Financial management principles and practices

Financial Management

Executive Summary

My organization has a fairly high commitment to VBP, and I believe that with a plan it can become even more engaged with VBP over the course of the next three years. While one might naturally think that those who deliver medical services are the most important – they are very important – I would like to key in on the roles that the Finance, Purchasing and IT departments play in achieving the balance between high quality service delivery and cost control. By engaging all of the relevant stakeholders, and making VBP a central focus on the basis, with consistent messaging over the course of the three years, it is believed that we can set and achieve some fairly aggressive goals with respect to meeting VBP objectives.

All three of the departments will need to prepare by taking the time to review how the VBP program works, and understanding how their departments contribute to these objectives. Then, each department will need to outline specific details of their strategies, including the steps that they will take to specifically influence the achievement of VBP objectives. The first steps will need to be outlined clearly, but this is a continuous process, so one of the biggest things will be to ensure that there is commitment to continuously seek to achieve these objectives over the course of the next three years.

There will definitely need to be some training in order to implement the strategy. First, the training will need to focus on the basics of VBP, which will provide the groundwork and context for each department, and the key managers within each department, to understand the role that they will need to play. The next phase of training will then need to be more at the functional level, where managers for each department will need to train their employees on the ideal behaviors that are necessary in order to succeed.

Organization's Current Status of VBP

Value-based purchasing is an "initiative that rewards acute-care hospitals with incentive payments for the quality care provided to Medicare beneficiaries (CMS, 2017). The program originated as a tactical measure to increase the overall quality of health care, and is part of a larger reform project (CMS, 2017). In order for a healthcare facility to excel at VBP, it needs to deliver high quality service, but do so at a cost that fits within the payment structure for Medicare. Because of Medicare's high bargaining power, it dictates the rates that it pays to healthcare providers. By also dictating quality levels, it forces healthcare facilities to excel at efficient service delivery that is highly reliable and also comes in at low cost. My organization is committed to VBP as a means of bringing in high volumes of Medicare patients, so it has built VBP strategy into most of the different departments.

My current organization has embraced VBP to a fairly high degree. There are several reasons that I believe that we have implement VBP to a significant degree. First, the staff are made aware of service standards, and of management's desire that we are able to receive money through VBP program. Second, we have restructured certain parts of the health care delivery around the needs of Medicare patients. This is part to deal with the aging population, but in part as a means of providing better care to Medicare recipients. VBP standards are often discussed at the managerial level, and there is a high level of engagement with

VBP metrics among managers.

While management does not specifically state that VBP is a high priority, the high visibility of the program, and the efforts undertaken to engage Medicare patients, indicates that value-based purchasing is a priority for senior management. At my level, a high degree of awareness of VBP has been created, and there are certainly some actions undertaken that appear to support the idea that VBP is a priority.

Departments Impacting VBP

Value based purchasing is influenced by a number of different departments. Three most important are Finance, Purchasing and Information Technology. There are different reasons that each of these contributes to achieving VBP targets for patient care. The first is fairly obvious. The Finance department tracks the costing – what it costs for each procedure, and then works with the different functional departments to find ways to keep the cost at a level where VBP goals are being met. Finance is uniquely strong in its ability to track financial transactions. Finance is also the final line of control. By setting budgets, and through examining of costing, the Finance department plays a critical control function to ensure that the hospital is able to treat Medicare patients at a profitable level, especially taken advantage of the funding available through the value based purchasing formula.
The second critical department is the purchasing department. While Finance records the transactions, and exerts control, Purchasing is ultimately responsible for ensuring that medical equipment and supplies are brought in at a price that allows us to be able to deliver value-based treatment. By sourcing supplies from the lowest-cost suppliers, buying in bulk when it is cost-effective to do so, and other purchasing functions, the Purchasing department provides the health care practitioners with the tools to deliver an excellent standard of care at the lowest possible price that can be achieved without compromising that care.

The third department that can play a critical role is the Information Technology department. Obviously the departments responsible for medical care matter as well, but IT is playing such a transformative role in healthcare in 2018. The use of remote monitoring, telemedicine, various apps, decision-making assistance, and other technological advances can result not only in dramatically superior health outcomes at much lower costs, but also lower malpractice risk as well. Information technology is revolutionizing the way that healthcare is delivered in America. The interesting thing is that while IT has demonstrated positive transformation in most sectors, it has not yet had the promised results in healthcare (Agha, 2015). What this means in part is that many healthcare organizations have not been sufficiently strategic in their choice of what technologies to adopt and how those technologies should be used. If IT works with the medical delivery teams and with Finance, it can actually ensure that only the technologies that genuinely add value to the organization are adopted, which would result in lower costs of service deliver, fewer errors, and generally get the organization closer to meeting targets for VBP.

