Clinical issues will be top CFO concern under health reform

The Merriam-Webster Online Dictionary defines a Renaissance man (or, of course, woman) as "a person who has wide interests and is expert in several areas." While no one is suggesting that hospital CFOs start memorizing encyclopedias, they would be wise to make a push to break out of their financial silo, advises Ken Perez, senior vice president of marketing for Emeryville, Calif.-based healthcare performance management solutions provider MedeAnalytics.

Historically many CFOs have paid little attention to clinical issues, but two forces--the American Recovery and Reinvestment Act (ARRA) and health reform--are driving what the MedeAnalytics team calls a "clinical/financial convergence," says Perez. "Clinical quality, broadly defined, is becoming a major, if not the major, determinant of a hospital's financial viability."

Under the ARRA, the HITECH Act's meaningful-use requirements "not only offer the average hospital $4 million to $8 million in short-term incentives, but mandate penalties for not being meaningful users of electronic health records by 2015," he points out. "Those penalties (adjustments to the inpatient prospective payment system annual market basket update) represent a potential 1.5 percent deduction to Medicare reimbursements in 2017 based on historical rates of 2 percent per annum."

But it's health reform that really brings the big guns in terms of financial risk. Under the Patient Protection and Affordable Care Act, "every hospital will lose 2 percent of its Medicare IPPS revenues by 2017," he stresses. In other words, hospitals will be "behind before they begin." While hospitals "will have the opportunity to earn back those reductions with good performance on clinical process and outcome measures (core measures, patient satisfaction survey scores, mortality rates), most hospitals will not be able to recoup all of their losses," notes Perez. "So that's the number one financial risk that affects all hospitals."

In addition, by 2015 hospitals will lose up to 3 percent of IPPS revenues if they have high readmission rates for certain conditions (e.g., acute myocardial infarction, congestive heart failure, pneumonia), as well as losing up to an additional 1 percent if they have high rates of healthcare-acquired conditions, says Perez.

The upshot: Hospitals need to fine-tune their attention "on the specific clinical issues emphasized by these economic carrots and sticks," says Perez. And doing that will require an organizational rather than departmental emphasis. With the financial viability of the entire hospital at stake, CFOs can't afford to stay in their silo and say, for example, "That's the domain of the chief medical officer or the patient safety officer or the compliance officer," he stresses.

Perez suggests hospital CFOs develop three key skill sets:

1. The ability to learn. The Healthcare Financial Management Association has already stressed that CFOs should "develop an extensive knowledge of and involvement in quality and process improvement efforts within the hospital," says Perez. But the point is worth repeating because the learning component is evolving as the federal government releases the rules of the road. "It's not as simple as 'you read this accounting text book, you master it, and you're done,'" he points out. "This is a moving target that will become more challenging over time."

2. The ability to develop metrics, analytics and modeling. Executives across the C-suite will need to be able "to understand the impact of improvement efforts on the financial performance and viability of the organization," says Perez. CFOs who aren't overwhelmed by the terminology--by the department or the clinical area--will be able to "play their role in terms of analyzing and modeling the potential impacts to the hospital."

3. The ability to engage with physicians. Physicians control most of the real financial decisions related to utilization of resources. "So CFOs need to "collaborate with physicians on clinical improvement priorities, which will have a huge impact on the financial performance of the hospital, "says Perez. "And this needs to be done on an ongoing basis as part of a performance management strategy." - Caralyn