The Relationship between Quality and Financial Indicators in the Healthcare Market

By Louis Galterio, President, SunCoast RHIO, Inc.

By Louis Galterio, President, SunCoast RHIO, Inc.
By Louis Galterio, President, SunCoast RHIO, Inc.
The purpose of Performance Normalization is to analyze various approaches available to the public that can gauge healthcare by adopting approaches from other industries – specifically manufacturing and investment banking. These industries give us hints that allow us an ability to gauge hospital and other healthcare entity performances’ across the board. The approach I prefer is known as Data Envelopment Analysis and is statistical in nature and non-parametric. Explaining DEA takes an article in its own right and I will address how it works at another time. It takes a view towards available data publicized with empirical findings; say for example, from bonds and their quality rating organizations as well as those who measure healthcare quality components. This approach can lead to guidelines that support the beginnings of an “across-the-board” healthcare index; a basket group of indices; or at least a suggestion for a common approach. An indicator derived from this approach represents a synopsis of traditional quality measures, performance, consumer satisfaction, and outcome metrics. It would address financial ratio’s across the “for profit” and “not for profit” spectrum unique to Healthcare.
The focus of this article is to introduce this statistical approach concept of Performance Normalization. It suggests that we, as a society, need tools for unifying and analyzing disparate factors such as people, organizations, financial performance, and governance that should be taken into account when making decisions about health care.
In healthcare, there are diverse parties, all with a desire to know how healthcare entities compare to each other for various reasons. Current trends redefine the concept of a hospital in the public mind. Networks servicing their clients through technology and telecommunications, are gaining in community awareness. However, even in this limited subset, discovery and comparison become complicated due to diverse information sources, none of which are unified and all are in states of flux.
The Problem
There is a need to see a simple indicator that addresses the many traditional measurements of a hospital or other “organizational based” entities. There is public confusion. As the trend towards consumerism advances, the demand for transparency will grow. The issues are across the board. The process is clouded further by hospitals typed and divided into many sub categories based on their tax basis— non-profit and for-profit, which includes those owned by public and private entities; and public hospitals supported by taxes, donations, and insurance reimbursements, and many times account for negative margins due to charity expenditures. Healthcare touches everyone everywhere. It is a significant part of every country’s GDP and it is rife with differing opinions on how the things should run. It is subject to political change as administrations come and go with alternative ideas to satisfy a changing public and a balanced proportional economic cost.
Which indicators should be used and is it possible to find entities that share all indicators in some way standardized for common evaluation?
How will information regarding financial health of for-profit hospitals be collected, especially when corporate parents, as in the case of large chains, become private and are no longer listed by issuing public stock and when books are closed to the public? How do we tell how the hospital itself is doing within the chain when the financial data is merged with the holdings of the entire company and goes across many regions? How do we break it out to the region we care about; where we live and where our families live? How do we relate these financials to superior or inferior clinical care?
If quality is a major factor that can influence a unifying index and helps drive understanding and decision making, then it would seem one could look to common measurements of this as one path. However, the search for common quality indicators is not easy. Today, there may be upwards of 200 quality measures sometimes linked to condition and somehow linked to revenue.
Those of us who measure quality and performance are aware of the many dynamics that indicate a quality score. This is a composite number that denotes a level of care; an optimized reimbursement; a contractual performance; or all the above. It is more than simply analyzing process. It is many times, more about the process mix; the evidence; the outcome of an action; and the perception of others towards actions taken. It is a never ending task of observing, monitoring, and adjusting within a framework that embraces an almost paradoxical structured approach. Outside observers might conclude that a “right” approach implies static conditions and a laboratory setting. It does not. The reality is that healthcare measurement is the farthest from static as one can get. It does not exist in a vacuum.
View from the Financial Markets
If we agree that there is merit in undertaking the study of this disparity, questions arise. How can we make the process easier, consistent, and one that offers a methodology that results in indicators that are perceived by the public and sanctioned by some kind of trusted party or intermediary? Who should that intermediary be and, what is the formula in terms everyone can understand and accept?
A view of studies of other areas may help. Examples from the private sector include bond rating organizations that provide information to their subscribers and the general public information on the funds, stocks, and solvency in many companies. They use various methods to reach their conclusions and their audience views them as a standard source of information. Their views are accepted and things only seem to go wrong when they place private interests above objectivity.
Should our healthcare system be viewed and measured like a retail commodity outlet selling a product? I think not. There is a special relationship in this field regarding the customer. Ourselves and the people we love and care for. There is a limit to how far the private model works when it comes to events concerning illness and well being. Perhaps one can walk away with pointers of what works in the non healthcare environment and consider them in light of community health – the goods and services that return more than simply a dollar profit. It’s not all in the numbers we call money, it is in what the money represents, the concept of wealth, the link between health and wealth and how we achieve our goals of minimal disease and avoidance of pain for us and our loved ones and from a societal view. Money is only one way of measurement.