with physicians in the drive for quality. They may find the Institute for Healthcare Improvement white paper Engaging Physicians in a Shared Quality Agenda helpful. What would you stress to financial executives, or perhaps add to the paper, based on the forthcoming results of the 5 Million Lives Campaign, which concludes in December?

A. In the long run, we need to build bridges between finance and clinical quality. The bridges can be built. Many forms of clinical improvement are good for the financial health of an organization. But clinical improvement efforts can lead to misunderstandings. I believe firmly that many of the financial executives I deal with are as focused on quality as the physicians are. They just need to find ways to get together and talk about that, help physicians achieve with their patients what they want to achieve, and show them how that can be good for finance.

The national response to the 5 Million Lives Campaign is stunning to me. We have nearly 4,000 hospitals around the United States enrolled in the campaign, and many of them are doing real work to reduce needless deaths and needless injuries to patients. I'm sure it will be the case that in the most successful of those, the financial side is in the picture. The financial managers are there to show how the improvements can be supported and how they can be turned back into reductions in needless costs for organizations.

Q. Healthcare organizations that have received the Malcolm Baldrige National Quality Award in health care have been results-focused and have demonstrated how emphasizing healthcare performance can lead to rapid improvements in patient care. As a former member of the Panel of Judges for the Baldrige Award program, what advice and encouragement can you give healthcare financial executives to help their organizations attain performance excellence and improve outcomes?

A. There are two ways. The first one is that enlightened and capable financial management and reporting can illuminate opportunities in an organization. They can be beacons that show opportunities for change and improvement. Like all information systems in an organization, a financial information system can help make processes and defects transparent.

Beyond that, there's another slightly more complicated answer. Noriaki Kano, the great Japanese scholar of quality, said years ago that there were really three categories of quality improvements. The Kano Type 1 improvements are reducing defects. For example, if a hospital patient gets a pressure sore that could have been averted or has a complicated infection that should have been prevented, that's a defect of Type 1.

Kano Type 2 improvements are reductions of cost while maintaining or improving the experience of the person you're serving. If you take my X-ray and then you lose it, you have to take it again. So, as a patient, my experience is worse, and you've also added to your costs. The Kano Type 2 improvements are very smart improvements. They're cost reductions while improving the experience of the person you're serving.

Kano Type 3 improvements are innovations or new things that you can do that sometimes cost more money. Very smart organizations in all industries, including health care, use all three of those kinds of improvements. They use Kano Type 2 improvements to find new money by reducing costly defects while maintaining and improving the condition of the patient. Then they can reinvest that money in innovation, in putting in new things.

You need the financial management system to help guide the organization through that set of opportunities, to identify when there is a cost that can be reduced and get the money out, to figure out how to make that into what my colleague (IHI COO and senior vice president) Maureen Bisognano and others call "dark green dollars," and then to reinvest that money in wise ways in the organization with innovations. That's all sophisticated financial management linked to sophisticated process improvement. All successful modern companies using quality to compete in the global marketplace do that.

Q. What healthcare policy reforms would you like to see the next president champion?

A. I'd like to see the next president champion leadership reforms, with the White House and Congress taking on the important duty of leading our nation into better health care, flagging issues of patient safety and issues of effectiveness of care and excess cost, and using the bully pulpit to say that improvements in our care system are quite achievable, and that we have to aim for them. Setting aims is a very important leadership task for a president.

In terms of policy, the most important policy changes would be those that would allow us to pay for care in integrated forms. Right now we're paying for fragments, and we need to find a way to rediscover the payment of care over time and space, integrating care for populations. That's going to take some very clever policy leadership. We need to avoid the bad forms of managed care, but we should return somehow to population-based treatment, care, and payment. I think that that can be done. If Medicare does it, others will follow.

I also would like to see more investment by the government in research on process improvements in health care. We are very invested in inventing new drugs and new technologies and new procedures, but we're way underinvested in figuring out what great systems of care look like. We need resurgence in that knowledge growth, and the government ought to be supporting it.

Read Donald Berwick's bio.

exhibit-1-Donald Berwick

HFMA On Payment Reform

Our current payment system works against the actions needed to improve health care. Healthcare Payment Reform: From Principles to Action, a new paper from HFMA, outlines the principles, actions, and collaborative approach among all stakeholders that are needed to transform the payment system. To read this paper, visit

Login Required

If you are an existing member, please log in below. Username and password are required.



Forgot User Name?
Forgot Password?

If you are not an HFMA member and would like to access portions of our content for 30 days, please fill out the following.

First Name:

Last Name:


   Become an HFMA member instead