Edward J. Giniat

I have seen the future of healthcare reform, and it looks a lot like Massachusetts.

The reforms began there in 2006 with near universal coverage, but the commonwealth still faces the challenge of the rising cost of care. Now Massachusetts is debating major changes in its payment system and the structure of care delivery, such as unit price controls on hospital services and the redistribution of earnings among tax-exempt entities, with intense scrutiny over requests for premium increases by health insurers.

Health care is an industry like no other. It is a deeply interconnected ecosystem with diverse players whose interests can be aligned and at odds simultaneously. The difficult part isn't getting stakeholders in the healthcare ecosystem to agree on the ultimate goal of their activities-enabling long and healthy lives. It is making the changes necessary to solve the complex equation that balances cost, quality, and coverage. Although both Massachusetts' and national reforms began by focusing on insurance coverage and its costs/benefits to employers and individual buyers, it is only a matter of time before the debate shifts to the increasing medical and administrative costs that impact the rising cost of insurance itself.

Even before national reform legislation was enacted, leaders of health systems and hospitals recognized the need to reduce their costs and their cost structure. With the passage of reform, organizations have, in many cases, responded by focusing first on structural changes (e.g., mergers and physician practice acquisitions). Accountable care organizations seem to be viewed by some as simply the next organizational structure to optimize reimbursement, without changing the "risk sharing."

Finance Can Take the Lead

Leaders of health systems and hospitals need to support a comprehensive, strategic assessment of their organizations. They should consider even radical options, with the meaningful use of electronic medical records as an enabler of the transformation. While helping the organization reassess the environment and look broadly at options for change, finance should also look for inspiration to the quality improvement approach promoted last century by W. Edwards Deming. Recognizing its profound complexity, U.S. health care can still be viewed as a "system" enabling the prevention, diagnosis, and treatment of people with the goal of maximizing their good health and extending life broadly throughout the community. The diversity of models for participating in this "system" is extraordinary as are the models for integrating care providers, payers, support personnel, and facilities.

A comprehensive strategic assessment, fully informed and led by finance, should consider the basic strategic questions: Who do we serve, where, how, and with what funding? It should consider a fresh view of the mission and scope of the institution and consider how the players interact, how revenue is managed, how costs can be restructured, and how the incentives for participants can be aligned to the desired outcomes.

If the nation is to advance from care to high-quality care to world-leading health outcomes, the priorities, incentives, and business models of stakeholders need to be aligned. Considering the diversity of the stakeholders, this is no small task. But by the same token, the magnitude of the problem suggests the opportunities are equally large and plentiful. To survive and to thrive, healthcare organizations need to find ways to increase agility, be more decisive, focus more on the future, and be more responsive to change.

As they change, healthcare organizations should accelerate their ability to deal more systemically with transformational change. As other industries have done before, healthcare organizations need to learn the power of next-generation governance, risk management, and compliance models, not only for guiding decisions but also for understanding how change can be used to create advantage.

Strategic Imperatives

In following the path to transformation, healthcare organizations should focus on the strategic imperatives for integration and clinical transformation. A recent study by the Manchester Business School for KPMG International reported on 10 successful health systems and hospitals around the world. Its findings were clear:

  • They all have inspirational and determined sponsorship from leaders.
  • Clinicians and staff are supported in a variety of ways to critically reexamine care processes and simplify patient flows.
  • Most important, the most successful and sustainable changes have been made by seeing the care process from the patient's point of view.

Put the patient first. Patient-centric care has been not only the "Holy Grail" in the quest for quality, but also the foundation for productivity and efficiency. High-quality, patient-focused care can, and does, save money, but these benefits cannot materialize without dedicated planning, program management, excellent information, and highly supportive technology. Although disruptive innovation may come from external agencies, the change has to be owned by the staff.

Work in partnership. Another key facet of high performance seems to relate to the individual and organizational capacity to partner-with patients, clinicians, social care organizations, and insurance companies. The ability to look holistically at an individual's needs and provide funding and care support from "pooled" or broadly "bundled" budgets can reduce unnecessary bureaucracy and streamline the care process. Similarly, private payer-provider partnerships have demonstrated impressive results in enabling a single organization and dedicated team of clinical staff to take responsibility for the entire value chain and use sophisticated IT to stratify patient need and focus attention and effort for those at risk.

Support innovation with evidence. KPMG's study also suggests that sustainable change requires better clinical and financial information, excellent modeling capability, risk stratification, and change management skills. The move to ICD-10, combined with the meaningful use of electronic medical records, holds the promise for quality improvements through more sophisticated databases and the potential use of technology as a tool for aspects of patient care. Radical change often requires disruptive innovation, and the ability of any health system to be open-minded and inquisitive is a fundamental precondition for success.

Align objectives, accountability, and incentives. Perhaps the greatest challenge for leaders of health systems and hospitals is to share risk, to devise a payment system that aligns and supports the collaboration among the players in their system. While considering the overall U.S. environment, leaders of health systems and hospitals should focus on their own mission, the community they serve, and their investment in people and facilities as a starting point. Finance should be helping its organization to:

  • Work with payers to develop innovative models and risk-sharing arrangements aimed at reducing cost and improving quality
  • Move away from a revenue management mindset to focus more on cost and quality
  • Follow the path to transformation

Finance needs to take the lead for the organization on its path to transformation.


Edward J. Giniat, CPA, is a member of HFMA's National Board of Directors, the national leader of KPMG's Healthcare practice, Chicago, and a member of HFMA's First Illinois Chapter (eginiat@kpmg.com).

This article represents the views of the author only and does not necessarily represent the views or professional advice of KPMG LLP.

Publication Date: Monday, November 01, 2010

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