Jeff HeltonNot so long ago, finance officers would likely have thought of quality management as one of those cost centers where minimizing expenses had to be balanced with providing enough resources to generate proof of their organizations' success in delivering high-quality care. The 2010 passage of the Patient Protection and Accountable Care Act (ACA, or what we informally call  "healthcare reform") has certainly changed the complexion of the relationship between finance and quality management. When value-based purchasing (VBP, or pay for performance) is implemented in FY13, documented quality performance will impact Medicare payments. One could almost recategorize quality management as a revenue-producing department-at least to the extent that it protects the organization from lost Medicare payments. Strange bedfellows indeed are finance and quality management.

Authors have rightly paid a great deal of attention to VBP, given the potential of lost payments next year. However, the way that the Centers for Medicare & Medicaid Services has linked process of care and patient experience to payment raises areas of concern for finance leaders in today's hospital. William Shoemaker's fascinating work in the October 2012 edition of hfm, "The Cost of Quality: How VBP Scores Correlate with Costs," highlighted the link between CMS's total performance score (TPS) and operating costs-pointing out a very troubling paradox for hospitals: Hospitals achieving higher quality scores in that study also experienced higher operating costs. Given the risk to lost payments, VBP as it is being implemented appears a "spend money to keep money" paradox. 

There might be even more to worry about in the advent of VBP for hospital financial leaders. I've done some comparisons of the process-of-care measures with the proportion of a hospital's revenues from Medicaid and uninsured patients. In a presentation to the Southwest Academy of Management earlier this year, I showed that hospitals with a greater proportion of revenues from Medicaid and uninsured patients have tended to demonstrate significantly lower performance on CMS process-of-care measures. Hospital finance leaders now have a second area of concern with implementing VBP: the prospect of declining performance with increasing proportions of lower-paying revenue sources. Add the two together-higher cost needed for higher performance and greater levels of Medicaid/uninsured patients (with lower net revenues)-and we have a formula for an exceedingly challenging future for hospital finance.

So what do we do as hospital finance leaders? A proactive approach is essential, knowing in real time how your organization is performing on all relevant areas-process of care, patient experience, and cost. There may not be much we can do about payer mix, but we can continue to closely monitor operating costs and seek opportunities to improve wherever feasible. Concurrent monitoring of process performance and patient responses can help you know where you stand on these critical measures that will impact future payments. Benchmarking VBP and cost performance with other hospitals can help hospitals identify areas of potential improvement. Given the great challenge we face in balancing lower payment, cost, and quality, proactive monitoring is a smart survival strategy.

Jeff is an assistant professor at the Metropolitan State University of Denver and a member of HFMA's Colorado Chapter.

Publication Date: Monday, November 26, 2012