Connecting Finance to Quality
Clinical improvements can be good for the financial health of a healthcare organization, says Donald M. Berwick, MD, president and CEO of the Institute for Healthcare Improvement.
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?
Berwick: Disconnections are still serious. 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 illness. 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.
As a former member of the panel of judges for the Malcolm Baldrige National Quality Award in health care, what advice and encouragement can you give healthcare financial executives to help their organizations attain performance excellence and improve outcomes?
Berwick: 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.
This article is excerpted from a interview with Donald Berwick, MD, that appeared in the October 2008 issue ofhfm magazine. Read the full interview (HFMA membership required).