With the shift to value-based payment, providers stand to lose—or gain—real dollars based on their performance relative to quality and outcomes measures.
Due to significant recent changes in care and payment models, hospital and health system leaders must rigorously track costs associated with key quality indicators, and benchmark the results to continuously identify opportunities for improvement. Proactive organizations are building such capabilities to solidify the link between cost and quality for effective financial and strategic planning in the new healthcare era.
With the shift to value-based payment, providers stand to lose—or gain—real dollars based on their performance relative to quality or outcomes measures such as reducing hospital-acquired infections or avoidable readmissions. For example, 79 percent of eligible hospitals are receiving reduced Medicare payments in FY17 for failing to decrease 30-day readmissions for patients with heart failure, heart attack, pneumonia, chronic obstructive pulmonary disease, coronary artery bypass graft surgery, or total hip and knee replacements.
Overall penalties under the Hospital Readmissions Reduction Program rose to $528 million in 2017 (Boccuti, C., and Casillas, G., Aiming for Fewer Hospital U-Turns: The Medicare Hospital Readmissions Program , The Kaiser Family Foundation, March 10, 2017).
Hospital and health system leaders should have clear processes in place to ensure they are monitoring and tracking costs associated with quality performance indicators and planning for a range of potential results, which could have significant impacts on their strategic financial plans.
There are four key steps to integrating quality measures with cost accounting data to improve patient care outcomes and financial performance.
Identify the appropriate metrics. The specific quality measures to be tracked will vary by organization, depending on its areas of focus and participation in value-based contracts. Overall, the metrics typically fall into one of four categories based on their bottom line impact: cost savings, cost avoidance, penalties, or enhanced revenues. On the latter, for example, a finance professional might add a line item to the monthly operating report to summarize incentive payments under the federal Hospital Value-Based Purchasing Program. The program withholds 2 percent of Medicare payments, and hospitals can earn all or a portion of that 2 percent based on the quality of care they provide to patients ( CMS Hospital Value-Based Purchasing Program Results for Fiscal Year 2017 , Nov. 1, 2016).
Tracking quality-related cost information by these four categories is important in determining the optimal way to reduce these costs. Different categories of metrics may be appropriate for specific audiences or stakeholders.
Ensure the organization has the necessary capabilities and resources. An internal cost accounting system or data and analytics platform gives hospital and health system leaders the tool needed to efficiently collect, analyze, and track costs tied to specific quality indicators. Many organizations do not have the reporting mechanisms and/or capabilities to show costs associated with missed opportunities or to quantify the impact of penalties.
By benchmarking organizational performance on quality measures, hospitals and health systems can better identify and define opportunities for improvement, and clearly quantify successful achievement of performance goals. This requires combining patient care cost and quality data with internal and external benchmarks. Combining this data requires resources—mainly, the right systems providing the requisite data and highly trained individuals to operate, analyze, and present results.
Routinely communicate costs associated with quality indicators to core stakeholders. Routinely reporting these results ensures improvement efforts remain a focus and are effective and sustainable. In most cases, this requires detailing costs and quality information through regular operating reports or dashboards. Measures may be summarized or “bundled” in monthly operating reviews for clarity and then tracked at much greater detail day-to-day, including the ability to drill down to the individual patient level. Measures should be risk-adjusted and compliant with standard definitions (e.g., CMS definitions and/or internal standards) to ensure that the organization is making equitable comparisons across physicians and to facilitate trending of performance. The appropriate level of detail for reporting likely will vary, depending on contract obligations and the preferences of organizations’ finance leaders.
Identify the budget impact of costs associated with quality performance. Typically, costs associated with poor quality that have an impact on patient revenues or operating expenses have not been clearly defined or accounted for in external or internal financial statements. By including these costs as line items, healthcare leaders can track the cost-effectiveness of quality initiatives and make adjustments as necessary to improve overall results.
These steps toward treating quality-related costs as operating costs may require some cultural changes in finance departments. These changes are important. While incentives or penalties may seem relatively low compared with hospitals’ overall revenues, their cumulative effect over time and across larger health systems can be significant.
Particularly in today’s environment of uncertainty, healthcare leaders need to provide relevant stakeholders organizationwide with transparency into quality-related costs to drive performance improvement progress. The right tools and processes make the needed visibility possible.