Each health system takes a unique approach to financial management. No matter the organization, Dan Unger, SVP and General Manager of Financial Transformation at Health Catalyst, says that effective financial management should promote better financial decision making across the system. And even though optimal financial management is critical to healthcare operations, organizations struggle to deal with its complexities. With challenges ranging from government-set funding to newly emerging competitors in the market, health systems need to optimize their approach to financial management. Unger suggests healthcare organizations adopt three mental shifts that lead to better financial management:
1. Identify a forward-thinking financial leader.
2. Collaborate with clinical and operational domains.
3. Implement activity-based costing.
Healthcare financial management is a broad term and means something different to every health system. According to Dan Unger, SVP and General Manager of Financial Transformation at Health Catalyst, healthcare financial management is difficult because it deals with generating revenue, managing costs, and laying the groundwork for future development. From accounting and financial planning to budgeting, all the elements within financial management have one common focus—helping leaders make better financial decisions.
Today, the financial complexities of a fragmented healthcare landscape, including government-set pricing and large insurers driving revenue, combined with a global pandemic, threaten health systems’ already-thin margins more than ever.
According to Unger, organizations’ financial teams must shift their mindsets around healthcare financial management in three mission-critical ways:
First, organizations need a strong, forward-thinking financial leader who will act as a bridge, rather than a barrier, to clinical and operational leaders. A forward-thinking leader is willing to invest in the members of the finance team and financial management systems. Unger suggests dedicating technical resources to support the finance team so it can more easily distribute usable data to team members across large organizations. For example, with technical support, the data teams can build flexible, scalable reporting tools that are easy for non-data experts to read and use in decision making.
Forward-thinking financial leaders will push their finance teams beyond traditional job duties of generating the same reports every month, which often become outdated or irrelevant.
With a visionary financial leader in place and the ability to distribute data, healthcare finance teams need to shift the way they see themselves. Rather than viewing their job as generating reports in spreadsheets, they should view themselves as collaborators with clinical and operational leaders. Additionally, members of the finance team should view their data as information that empowers clinical and operational leaders to make better decisions and optimize their domains.
For example, many hospitals fail to reach financial operating room (OR) goals because they don’t include clinical input. Lack of clinical input can lead to unrealistic goals that don’t consider day-to-day OR processes. However, with input from clinicians and front-line workers, the finance team can set and achieve realistic goals and effectively improve processes by working together.
Activity-based costing (ABC), a costing approach that assigns a cost to every area of a patient’s journey, provides an accurate, complete picture of the total cost of care delivery. Despite these advanced capabilities, many healthcare organizations have resisted the transition to ABC. However, this resistance needs to stop, says Unger. With a wealth of data available from different systems (e.g., EMR, claims, and ancillary systems), organizations are better prepared to fully embrace ABC. To survive on dwindling margins, exacerbated by the pandemic, traditional costing methods, such as charge-based costing, require more effort and only deliver cost estimates. To accurately understand costs—now mission-critical for survival, according to Unger—organizations must use an ABC approach (e.g., Health Catalyst PowerCosting™).
As healthcare organizations of various shapes and sizes navigate the new landscape, they face endless decisions: How can we forecast and plan for an unknown future? Should we lease or buy our surgical center? How can we optimize our revenue cycle and reduce denials?
The time to act is now, Unger says. The longer healthcare organizations resist adopting advanced, progressive financial management approaches, the greater the current financial threats will become. On the contrary, if organizations adopt the three financial mindset shifts above, they can and will succeed in a tricky financial landscape.
Would you like to learn more about this topic? Here are some articles we suggest:
