Prescription for Change

Is the CMO the new CFO? More CMOs are on the hook to reduce costs.

by John Johnston, CPA, MHA

Before I get a slew of angry letters from CFOs, the short answer to the headline question is, no.

However, a new precedent is emerging where CMOs are being held accountable to their organizations' financial performance. In the words of one health system CMO:

"Our health system has targeted a systemwide cost reduction of $50 million, and the CEO has assigned $20 million of the target to me. He is expecting me to achieve these cost savings by redesigning and standardizing clinical practice. I can tell you all the clinical triggers we should pull, but I don't know how to translate them into dollars."

Translating the changes into dollars is where the CFO comes in.

With clinical utilization being one of the largest areas of untapped savings—and care standardization being so essential to success under risk-based contracting—many CFOs and CMOs are now jointly tasked with achieving significant, measurable cost improvement. What's exciting is that this approach can impact finances on a massive scale—and do so while improving care quality.

Take the systemic approach

As the CMO and CFO increasingly partner to meet financial targets, finance leaders should consider the advocating for a systematic approach to reach their goals, rather than one that takes a physician-specific perspective.

Here's a case example that underscores this point: A 43-hospital health system with locations across nine states in the Midwest had been diligently focused on clinical improvements for a year but was frustrated that the efforts had yielded very little in savings. The problem? The health system was too focused on individual physician performance, so although clinical improvements were being made, the associated dollars were small in scale. Even worse, medical staff relationships were increasingly strained as loyal physicians were being singled out as "outliers."

The key is to lead initiatives that are comprehensive enough to address all the issues hindering clinical improvements—without pointing fingers—and then tie those initiatives to financial savings.

The joint tasks of the CMO and CFO

Here are some of the actions that CMOs and CFOs can take together to identify areas of opportunity and scale their efforts for a widespread impact:

  • Organize patients by common physician cohorts. This first step involves looking across departments to map high-frequency populations—such as heart patients—to members of the care team.

  • Drill down into each pool of patients to find variability. Organizing patient populations by common physician cohorts provides for a global view of both operations and clinical processes—from admission to discharge. Some clear indicators of inefficiencies and variability are avoidable patient days and a high cost per case. And depending on whether there is variability across single or multiple patient populations, improvement opportunities might be disease-specific or systemwide and achievable in all departments.

  • Prioritize big-ticket improvement initiatives. When it comes to clinical standardization, it's not possible fix everything at once. The key is to focus on activities showing the highest variability—and then institute practices that can easily be scaled to similar patient cases. For example, if discharge planning is an issue affecting multiple service lines, it's important to focus on resolving the root operational issues across the system that cause discharge delays. Only then is it possible to address physician-driven length-of-stay issues.

  • Set up dedicated physician leadership. To put strategy into practice, it's imperative to secure clinical leads—of both employed and independent physicians—to create quality standards and hold their own teams accountable to performance. Effective physician leadership is critical to creating a culture of engagement in care standardization.

Above all, taking a "clinical first" approach is the most effective way to reduce variation and ultimately move the needle on cost. Some CFOs have seen what happens when financial leadership (without a clinical counterpart) presents physicians with data that point to performance issues, such as unnecessary utilization and untimely discharge. Not surprisingly, these reports often lack a clinical interpretation or context, and they tend to put the blame for variation on a handful of physicians—instead of accounting for broader clinical or operational gaps that impact performance but are simply out of the physician's control.

That's why this emerging partnership from two sides of the house—cost and care delivery—is so powerful. When financial improvement strategies are based on achieving best practice clinical performance, where the CMO's leadership is essential, there tends to be better organizational coordination to solve for root issues, higher physician engagement, and a culture that is more open to change.

This article previously appeared on the hfm Healthcare Finance Blog.

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