skip to Main Content
Written by: Mediware on Wednesday, May 2, 2012 Posted in: Inpatient Rehab

Improving quality and reducing the cost of care are primary objectives of healthcare reform.  Providers in all care settings are incented to demonstrate and report effectiveness in meeting these expectations. Developing the appropriate metrics to quantify improvements is the first step.  However, the lack of organizational validation could leave clinical people wondering why their efforts fail to produce greater impact or recognition.

The first step is making the connection between quality improvement and budgeting. When those working in the clinical setting are able to reduce length of stay by a day, through improved coordination and communications or by decreasing the incidence of complications, they typically go to the CFO and ask, “What is the average daily cost of care?” Next, they multiply that figure by the number of days saved and tell hospital administration, “We’ve been able to save $250,000 or so.” But when you ask those working in the finance department if the savings were ever realized, they always say ‘no’, because in fact budgets haven’t changed. So there is a piece missing between the process changes that frontline team members are making and the budgeting changes that middle managers and team leaders need to make.

The second reason is that many savings from quality improvement efforts show up in a different area than where the work happens. For example, a nurse manager or middle manager may focus on quality care delivery by staffing to the patient centric acuity demand for nursing personnel. Over the long haul, however, there may be less staff turnover. So while the budget looks increased in the short run for the nursing unit or department, fewer costs will be incurred in the human resources department for recruitment, hiring and orientation.

The hospital budget focuses on basic financial cost categories: the number of FTEs, the amount of overtime and the use of supplies. However, that is not how waste appears. Waste appears in delays, failures to hand off patients efficiently and duplication. Clinical improvement value must be demonstrated and confirmed using metrics available to accountants for validation and credibility. The following list provides guiding principles for finance people that will help convince and help them understand the relationship between quality and cost:

  • All benefits must have a baseline and well-defined measurement approaches
  • Expense reductions must result in budget reductions to the appropriate accounts
  • Efficiency must show full time equivalent (FTE) reductions or increased chargeable productivity
  • Future FTE cost avoidance is only allowed if the position is previously approved in a budget and an account’s budget can be reduced accordingly
  • Cost avoidance must tie to future expenses that are historically contracted and budgeted

Quality, effectiveness and cost are systems attributes where sustainable improvement is demonstrated. Closing the gap between clinical and financial management is required.

Back to top