Sanjaya Kumar

Healthcare senior finance leaders need to spearhead a systems approach for improving the care environment and financial performance.

At a Glance  

  • As the nation witnesses the unfolding of healthcare reform, value as an expression of reduced cost and improved quality will become the watchword for the healthcare industry.
  • New, relatively inexpensive technologies have become more widely available that can help healthcare provider organizations more easily evaluate their performance around quality and safety, thereby contributing to improved value.  
  • Senior finance leaders should play a leading role in guiding their organizations toward measuring clinical quality and monitoring performance in monetary terms, which will be increasingly important with the growing focus on value.  

In a healthcare world of razor-thin margins and shrinking payments, justifying material financial investments in safety and quality improvement armed only with a list of qualitative benefits poses a challenge for healthcare finance leaders. To date, considerable effort and expense have been dedicated to demonstrating the seemingly simple equation that Value 5 Quality 4 Cost. However, organizations have struggled to demonstrate clear benefit of linking the goals of financial, operational, and clinical performance around improved quality.

One reason is that in provider organizations, the financial, operational, and clinical technologies that span the enterprise still tend to function in their own vertical, isolated worlds.

Most healthcare providers have information systems that are effective at a functional level. However, to be able to make value-based decisions, stakeholders in healthcare provider organizations require access to cross-domain, interrelated information on demand, with a presentation in a context that makes sense based on the decision maker's roles and responsibilities. Moreover, the quality effort must be applied consistently across the entire organization to allow performance improvement to be measured enterprisewide and across all domains.

Healthcare technology vendors have been trying to address these requirements for a long time. However, until now, available solutions have been plagued by one or more of the following issues:

  • They were too expensive.
  • They offered a platform with minimal cross-data integration capabilities.
  • They were not constructed for enterprisewide use.
  • They were too retrospective in nature.

Fortunately, in the words of Bob Dylan, "The times they are a-changing."

Significant advancements in access to information, decision support, and data management technology have been made in the past decade, resulting in a new breed of information system that can leverage domain-specific expertise in data mining, analytics, and business intelligence to offer the financial benefits of improving clinical outcomes tied to payments.

Leading the Charge

Healthcare's finance leaders should be at the forefront of the paradigm shift toward measuring clinical quality and monitoring performance in monetary terms. With this shift, the organization may need to enhance decades of clinical metrics whose relationship to financial performance could not be documented. Today, clinically relevant data can more easily be associated with financial metrics. For example, patient falls have always been considered a drain on resources, but this relationship has been difficult to prove. Today, using software, patient populations can be easily separated into different cohorts (e.g., no falls, falls without injury, and falls with injury). Likewise, analytics built into software can be used to analyze length of stay (LOS) and costs incurred by each group. The differences among the three groups are typically wide, with extended stays and higher costs associated with those who had an injury related to a fall. Moreover, these additional costs do not even consider the burden for the patient, many of whom must be cared for in a rehab or skilled nursing facility.

In short, whereas decision makers previously may have reviewed clinical and financial information in silos, technology now provides ways of looking at clinical, financial, and operational metrics in relation to one another. Decisions made without a sound financial foundation will need to be replaced with financially prudent clinical decisions with performance metrics built in. The goal is to account for both financial and clinical benefit accurately and weigh these benefits appropriately at each level of the process.

And the enabling technology will need to be understood and applied in a systematic way.

To guide their organizations successfully through this technology transition, finance leaders need to engage in three activities:

  • Knowledge acquisition
  • Organizational assessment
  • Directed execution

Knowledge Acquisition

Finance leaders need to educate and arm themselves with an understanding of technology concepts that can fuel transformations. They do not need to be technology gurus, but an understanding of basic technological principles can help them steer their organizations toward greater accountability and efficiency.
In the very least, finance leaders should understand and embrace three critical concepts:
> Cloud computing
> Integration and its complexities
> Role-based application architecture

Understanding of these three concepts promotes an awareness of both the complexities and opportunities that clinical business intelligence systems can provide and can serve as a foundation for making critical investments with an eye on enterprisewide ROI expectations.

Cloud computing. The term cloud computing has become the buzz phrase of the software world, although the concept is not entirely new. Cloud computing has been defined as:

... a general term for anything that involves delivering hosted services over the Internet. These services are broadly divided into three categories: Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS). The name cloud computing was inspired by the cloud symbol that's often used to represent the Internet in flowcharts and diagrams.a    

In particular, because of advancements in the stability and security of Internet-based applications, SaaS solutions give healthcare organizations the opportunity to access new and innovative technologies without the enormous capital costs previously associated with software acquisition.

