Finance leaders can gain buy in for value-based care by presenting cost data as actionable information. For example, finance teams can help clinical leaders decipher cost data using visualization tools, such as dashboards.
Healthcare organizations that are well-positioned for success under value-based payment models have the ability to collect, analyze, and connect accurate quality and financial data to support organizational decision-making—thanks to robust financial reporting and costing systems, says Richard L. Gundling, senior vice president of healthcare financial practices at HFMA.
Finance leaders at these forward-thinking organizations are leveraging business intelligence tools to gain greater clarity of their costs as they take on more risk. “If you are in fee-for-service, you can cost at a procedure level, but if you move to total health management or population health management, you have to begin to cost at the per member, per month [PMPM] basis,” Gundling says.
As part of its Value Project, HFMA named business intelligence as one of four key capabilities required for providers to move from fee-for-service to value-based care (the other capabilities include performance improvement, people and culture, and contract and risk management).
Business Intelligence Needs in an Era of Reform
Organizations’ business intelligence and costing capabilities vary widely across the industry, reflecting how the transition to value is evolving differently by market. “Most organizations feel that they are able to cost at the level they need to make decisions,” Gundling says.
For example, organizations that are still grounded in the fee-for-service and pay-for-performance world may use the ratio of costs to charges (RCC) utilizing data from Medicare cost reports to gain a high-level perspective on their costs. Those that are taking on more risk through episodes of care or bundling models likely use more advanced costing models, such as longitudinal costing. Such methods allow finance leaders to cost at the department, procedure, and patient or member levels.
Organizations taking on the greatest amount of risk through capitated or full-risk models will need costing methods that can provide clear views of their PMPM costs, Gundling says. Specifically, these methods should accurately track utilization and quantify the costs of providing services as well as the costs and benefits associated with organizations’ efforts to improve care.
In addition, as hospitals and health systems move toward more capitated forms of payment, they should be able to proactively identify which patients are most at risk for high-cost care. This requires a business intelligence system with analytical capabilities to target these populations for early intervention—a departure from traditional costing systems that only looked at costs retroactively, Gundling says.
Heeding Lessons Learned
Gundling offers the following tips from leading HFMA member organizations on using financial reporting and costing systems to drive change.
Seek a higher level of specificity when possible.An overreliance on RCC for cost accounting can expose organizations to financial risk if they participate in value-based payment models and do not truly understand with greater precision what it costs to deliver their care. It also puts them at a disadvantage when negotiating contracts with health plans or employers, Gundling says. Without a reliable costing system, finance leaders have greater difficulty defending their pricing structures and uncovering potential contract underpayments.
The most advanced costing platforms, such as those that use activity-based costing methods, allow users to drill down to determine costs at patient and procedure levels. This can help identify variation and opportunities to standardize practices and products to reduce costs.
Don’t call it a costing effort—lead with quality.The best performance improvement initiatives put quality first and cost second. That is why positioning an effort as a “value enhancement” or “care redesign” initiative—rather than as a “cost savings” effort—is likely to get better buy-in from physicians and nurses, and lead to better results.
The goal is to engage clinicians and finance together in developing data strategies to monitor quality and costs, Gundling says. This means detailing the desired care improvement, such as reduced length of stay, and how that not only helps to improve quality but also drives out costs.
Find common ground on metrics. Another strategy that finance leaders can use to facilitate better collaborations with clinicians is to gather their input on quality and cost-of-care metrics that will be measured, Gundling says. Ideally, leaders should agree to focus on improving a few metrics that clinicians perceive to be under their control. In addition, the finance team should provide background on how the costing is performed to help clinicians trust the data.
Convert cost data to actionable information that supports organizational goals. Overwhelming clinicians and operational leaders with cost data is not helpful. “You want to make the information actionable because physicians and nurses control so much of the costs in how care is delivered,” Gundling says. The finance team can help them decipher cost data using visualization tools, such as dashboards that measure leaders’ performance against their goals. They also can help clinicians and operational leaders identify specific actions they can take to reduce costs, such as standardizing to one or two types of implants.
Start small. Sometimes, healthcare organizations lack the business intelligence technology or analyst expertise they need to step up their costing strategies. Yet often, the greatest obstacle is a lack of prioritization around cost containment efforts, Gundling says. In most cases, organizations should avoid taking on too many performance improvement projects at once. For example, they might focus on an area or two where wide cost variation exists. “Pick a few key areas to cost and monitor, and then you can gain some confidence before you move on to other initiatives,” he says. Picking a few easy wins can help build momentum for future endeavors.
Report data frequently and consistently.Cost data should be visible to leaders throughout organizations. Share labor and supply cost reports at least once a month to keep leaders engaged and accountable.
Look at opportunities to automate.Because labor accounts for more than half of hospital or health system costs, finance teams should work with operational leaders to review the cost data and determine the right labor mix for their departments. In some areas, such as the revenue cycle, they also can explore opportunities to automate more transactional functions to optimize the workforce.
Consider the impact on the patient experience.Gundling says finance leaders should be mindful that overpriced health care contributes to patient dissatisfaction, and sometimes, hardship. Recognizing how cost containment efforts can help patients—who increasingly face higher out-of-pocket costs for their care—may provide additional motivation for staff in their value enhancement efforts.
Making the Case for Costing
Ultimately, both clinical and finance leaders should broaden their mindset when using cost data to drive performance improvement in their organizations. By doing so, they can bring greater value to payers as well as patients, Gundling says.
“In health care, we have talked about costs and costing forever, but the way we approach it needs to be different,” he says. “It cannot be seen as an issue just for the CFO, but rather for the whole organization.”
Laura Ramos Hegwer is a freelance writer and editor based in Lake Bluff, Ill.
Interviewed for this article:
Richard L. Gundling, FHFMA, CMA, is senior vice president of healthcare financial practices, HFMA, Washington, D.C.