Edward J. Giniat
The use of data analytics is emerging as a key discipline for healthcare finance.
Imagine: The year is 2016-five short years from now. More than 50 percent of U.S. employees are participating in the insurance exchanges that are operating in nearly all 50 states. Medicare and Medicaid have been privatized. All payment streams are being managed by commercial insurers through only 200 integrated delivery/financing coordinated care networks (we stopped calling them ACOs in 2011), operating in a fully capitated environment. The entire finance function, including patient financial services, is operating in an environment free of claims processing, powered by ICD-10/electronic health record (EHR)-enabled advanced data analytics.
This is not your father's finance function. Managing in such an environment will likely require deploying new metrics, new financial models, and new methods using business intelligence (BI). BI is the acquisition, correlation, and transformation of data into insightful and actionable information through analytics, enabling an organization and its business partners to make better, timelier decisions. In a nutshell, BI is empowering the right people to receive the right information at the right time to allow them to make the right decisions.
BI Can Enhance Business Strategy
In evaluating BI opportunity, we know that finance functions within organizations mature slowly and continue to rely on traditional finance-related metrics that are mostly operational and primarily reactive in nature.
We also know that finance functions are beginning to develop and adopt advanced metrics,predictive analytics, and leading indicators while integrating financial data with other business functions. Operational metrics and key performance indicators (KPIs) tend to be similar across industries and functions. Yet effective analytics are unique for every organization, especially with respect to the leverage of clinical data in the healthcare industry. Remember: As the business changes, strategies should change in dynamic fashion and not stagnate. BI is not a beginning and an end; it's an ongoing process.
We know, too, that analytics focus on improving operational performance, ensuring effective management of operations, gaining efficiencies and reacting to surrounding conditions more quickly, and projecting the future or trends. To differentiate and demonstrate leadership, finance can continue to enrich reporting and analytics aligned with organizational and departmental strategies. And we know that investments in people, process improvements, and technology are typically required to help organizations become leaders in the finance analytics domain.
Healthcare organizations that believe a new economic model for healthcare payment is coming soon should start developing capabilities to succeed in the new environment. The revenue cycle may never be the same. As discussed above, obtaining the greatest strategic value from BI requires the ability to leverage:
- New metrics
- New models
- New methods
The execution of business strategy is often hampered by a lack of reliable information. The uncertainty about issues ranging from the future of healthcare reform legislation to local market transformation adds to the challenge. In this environment, gaining continuous market and business insight and acquiring the agility to react quickly are increasingly critical to business success.
With the future promising further upheaval, such as repeal or refinements in the healthcare law or another Balanced Budget Act ("BBA II"), organizations realize they need to adapt to succeed. BI should be a high value platform for this evolution, turning data into excellent information at the heart of all decisions.
To discover whether organizations are ready for such a change, the University of Cambridge in the United Kingdom was commissioned to conduct an extensive review of BI in 2009. The findings suggest that, despite an annual global outlayof approximately U.S. $60 billion on business intelligence, many organizations are not seeing the expected benefits:a
- Fewer than 10 percent of organizations have successfully used BI to enhance their organizational and technological infrastructures.
- More than 50 percent of BI projects fail to deliver the expected benefit.
- Two-thirds of executives feel that the quality of and timely access to data are poor and inconsistent.
- Seven out of 10 executives say they do not get the right information to make business decisions.
In short, although huge amounts have been spent, there is relatively little to show for the outlay, and although data in the source systems may be correct, the information produced from those data is often inaccurate or not available in a timely manner, which makes decision making more, rather than less, risky. The research supports practical experience and business intuition: Success comes when organizations view data as among their most valuable assets and create an information architecture that removes barriers to the free and effective flow and interpretation of their data.
Organizations that are willing to embrace BI are often better able to deliver the right information at the right time to the right people. They understand how information provides real competitive advantage at both the strategic and tactical levels-while costing less to provide. Adopting new business models and using BI (including, importantly, in the clinical context) are likely responses to the future economic realities for healthcare organizations.
Whether it's 2016 or today, forecasting the future revenues from and costs of health care is difficult, especially with the uncertainty of reforms and transformation. Nonetheless, the industry should be self-reforming.
What Finance Executives Should Do
What should healthcare finance executives be doing to lead in determining their organization's BI strategy?
Finance leaders should be helping their organizations define the right KPIs, metrics, and measures for the business, understand the operating model and processes required to create an enterprisewide information culture, and change the way they use technology and data to enable this transformation. They should recognize the linkage between financial measures and reporting and clinical intelligence for quality measurement, reporting and clinical decision support, and the role advanced data analytics can play.
Finance leaders should begin today to design the organizational structure and talent acquisition plans necessary to operate in a risk-based capitated world. New relationships are developing among payers, providers, and suppliers. New entrants are changing the game. New competencies may be needed to perform many of the functions in an insured environment. The opportunity is to find ways to connect disparate data and use them to "do better with less" and on a broader scale. In fact, in a recent study, McKinsey Global Institute estimated that using advanced data analytics could save this industry $300 billion (Big Data: The Next Frontier for Innovation, Competition, and Productivity, May 2011).
Finance leaders also should begin to develop new metrics, new models, and new methods to operate in a new value-based world, considering both advanced financial analytics and next-generation clinical intelligence opportunities. And they should help drive acceptance of BI throughout the organization. The No. 1 challenge, according to a study by the MIT Sloan Management Review and the IBM Institute for Business Value, is people: "lack of understanding how to use analytics to improve the business and lack of management bandwidth."b Change management will be key to ensuring that the culture will support the incredible strategic and tactical leverage available through BI.
The increasing amount of ever more detailed clinical and financial information creates the potential to change the practice of medicine and the business of U.S. health care. Finance officers should embrace the coming changes and help shape the industry for the future. Adopting BI as a way of organizational life is critical to this charge.
Edward J. Giniat, CPA, is the national leader of KPMG's Healthcare practice, Chicago, and a member of HFMA's First Illinois Chapter (email@example.com).
This article represents the views of the author only and does not necessarily represent the views or professional advice of KPMG LLP.
a. Does Your Business Intelligence Tell You the Whole Story? KPMG in the UK, 2009.
b. LaValle, S., Hopkins, M.S., Lesser, E., Shockley, R., and Kruschwitz, N., "Analytics: The New Path to Value," MIT Sloan Management Review Research Report, MIT Sloan Management Review and the IBM Institute for Business Value, Fall 2010.
Publication Date: Thursday, September 01, 2011