Data integration and its complexities. Imagine taking people from five different countries who speak only their native language. Now get them in a room and ask them to solve a problem together. What are their chances of success? This is the basic problem with integrating data across multiple applications. It is time consuming and expensive.

However, data integration can be simplified using new technologies that rely on cloud computing and that provide a venue for the business owner to match data types. With a map in place across all data types, the task becomes easier. In our example, it would be the equivalent of providing an interpreter who understands all five languages: There is still translation required, but the task of solving a problem becomes substantially easier.

For finance leaders, the immediate concern is to understand the complexities surrounding integration and ensure that steps are taken up front to translate and normalize data for use across the enterprise.

Role-based application architecture. Automaker Henry Ford's philosophy on customization-"Any customer can have a car painted any color he wants so long as it is black"-does not work for health care. It no longer makes sense for hospitals to use business intelligence programs that provide only partial or summary level data, presented and associated in same way for use by CEO, CFO, and CNO.

Role-based application architecture operates on a many-to-many principle, where data from multiple sources are distributed to many individuals, each of whom has a specific profile for data access and permissions. This type of architecture allows users to customize their environment to monitor metrics critical to their role across financial, operational and clinical domains. This type of construct can empower decision makers and guide them toward the most financially prudent and clinically sound options.

For a more detailed discussion of the foregoing concepts, with examples, go to January 2011 issue of hfm.

Organizational Assessment

Just as providers who deliver care directly need to assess the financial implications of clinical intervention, operations staff members need to assess the clinical implications of their financial decisions. To begin moving their organizations toward integration of clinical operational, and financial information, finance leaders should undertake an organizational assessment. Specifically, finance leaders should ask three basic questions:

  • Is my organization ready?
  • How can I prepare my organization for the necessary change?
  • How can I get cross-functional buy-in?

Before starting the transition, a finance leader should understand where his or her organization currently stands and how ready it is to embrace the paradigm shift. Are the nurses completely aware of supply costs? Do the organization's accountants have a baseline understanding of clinical quality? This assessment will provide the information needed to identify steps to promote the organization's readiness for the necessary changes, such as increasing educational opportunities, providing data at point of care, or simply starting a dialogue with department leaders. The assessment also can help the finance leader identify the best way to ensure cross-functional buy in for the change.

Directed Execution

Execution is a cross-functional effort, requiring integration and alignment of clinical and operational data with financial data. To this end, finance leaders should step into a leadership role and assume an active role in managing behavioral change across the organization. Although organizational behavior functions are typically not the domain of finance leaders, their role as investment managers to some extent forces them to assume this responsibility. Because finance is introducing a financial element into other areas' decision-making processes, the finance leader should champion the shift in perspective and the activities associated with it. Specifically, finance leaders should take charge, rally the troops, and demonstrate and measure success. They also should identify and advocate, for both finance and other areas, the performance-based metrics that will need to be tracked and showcase how those metrics are made available by the new technology.


As the effect of quality improvement projects on cost and revenue becomes easier to quantify, examples are becoming more common. A 2004 study of a 400-bed community hospital illustrates how by decreasing adverse events hospitals can achieve substantial cost savings. The hospitals in the study used a no-longer-available commercial software application for event reporting and a commercially available cost accounting system. Data from the safety event reporting system were merged with billing and DRG data from the cost accounting system, and analytics were performed. The findings suggest that savings can come not only from avoiding the expense of the extra care required due to the adverse events, but also from reducing length of stay (LOS).

Cloud computing, a key component of a SaaS architecture, provides a technology framework that makes integration and automated analytics of real-time data possible on a large scale. The manual compilation and correlation of information is no longer the only way to drive this.

Falls are one of the top areas where quality improvements will help the bottom line, as is indicated in the exhibit above. In this study, for example, falls resulted in an average of 2.6 days of additional stay, at an average additional cost of a little more than $1,000. Consider that if this hospital were able to reduce patient falls by just 10 percent as a result of establishing best practices and other interventions, it could save almost $45,000.b  

Exhibit 1


A 500-bed acute care teaching hospital in the Northeast offers another case example. Initially, about five years ago, this hospital was considering eliminating its IV team to reduce costs. As part of their decision-making process, the organization's managers reviewed the department's performance, looking for ways to support overall organizational goals and redistribute work. The hospital was able to pinpoint its average costs of line bloodstream infections and to view data indicating how the IV team's efforts had helped to reduce the rate of those infections significantly. Based on these findings, the hospital decided not only to retain the IV team, but also to expand the team's responsibilities. As a result, infection rates plummeted from eight per 1,000 line days to one per 1,000 line days. That hospital saved an estimated $1.2 million due to its investment in the IV team.

