Cheaper and safer

Does the drive to lower costs put patients at risk—or could it be the key to improved safety and quality? HRMR heard the view of Michael Walsh, senior vice president for finance at Pennsylvania-based Abington Health.

As the government and commercial payers continue to strengthen the link between performance and reimbursement, CFOs are becoming ever more attuned to the issue of quality.

"You have to make sure that everything you do does not have a negative impact on the quality of care that you’re delivering."

Michael Walsh is senior vice president for finance at Abington Health, a Pennsylvania health system with two hospitals, just over 200 physicians and total revenues of about $800 million a year.

The system is financially sound, with a strong balance sheet, and Walsh, who has worked in hospital finance for more than 30 years, is determined to keep it that way.

That means paying close attention to the incentives around quality and service that now affect the system’s income. As a consequence he is strengthening lines of communication with the clinical staff.

“I’ve always prided myself for being involved with the clinical side of the organization but this has brought us even closer,” he says. “As a CFO you’re sharing more and more information with the doctors and nurses about performance. Quality is obviously important for the patient, but there also is a straight link between finance and quality that has a growing impact.”

At the same time there is a growing need to square the need for quality improvements with the more general pressure to drive down costs.

“I don’t think this country has really come back from the economic downturn of 2008,” says Walsh. “There is a tremendous amount of pressure to bring down the cost of healthcare. The way the payers, including the government, handle that is not so much by eliminating cost—they just reduce the rates which they are willing to pay you, and therefore the organizations have to figure out ways to get cost out of the system.

“At the same time as feeling pressure to get costs down, you have to make sure that everything you do does not have a negative impact on the quality of care that you’re delivering.”

The cost pressures on healthcare systems must not be underestimated, and Abington Health, like most health systems in the US, is currently engaged in strategic planning to determine its future. It is financially sound as it stands, but faces the dilemma of whether to remain independent, become part of a larger system, or bring other hospitals into the organization.

“There is the idea that a larger critical mass will make the organization sounder,” says Walsh.

In the meantime the system’s continued efforts to drive down costs are placing heightened emphasis on quality of care and the service that is being delivered to patients. Walsh sees this push as comfortably aligned with the drive to save dollars.

“I believe that when you are really good at what you do, you eliminate waste and therefore you eliminate the opportunity for failures in the system, so a quest for quality often yields better financial outcomes as well.”

Captive service

A significant portion of Abington’s risk is covered by Cassatt RRG, a captive that was formed more than 20 years ago by a group of hospitals in the area. This approach to insurance is particularly helpful in the current environment of quality improvement and cost reduction.

The link between lowered risk and lowered costs also permeates Walsh’s approach to malpractice insurance. Over the years he has taken the opportunity to bring the system’s doctors into contact with its captive so that they can see how the premium dollars are spent.

“When they started reviewing some of the claims the hospitals were receiving it created an environment where doctors are learning from those claims. They go back to their hospitals working to improve the quality of care and to minimize risk,” he says.

“Within Cassatt we pride ourselves as being a learning organization—the company’s role is not only to provide insurance coverage but to help its members understand where there are failures in the system that cause injuries and claims. Cassatt helps to get our hospitals to change its practices to minimize those risks,” says Walsh.

This perspective means that in addition to its more obvious roles such as financial and claims management, the captive also feeds into other elements of the system’s operations, including risk management. The system takes a rigorous view of the claims procedure, part of which involves understanding what assessments need to be done in the hospital, and then telling the hospital about any risks that the claim has highlighted.

However, Cassatt is also strong in its defense of its staff and systems wherever this is justified.

“We are very aggressive about how we litigate, we don’t just settle claims,” says Walsh. “When we think we have a good case we will litigate those cases. I don’t think of myself as purchasing malpractice insurance; my perspective is the better we perform in the way we provide care helps to minimize our risk within our hospitals, the more we bring down the amount of money we have to put into the insurance company to fund those potential losses.”

Alongside its captive insurance Abington buys insurance and reinsurance through a number of Lloyd’s syndicates, resulting in a complex, layered patchwork of self-insurance, reinsurance and commercial insurance.

Discussions are currently under way to decide whether to bring more products into the captive insurance company in addition to malpractice. Abington is purchasing cyber insurance through its captive insurance company and is also considering looking at workers’ compensation.

“That’s a way off,” says Walsh. “You’re always to weighing the value that different organizations bring to the table and what you can do to help minimize the number of claims and to reduce the cost associated with them.”

It’s a complex balancing act, but Walsh’s view that cost reduction and quality improvement can be two sides of the same coin is a persuasive one that will inform his work over the coming months and years.

“The focus will be how to keep the organization strong, how to keep it financially viable and how to keep the quality at a level that means patients will continue to feel comfortable coming to our hospital,” he says.