Goals for Each Department

For each department, goals will specifically address some component of aligning the organization with value based purchasing principles. The Finance department has to set profitability goals, as these will help to ensure that service delivery does not run over the cost of the remittance that comes from Medicare. The profit goals will be based on expected revenues from Medicare patients, combined with the various cost factors. This is where Finance exerts the control function, by setting budgets that force other departments to watch their cost structures.

The other major goal of the finance department is to set a target for the amount of extra money received as VBP incentives. This money can be achieved by hitting targets. It is not that the Finance team has any meaningful power to actually hit the performance targets, other than the controls that it exerts via the budgeting process, but simply by setting the target, that target is then built into the strategic plan. That target will filter to other departments, which are asked to contribute to achieving that target.
The Purchasing department has to meet objectives for both cost control and for quality. It cannot simply achieve cost objectives by sacrificing quality – it needs to be more creative than that in helping the organization to meet its overall objectives. So for Purchasing, it needs to ensure that it is able to hold the line on costs as much as possible in order to maintain the ability of the organization to deliver high standards of service at a cost where it can recoup profits. The fact that Purchasing plays such a big role in controlling the cost of service delivery means that it plays a big role in being able to effectively execute VBP strategy, and cost control measures are going to be key to making that happen.

The IT department is an important, because it is often not viewed as a profit center at all. But yet, by carefully identifying the means by which costs can be controlled, and in particular by identifying big wins in the cost of service delivery, the IT department can play a strong contributing role. The IT department's metrics are a little bit trickier, though, for a couple of key reasons. The first is that where health outcomes are concerned, IT is a tool, and ultimately it is the health care providers that are responsible. The other is that IT cannot be tasked with finding big wins, but rather with making incremental gains. The choice of incentive targets here is important because IT will look for big wins if it feels that is the only way to hit the targets. Management should look at the total value that IT brings, in terms of ROI, in order that the department's management is focused on finding gains where they lie, big or small. Aiming for the moon might convince the department for forgo incremental gains; the vice versa is also possible, and detrimental to the overall goals of the organization.

Key Points to Embrace

The key points in the plan for the staff to embrace are that quality of service and cost of service are not mutually exclusive concepts. It is important that staff embrace the drive to provide a high standard of service at a lower cost, by embracing technology, by seeking to use only the supplies needed, and by seeking to provide the highest quality of care the first time out. One of the major cost drivers for health care is errors, which cause patients to spend longer in acute care, and increases malpractice risk. If staff can embrace the adoption of new technology, and having a mindset that is focused on balancing high quality of care with cost controls, then the staff will be well on its way to achieving the strategic objectives related to VBP.

Ethics

It is actually the most ethical choice to deliver high quality of care. There is nothing unethical about meeting the criteria laid out by the CMS for VBP. The entire point of VBP is that high quality care is balanced by cost controls, and then rewarded. If the hospital was to sacrifice care for cost then that would be unethical. The ethical guidelines will specify that if there is a trade-off between quality of care, and cost, that the quality of care will be the most important element of the two. This needs to be written in place to ensure that quality of care is maintained first and foremost. The second thing is that the ethical guidelines require controls to ensure that no fraud occurs, a fudging of some numbers in order to qualify for money from the CMS. Obviously fraud is a criminal issue, not just an ethical one, but it should be written into the ethical guidelines just the same.

Educational Events

A sophisticated educational program will need to be undertaken in order to ensure full buy-in for this program. Events will be required, such as training, to ensure that all internal stakeholders have the knowledge and context that they need to achieve their goals. Furthermore, events such as VBP kickoffs can serve as rallying points for the organization to draw attention to the strategy, and provide greater opportunity for organization-wide buy-in.

While three key departments have been identified for their importance to the strategy, the reality is that many other internal stakeholders have a role to play, not the least of which are the professional doctors and nurses responsible for healthcare service delivery. Their engagement in the process is also required, and there will need to be an active role played by their leadership in aligning their activities with VBP objectives. Leadership teams from those departments will be engaged on a continuous basis in order to ensure that those teams are contributing creative solutions and problem-solving, as well as limiting waste and being willing to adopt new technologies.

Timeline

Honestly, a three year timeline takes three years. Best practice for a strategy like this is continuous messaging, a non-stop rollout of information on how the organization is progressing, what new initiatives are being undertaken, what key landmarks have been achieved, and what the outcomes of the programs have been to that point. The VBP strategy is an everyday strategy, requiring continuous education, continuous reporting, continuous management and continuous communication. All of which will be reviewed on a quarterly basis to ensure that the organization is still on track for its VBP obligations.

References

Agha, L. (2015) The effects of health information technology on the costs and quality of medical care. Journal of Health Economics. Vol. 34 (2014) 19-30.

CMS (2017) Hospital value-based purchasing. Center for Medicare and Medicaid Services. Retrieved June 4, 2018 from https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/Hospital_VBPurchasing_Fact_Sheet_ICN907664.pdf