Finance leaders can leverage their operational expertise to serve as catalysts for comprehensive performance improvement—a systematic approach to increasing overall value.
Most hospital executive teams today are focused on the same goals—rapidly improving quality, increasing efficiency, and reducing costs. Everyone knows how important these objectives are. But executing on them can be difficult.
One of the main challenges is leadership. Effective change management requires a top-down, bottom-up approach based on formal performance improvement tools and methodologies. In many health systems, however, it is difficult to find an executive who has the knowledge set, professional relationships, and authority to effectively lead comprehensive performance improvement while demonstrating and documenting ROI.
Hospital CEOs and COOs often are too involved in high-level strategy and day-to-day management to delve deeply into the nuts and bolts of performance improvement. And although chief medical officers (CMOs) and chief nursing officers have the quality perspective to lead performance improvement initiatives, most lack the operational expertise to meld clinical goals with efficiency improvements. The CFO is in a unique position to accelerate systemwide performance improvement. Although the idea may be new to some finance executives, CFOs bring the right perspective to sponsor such improvement. CFOs are in a unique position as they lead the long-range financial plan, tying in the need for capital and program investment. In many cases, the senior vice president of finance can help lead.
The CFO also can work with both the system project management office and performance improvement office in estimating the potential improvement opportunities and prioritizing these efforts.
The CFO’s Role in Performance Improvement
Comprehensive performance improvement is a systemwide program encompassing a coordinated portfolio of initiatives. Taken together, these initiatives address the full range of issues that affect healthcare value—from quality and patient outcomes, to productivity and cost control, to patient experience and staff satisfaction.
There are three big reasons the CFO can be the best choice as executive sponsor for a performance improvement program.
First, the best CFOs are skilled in formal performance improvement methodologies. A CFO with expertise in advanced performance improvement tools—such as stakeholder analysis, root cause analysis, and rapid improvement events—is a natural choice to spearhead an overall performance improvement program.
Second, CFOs are experienced at managing through metrics. They can use this experience to identify improvement targets, validate potential impacts, maintain accountability, and ensure the sustainability of gains.
Third, the CFO stands at an intersection point within the organization. Comprehensive performance improvement is cross-functional by definition. With strong connections to every stakeholder group, the CFO can leverage multiple relationships to achieve performance improvement goals.
CFO leadership can take different forms. In some health systems, the CFO might be the executive sponsor who “owns” systemwide performance improvement and provides strong program direction. In other organizations, the CFO might take on the less formal role of program champion and facilitator. In either case, CFO leadership will always mean working in partnership with other administrators and managers. Furthermore, the CFO can identify and take the lead in margin improvements. In many cases, investments may be required, and the CFO is typically in the best position to help prioritize.
The CFO also should partner with the chief medical officer and physician leadership on clinical variation areas. However, these must be clinician-led. The CFO can help quantify the biggest opportunities and provide the clinical leaders with support.
Below are five areas where finance leaders can play a decisive role in supporting comprehensive performance improvement in a health system.
Making the Case for Change
The first step in any organizational improvement initiative is to convince others of the need for change. CFOs can use their deep knowledge of new payment models and industry trends to make a strong case for fresh thinking. A CFO can connect the dots between value-based payment, transparency, and consumerism to help other leaders in the organization understand that failure to deliver value puts the health system in real danger of losing market share.
One effective approach a CFO can use is to communicate potential financial scenarios. A CFO can start by projecting the organization’s current trends in cost and revenue per case-weighted adjusted discharge (CWAD) and working with others in the organization to ensure the growth rate in cost doesn’t outpace growth in revenue. In addition, some organizations may want to evaluate what could be called the “scorched earth” scenario: Consider what would happen if all payment were reduced to Medicare payment thresholds.
The purpose of such an exercise is to help others understand the true urgency of using performance improvement strategies to control costs and enhance value-based revenue. When leaders understand these possibilities, they may more readily agree to a CWAD target of top quartile in the case of total operating expense and in top decile in case of clinical quality.
The case for change should have a clear value proposition for performance improvement, which could require CFOs to focus beyond financial ROI and start thinking in terms of value ROI. For example, successfully reducing emergency department (ED) wait times will increase both department productivity and patient satisfaction. Process standardization in the department could lead to quality improvements as well. Taken together, these gains can lead to financial opportunities beyond direct profit-and-loss impact, including the opportunity to grow market share.
