Driving the P&L

Forward-looking leaders are finding practical ways to drive down costs and maximize revenues to create a stronger financial foundation in advance of the most significant payment reforms. Recent guidance from HFMA is to "adapt to profiting at Medicare reimbursement rates".

In many organizations there is no shortage of good ideas for driving efficiency and improving profitability. A large sea of good ideas, however, can make it difficult to know where to start and how to prioritize, especially in organizations running short on staff.

The following points may help sort out priorities and enable senior leaders to drive early, rapid progress without overwhelming their organizations.

1. Pursue low risk / high return projects first
Most organizations have sizable opportunities to optimize revenues and reduce external spending without jeopardizing patient care or causing major disruption. Projects involving clinical process change may offer large financial upside, but such projects often involve complex, multi-disciplinary processes, many stakeholders and controversy. These kinds of projects require decisions that are rarely made quickly and, from a financial viewpoint, may have a longer, less certain payback than straightforward, less controversial projects.   

2.  Strive for quick wins
Success breeds success. The best long term plan is to focus on fast execution of the top few initiatives that minimize disruption and achieve early success. This approach avoids overanalyzing or taking on the riskiest projects too early in the process.

3. Consider working with a proven partner
For a CFO whose key measure of success is meeting yearly financial targets, the two things that matter most in evaluating new projects are 1) the level of certainty that a project will lead to success in meeting those financial objectives and 2) the time it takes to achieve the results of the project. Spectacular, breakthrough results are achieved by using the best methods and tools in the world, regardless of where or by whom they were created, and implementing changes as rapidly as possible.

With the best tools and methods available, the biggest driver of the speed with which results can be achieved is the available “bandwidth” of the implementation team. In addition to being subject matter experts, teams must be skilled at defining, planning, and managing projects, and be fully accountable for achieving results. In many cases, internal teams lack the best tools and/or the resources to implement a true breakthrough initiative 100% internally. 

The figure above shows what a lack of resources can mean for completing large breakthrough projects 100% internally. The risks are that financial objectives are either not achieved or take far longer than planned. Outsourced projects should include a knowledge transfer (training) and long term use of any new tools employed.  

"Pay-for-Performance" - Gain-sharing Agreements

For many projects, it makes sense to consider a gain-sharing agreement. Gain-sharing can eliminate the financial risk of a project and mean that the partner has a vested interest in a positive outcome.

Gain-sharing is a contracting model in which some or all of the upfront risk of a project is borne by the external consultant. The fees are a direct function (typically a predetermined percentage) of the project’s measured outcome. In its pure form, fees are zero if there is no measured benefit to the project. Gain-sharing  requires clear and objective methods for measuring results and identification of any critical measures of quality that must be monitored.

Some types of projects fit the gain-sharing model better than others. Projects intended to increase net revenue or decrease hard costs are well suited to gain-sharing, since gains are easily measured. Strategy work is poorly suited to gain-sharing, since the effectiveness of a strategy is usually subjective, at least in the short run, and more difficult to measure.

 

Find the low risk/high return projects.


Consider working with a proven partner 


Download HPA brochure

 

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