Most finance leaders have at one time or another struggled to communicate with physicians about financial issues. Numerous administrators report that sometimes they come away from financial discussions feeling as if they have been speaking a foreign language. In fact, that’s a pretty accurate characterization. Healthcare finance really is a language unto itself and can be quite foreign to most physicians.
But in the new reality of value-based care, physicians must understand the ins and outs of finance if they are to act as successful partners in the pursuit of the triple aim of healthcare. As clinicians strive to deliver—and continually improve—high quality, cost-effective care, they need a much deeper financial understanding. This should include not only the imperatives their organizations face, but also the implications of their own decisions. It is management’s responsibility to provide clinicians with the knowledge and skills to speak the language of health system finance so that they can come to a common understanding and work together to drive sustainable change.
Establish a Shared Financial Understanding
The first lesson of teaching clinicians about finance is to make no assumptions. In our experience, the vast majority of physicians have not been exposed to the fundamentals of health system finances in a systematic way. Many hospitals are now implementing a rigorous finance curriculum for service line and other key physician leaders to educate them about critical financial concepts and how they apply them to their departments and the larger organization. A well-organized program should include comprehensive education in the sources of funding, how funds are allocated and how hospitals are paid, as well as instruction in financial reporting tools, measurement analysis, and performance improvement techniques.
Moreover, the program has to be more than a brief introduction that produces only a superficial or theoretical understanding. Physicians need to work through real problems related to their own experiences and gain proficiency in using and interpreting financial data. As scientists who are comfortable working with numbers, physicians can become helpful financial partners once they understand what the data mean and what role they play in the system. Physicians therefore need to understand the full picture and should become adept at working through a balance sheet and understanding hospital profit and loss statements.
As physicians face a greater role in financial decision making, they appreciate learning about the funds flow of their department and how it sets the rules—and limits—for what is and is not financially viable. Some of the biggest insights have to do with an appreciation of overhead and how and why it must be allocated across departments. Downstream revenue is another concept that is eye-opening for physicians as they consider whether a procedure or service is a good investment for the organization.
Empower Physicians to Drive Sustainable Change
Financial literacy changes the dynamic between administrators and physicians and creates a shared platform for them to work together and find mutually beneficial solutions. Recently, management at an acute teaching hospital confronted the need to reduce cost per case. With the help of physician leaders who were trained by the hospital in financial management, they were able to determine several wasteful practices. For example, they found that they were stocking several types of sutures unnecessarily, had a variety in every room, and even were allowing several vendors to stock similar products. The result of their mapping this flow and staying true to the mission of reduction of cost without sacrificing quality was able to yield an annual savings of $600,000.
Such physician education can not only assist in cost reduction; it can empower physicians to propose business ventures that will have an ROI. A staff OB/GYN wanted to seek funding for a new research program in his area of interest but his department director was reluctant because he did not know how to propose it to management. The staff physician, having recently participated in financial training, developed a comprehensive business plan with an ROI analysis that included the testing and surgical procedures associated with the program as well as the new research dollars it would bring in, and made a successful case for the overall profitability of the program.
When clinical leaders learn the language of health system finance, they can appreciate and actively participate in the greatest challenge hospitals face: finding and realizing the most important opportunities to improve the quality of care in a financially sustainable way. In concert with broader leadership and management training, financial education offers physicians the ability to become powerful agents of change.
John Johnston, CPA, MHA is senior vice president and national partner at Advisory Board, Washington, D.C.
Vincent Joseph, MHA, FACHE, vice president at Advisory Board, Washington, D.C.