Why Quality Measurements Are Keeping Hospital CFOs Awake at Night

March 24, 2016

Hospital finance professional holding papers

Today's hospital CFO is drastically different from that of 20 — or even 10 — years ago. They're no longer just number crunchers. They're responsible for much more than just annual budgeting, finance reporting, endowment management and capital investment. Now that consumer-driven healthcare is here, patient-consumers' perceptions of the care they receive are of paramount importance: they drive patient engagement, treatment compliance, patient outcomes, care relationships and word-of-mouth reputation.

As a consequence, C-suite partners are calling upon hospital CFOs, " to help ensure the organization has the procedures, policies and quality metrics in place to deliver a positive patient experience," wrote Physician's Money Digest contributor Nick Christiano.

Healthcare CFOs are morphing from Guardians of the Purse Strings into Guardians of Patient-Consumer Satisfaction. And it isn’t easy taking on such a multi-faceted role. Some feel they don't have the expertise. Many aren't used to managing a host of diverse roles and are bothered by statistics that they view as too nebulous, burdensome or difficult to track and report.

But they're going to need to get comfortable with these new demands — quickly — because, like it or not, consumer-driven healthcare is the new norm. The patient market has little patience. Some CFOs believe that metrics related to patient experience have little impact on financial planning. They couldn't be more wrong.

Let's look at 3 reasons why quality measurements are — and should be — keeping hospital CFOs awake at night.

1. Value-based purchasing is putting negative pressure on reimbursements.

When patient experiences improve, outcomes improve. We know that. So does the federal government.

The Affordable Care Act's (ACA) value-based purchasing (VBP) program imposes ever stiffer reimbursement penalties on healthcare organizations that fail to improve outcomes — hospitals that don't meet its quality benchmarks in 2017 face a 2 percent reduction, with an additional 2 percent reduction in the following year if improvements are still not forthcoming. In fact, the feds hope to tie 90 percent or more of traditional Medicare's payments to quality measurements by 2018. The ACA was in part funded by the government's bet that some organizations would fail to meet benchmarks and incur those penalties — a calculated attempt to usher the most inefficient providers out of the market. The government is, in essence, showing perennial underperformers the door.

But that doesn't mean there isn't a danger to the rest of us. Inattention or inaction vis-à-vis quality assurance and consumer satisfaction could seriously impair a heretofore moderately successful organization's ability to compete in the future. Operating margins are slim; they're not going to grow in the short term.

2. There is no One True Way for tracking quality of care.

Even private insurers are onboard for marrying reimbursements to quality measurements. And most have their own ways of measuring quality, different from Medicare. That puts hospital CFOs and their colleagues in the difficult position of trying to track, influence and respond to a bevy of quality assurance metrics. It's a time-consuming, almost maddening proposition.

Luckily, on the other side of the equation, hospitals that meet or exceed quality benchmarks will often receive payment boosts. The ACA took a carrot-and-stick approach which, according to 2014 data reported by the Centers for Medicare and Medicaid Services (CMS), seems to be working: more hospitals are expected to meet VBP benchmarks than not.

That's good, implied George Couch, lecturer on healthcare administration at West Liberty University, because several large credit rating agencies (including Moody's, Fitch and S&P) have begun to pay serious attention to quality measures when assessing hospitals.

That means care quality measurements aren't just affecting the revenue stream — they're affecting hospitals' ability to borrow. Facilities that fail to meet VBP and other quality assurance benchmarks may find themselves cut off from the investment-grade bond market and unable to raise new capital.

3. For many in finance, uncertainty is scary and prognostication is scarier.

One problem that may stand in some chief financial officers' way is that many are, whether by nature or by habit, insular and reactive. As Becker's Hospital Review contributor Bob Herman noted, "The nature of finance and accounting requires financial executives to respond to data that is recorded."

That causes some CFOs to lapse into the bad habit of scorekeeping. Scorekeepers merely react to data; they don't try to influence the trend. They look at financial reports — which are by definition backward-looking — and use them to guide future investments and expenditures.

It's akin to trying to steer a forward-moving car while watching the rearview mirror — you may see the many boulders you missed, but you won't see the one in front of you.

Hospital CFOs, Herman asserted, cannot allow themselves to fall into a scorekeeping role. It may be comfortable, but the demands of a new, consumer-driven healthcare market require the ability to collaborate, to abstract and to think strategically. A chief financial officer should no longer be a glorified bean counter — he or she should be a visionary.

As one former hospital system CFO, Doug Fenstermaker, told Herman, "Every transaction isn't going to be perfectly logical and fit in a historical box of how the CFO imagines something should be done."

Financial officers are historically logic-driven. But logic, Herman wrote, "is occasionally trumped by emerging trends."

Hospitals can't afford to take the conservative, wait-and-see approach to investment or to procedural changes. They need to use data analysis to project out likely scenarios and act on their best conjectures in order to stay ahead of the competition. They need to shape patients' perceptions, not react to them.

Hospital CFOs need to get out of their offices. They need to observe operations, engage patients and providers and report their learnings back to other members of the C-suite. And, relying on those insights, they need to partner with their colleagues to devise better, more effective, more efficient means of delivering care.

The role of the hospital CFO has changed irrevocably. How are you going to manage?

It used to be that a CFO role was the penultimate achievement in a hospital finance career. But the increasing demand for strategic thinking in the finance department promises to change that. More and more, CEOs are being drafted from the financial rank and file.

Why? Because counter to the increasing demand for strategic thinkers in the traditionally siloed finance department, there is also an increased demand for chief executives who not only exhibit vision, but demonstrate a deep understanding of budgeting and fiscal realities.

The market is incredibly tight — leadership must be integrated and collaborative, to ensure few costly missteps are made. C-suite members need to be more balanced thinkers, less segmented and more willing to share with others their expertise.

Finance reporting will only be one responsibility, among many, for the modern CFO. Hospital finance will increasingly dovetail with operations, with clinical quality assurance and with consumer marketing. CFOs will need to be out front and visible, along with their C-suite peers. It's inevitable. It's unavoidable.

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