Another case example is a 150-bed children's hospital in the Midwest. This hospital's leaders invested in establishing a multidisciplinary medication error workgroup several years ago amid concerns of high medication error rates. That investment paid off with a 38 percent reduction in overall medication error rate and a reduction in the average number of administration errors by half over two years. Not incidentally, the numbers of doses per month increased almost 50 percent over those same two years. With adverse drug events costing hospitals an average of $3,500 per day per staffed bed in additional costs, the ROI was considerable.

Exhibit 2


What Should Your Next Move Be?

The course of action implicit here is strategic, potentially transformative, and entirely achievable. Moreover, it will be in many ways an imperative as healthcare reform unfolds in the coming years. There is one important caveat, however: What works for one organization may not work for another. Each organization has its own culture, and each finance leader has his or her own style. Each finance leader needs to identify and embrace the approach that fits in best with his or her organization's staff and culture.

Challenges are to be expected, but no one can predict what form they will take. Moving an entire organization toward a new way of thinking is an enormous undertaking that will carry the organization into uncharted territories. In such circumstances, one piece of advice is of paramount importance: Don't give up. The ultimate outcome will be increased payments, more sound fiscal decisions, and a higher quality care environment.

Sanjaya Kumar, MD, is president, CEO, and chief medical officer, Quantros, Inc., Milpitas, Calif. (



a. This definition can be accessed by searching on the term cloud computing at the website (

b. Cost analysis for this study was performed for calendar year 2002 (CY02) through CY04. The patient safety system data were merged with financial data, and other methodologies for measuring additional costs and additional days of stay were used to determine similarities or disparities in trends. A reduction in the frequency of patient safety events was found. Events reported for inpatient cases were compared with the cost accounting system to validate that identified inpatient cases were part of the predefined patient population. Payer sources and diagnosis-related group designations were also confirmed in the data set. The organization used variable direct cost because this measure was regarded as being more representative of the additional cost of care that might be associated with a patient safety event.

Sidebar 1

Technology Investment Considerations  

In general, finance leaders of a hospital preparing to invest in an information system that can help the organization effectively address the value equation will want to keep three key considerations top of mind:

  • Avoiding cost
  • Optimizing the investment strategy
  • Measuring ROI from the start

Avoiding cost. If value is a function of quality and cost, then both components will impact the bottom line and must be measured. To measure quality and its relationship to cost, it is necessary to assess the ROI associated with efforts focused on safety, quality, and compliance. In short, this ROI is a measure of how efficiently providers deliver sound, evidence-based care, and it is typically calculated in terms of reductions in the following areas:

  • Length of stay and readmissions
  • Potentially compensable events, claims, and lawsuits
  • Liability reserves and malpractice premiums

Calculations of productivity gains and protection of reputation also come into play.

Clinical business intelligence systems offer a way to influence all these areas and provide a demonstrable ROI.

Optimizing investment strategies. Despite the historical view that enterprisewide business intelligence systems are cost prohibitive, systems are available today that can greatly reduce initial investments while ensuring access to the latest technological advancements. Although implementing an electronic health record (EHR) can cost upwards of a million dollars, clinical business intelligence systems are now available at a fraction of that cost. The Internet and the software-as-a-service (SaaS) delivery model are leading low-cost alternatives.

Healthcare providers can implement a clinical business intelligence system in a SaaS model for an average of less than $100,000 per hospital per year. Although initial integration of data can present some additional costs, the overall investment offers a significant potential for a strong ROI.

Measuring ROI from the start. As businesses, healthcare providers make strategic investments in technology to improve their value-added service offerings. Any investment in a clinical business intelligence system must present clear financial benefits from the outset. Clinical systems have long been argued as vital from a patient care perspective, but this ability to demonstrate such financial benefits-the primary focus of this article-has been elusive.

Sidebar 2

Safety and Quality Metrics that Senior Finance Leaders Should Monitor  

With technology powering a new integrated view of the world, once- elusive, cross-discipline key performance metrics (KPMs) are now relatively easy to generate in real time. These KPMs include measures of certain events that pose great risks and can have a tremendous impact on a healthcare provider's financial health. Therefore, senior healthcare finance leaders should monitor the following types of events, in particular:

  • Falls
  • Healthcare-associated infections
  • Venous thromboembolism occurrences
  • Pre-, intra-, and postoperative use of antibiotics
  • Medication errors
  • Frequently occurring compensable events

With the right system in place, finance leaders should be able to clearly monitor clinical performance as it relates to financial and operational performance and overall organizational impact.

Publication Date: Monday, January 03, 2011

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