Clarke_webFrom the President

Richard L Clarke, DHA, FHFMA

At a recent Institute for Healthcare Improvement meeting, several clinical quality managers asked me why it is so hard to make the "business case for quality."

After further discussion, it was apparent that what they were asking was how to truly measure the financial impact of their quality improvement efforts. 

One response to this question can be found in this month's issue of hfm. In their article "The Fixed-Cost Dilemma," Stephen Rauh, Eric Wadsworth, and William Weeks explore many challenges of achieving true cost reduction from quality improvement, including the illusory effect of saving money by reducing length of stay in an inpatient facility. Obviously, part of the problem is the fixed-cost nature of many hospital operations. Also problematic is the nature of volume-based payment-that is, quality improvements that remove unnecessary activities or rework often reduce the amount of payment a facility receives.

In addition to those built-in problems of healthcare economics, hospital leaders simply do not have access to the business intelligence they need to understand the financial effects of clinical process change. As payment increasingly is based on performance instead of volume, sound clinical and business decisions will require this type of intelligence.

HFMA has identified three key ways in which financial leaders can help provide the critical business intelligence hospitals need.

First, finance can play a leading role to identify and provide information that clinical and administrative leaders need to make effective decisions. That information must be developed in concert with the way clinical processes are conceived and managed. Financial leaders must work with clinicians to understand how clinical processes operate and what information would be useful in making and measuring improvement efforts.

Second, finance can lead in defining costing systems that provide current, accurate costing of clinical and administrative processes. A recent survey by HFMA found that a majority of hospitals still use the RCC (ratio of cost to charges) as a primary basis of cost apportionment. Vagaries of price setting make the RCC a very imperfect costing technique.

Third, finance can develop metrics, analytics, and processes that allow executives to understand and reap the impact of improvement efforts on the financial performance of the enterprise. A system view of quality improvement efforts ensures that performance of the entire enterprise is considered as improvement efforts are executed. Without this view, process improvements in one area may increase costs in another area, making the effort less beneficial for the entire organization.

HFMA is taking a leading role in all three areas. To bridge the information gap between clinical process improvement and financial management, HFMA has started a "value project." In this project, HFMA will engage in dialogue with organizations that have worked on these cost-quality issues, drawing on their experience to identify better practices and lessons learned that the entire industry can apply. The outcome of the project will be principles and templates for reporting and costing, as well as standard definitions for metrics that measure enterprise performance.

Healthcare organizations must focus on both improving quality and reducing cost. And financial leaders have a key role to play in achieving both.

Publication Date: Monday, March 01, 2010

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