Another way to make the case for change is to show how others in the market are also focused on performance improvement. The improvement team must be interdisciplinary and data-driven and able to develop plans to achieve the efficiency and margin goals that are pre-established.
Assembling Performance Improvement Leadership
Performance improvement efforts must be led by individuals who understand the issues and have the ability to effect change. Hospital CFOs can leverage their influence to convene leadership groups with the right mix of authority and operational expertise to execute effectively. Physician and clinician leadership in supply chain, prescription, and clinical resources consumption is vital.
System-level leadership. At the top level, comprehensive performance improvement should be led by a steering committee composed of key executives, clinicians, and functional area leaders. This committee sets the strategy, allocates resources, sponsors individual projects, and coordinates the entire effort. This group also ensures that the overall performance improvement program is integrated with the organization’s strategic, financial, and capital planning processes.
Project-level leadership. Every project leadership team should reflect a “diagonal” slice of the organization. On the vertical axis, the team should include both department leaders and frontline staff. On the horizontal axis, the team should include representatives from both the department targeted for improvement and adjacent stakeholder departments.
For example, say a performance improvement project is focused on ED efficiency. The project leadership group should include not just the ED medical director and the ED manager, but also frontline nurses and representatives from inpatient nursing and environmental services. Involving these stakeholders is essential because ED discharge delays can often be traced to problems like lack of inpatient bed availability.
Leading Strategic Planning
Systemwide performance improvement is a multiyear effort that could encompass dozens of separate goals and projects. With an endeavor of this scale, prioritization and pacing are critical. CFOs can support performance improvement initiatives by leading a careful planning process. One useful approach is to perform a basic “four quadrant” analysis that plots project impact versus resource requirements: high impact, high resource; high impact, low resource; low impact, high resource; and low impact, low resource. Note that lower resource requirements often reflect less complexity and a “quick win” that can provide early momentum.
For example, in many hospitals the sterile processing department can be rapidly improved by implementing historically successful best practices. It may be easier to begin with these types of “transactional-based” improvements before moving on to more complex improvements such as improving operating room turnover times.
Another important factor is leadership support. Departments with managers who are enthusiastic about performance improvement will offer fewer obstacles to progress. Targeting these departments for early action can give the CFO a highly visible win when the organization needs it most.
Existing performance improvement projects will be a key consideration for organizations undertaking a fresh effort. Some projects should be continued or combined with other initiatives, while others should be postponed or allowed to expire. For example, a group within the health system may be planning to launch a patient experience initiative. Although improving the patient experience is a critical goal in value creation, efforts to achieve that goal tend to be complicated. A better approach may be to postpone such initiatives while the strategic performance improvement team works to improve the basics of operational efficiency and clinical performance.
On the other hand, some initiatives will fit well within a well-conceived performance improvement strategy. It makes good sense to give priority to implementing a hand hygiene initiative, for example, because of its strong potential for quickly reducing healthcare-associated infections.
In many cases, what needs to change is clear: Effective execution is the main challenge in any performance improvement initiative. CFOs can contribute by leveraging their focus on metrics and analytics to create clarity and accountability. Three techniques are helpful.
Embed performance improvement targets into department budgets. Nothing creates accountability better than incorporating a department’s revenue enhancement and cost reduction commitments into its annual budget. Of course, any shortfall will reduce the department leader’s variable compensation. But just as important, embedded targets translate directly into action-oriented operating plans. Finance leaders can assist by helping project teams develop reasonable budget goals and, where appropriate, developing new accounting guidelines and metrics to better measure a department’s contribution to value.
Sponsor regular interdisciplinary reviews. The entire performance improvement program should be reviewed every other month by an authoritative committee consisting of executive leaders (typically the CFO, COO, and CMO), operating unit leaders (such as hospital presidents), and functional area leaders (for instance, vice presidents of human resources and revenue cycle). During this review, leaders report on performance improvement progress mainly by exception—what is not working and what is being done about it. This approach allows the entire leadership group to hold each other accountable.
Use root-cause analysis to hone work plans. A simple tool is known as the “5 Whys” technique based on Six Sigma methodology. The technique is simple: Start with a problem, ask why it is occurring, and then continue asking why until the full range of root causes is determined. For example, a hospital president might report that revenue is off because the volume budget is off. Why is volume off? Because increases in observation patients are reducing inpatient admissions. Why are observations increasing? Because the ED lacks the staff and resources to make prompt diagnoses.
Such a process eventually uncovers the underlying problems, allowing project leaders to develop a corrective action plan that is very targeted to the true root causes of low performance. Although the method’s name suggests the process will always require five questions, the actual number will vary depending on the circumstances. In this scenario, the action plan might center on reallocating resources to ensure prompt continuous rounding (e.g., every four hours) on patients at risk of extended observation.
Maintaining Momentum and Sustaining Gains
Hospital CFOs naturally think in terms of how to sustain performance in the long term. Finance leaders can support comprehensive performance improvement by applying this mindset to the full range of quality, efficiency, and operational improvement initiatives.
Create ongoing accountability systems. CFOs can take the lead on developing performance metrics for every performance improvement initiative. All performance metrics should be rolled up into scorecards or dashboards to maintain organizational visibility. CFOs also should define systems for auditing initiatives and validating gains, and they should support the alignment of reward and recognition systems with performance improvement efforts, including the health system’s total talent management program.
Build a pool of performance improvement leaders. Health system CFOs should groom key finance team members for performance improvement leadership. Training in performance improvement methodologies is especially useful for revenue cycle, supply chain, and business intelligence directors. Turning these managers into leaders can have a double impact: They can help drive performance improvement within the finance department and every business unit they interact with across the health system.
Communicate success stories. Whenever a project yields improvements, those gains should be clearly visible to the rest of the organization. CFOs can support this effort by spelling out both the direct financial ROI and the value ROI achieved by the initiative. The organization’s communications team can help publicize these wins via newsletters and email. Town halls and annual rounds are key events in which to talk about successful performance improvement efforts and drum up support for upcoming initiatives.
Package successes for easier deployment in other areas. Successful performance improvement projects can yield a wealth of information on how to overcome obstacles and fine-tune best practices. Transferring this information to other units will help shorten the improvement cycle. One effective technique is to create “communities of practice” to scale performance improvement efforts. For example, say the radiology department in a health system’s largest hospital has successfully shortened imaging wait times. Creating a radiology practice council will help the health system disseminate best practices and successful implementation strategies to other hospitals and imaging facilities within its care network.
Pitfalls to Avoid
CFOs who undertake a key leadership role in performance improvement should watch out for three pitfalls.
Performance improvement labeled as a “finance initiative.” Although a finance professional can be a strong choice to spearhead a performance improvement program, many people will see any initiative led by the CFO as exclusively about money, which can undercut the CFO’s efforts to improve system performance and increase overall value. To avoid this problem, the CFO should work to choose performance improvement initiatives early that reflect more than financial gains, such as a clinical improvement project or efficiency/throughput improvement projects. Establishing this balance can help communicate that the performance improvement program is not just a cost-cutting program in disguise, but can, just as importantly, focus on enhancing growth and market share.
Staff fears about improving themselves out of a job. Many performance improvement initiatives will lead to resource reallocations, including staffing changes. But if individuals are afraid they will “streamline away” their own job, they will be very reluctant to participate in these initiatives. To address this concern, system executives must make a commitment to redeploy any high performer displaced by successful performance improvements.
A “best practice” focus without regard to “best fit.” Every healthcare organization has different resources, experiences, and challenges. A process that is best practice in one hospital may not work in another. For example, an equipment maintenance practice that works for one nursing unit may not work well in another unit with a different patient acuity mix and staffing model. CFOs who take on performance improvement leadership need to be sensitive to the cultural differences in every organization. Leaders should establish general performance goals—for example, the importance of reducing readmissions—but make sure all performance improvement teams understand local conditions before implementing best-practice solutions.
Methodology and Movement
In the most forward-thinking healthcare systems, performance improvement is not just a methodology but also a movement. When planned and executed correctly, a systemwide performance improvement program will allow every person within the organization to implement problem-solving strategies and techniques.
Healthcare CFOs are uniquely suited to sponsor and guide this process. By combining their operational acumen with their unique position within a health system, finance leaders can accelerate the transition to value-based care.