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Healthcare Financial Transformation:
Five Leading Strategies
Health Catalyst Editors

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Healthcare Financial Transformation
The Affordable Care Act passed into law in
March 2010, putting the shift in motion from fee-
for-service (FFS) to value-based care (VBC).
Since then, healthcare financial transformation,
delivering better care at lower costs, has
become an increasingly urgent industrywide
concern.
Furthermore, COVID-19 has increased
financial pressures for many health systems,
making financial transformation more
important than ever.

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Healthcare Financial Transformation
As organizations continue to evolve and adapt their
financial strategies to optimize performance under
VBC, the following central challenges stand out:
Delivering cost savings and passing savings to the
consumer.
Resolving uncompensated care.
Handling outstanding bill hold accounts, reducing
accounts receivable (A/R) days, and managing
discharged not final billed (DNFB) cases.
Reacting to runaway costs resulting from high labor
and technology expenses, inefficient use of resources,
and supply waste.
Understanding the true cost of care.
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Healthcare Financial Transformation
To meet the above challenges and effectively
transform under VBC, health systems are
leveraging data-driven tools to better
understand their costs, including what’s
driving their expenses, excessive variation,
and the impact of an unpaid bill.
With deeper cost understanding, these
organizations are identifying opportunities to
improve their financial practices and save
money without sacrificing the quality of care.

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Healthcare Financial Transformation
As health systems undertake the ongoing and evolving challenge
to improve care while reducing cost, certain strategies and tools
prove essential to maintain long-term financial health.
Below are five examples of ways organizations are achieving
financial transformation:
1. Using Cost-Per-Case Improvements to Deliver Big Bottom-Line Savings
2. Leveraging Artificial Intelligence to Resolve Uncompensated Care
3. Increasing Cash Flow with Data and Analytics
4. Confronting Healthcare’s Cost Problem
5. Delivering Cost-Effective Care with Activity-Based Costing

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Five Ways Organizations Achieve Healthcare
Financial Transformation
#1: Using Cost-Per-Case Improvements to Deliver Big Bottom-Line Savings
As health systems face more pressure to deliver
cost savings, they’re turning their attention to
cost-per-case improvement projects.
These strategies can produce quick wins for
improvement teams looking to gain momentum
and buy-in. Studies show that the best cost
reduction strategies start with clinical
improvements.
In particular, reducing clinical variation tends to
hold the biggest opportunities for not only cost
savings but improving care.

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Five Ways Organizations Achieve Healthcare
Financial Transformation
#1: Using Cost-Per-Case Improvements to Deliver Big Bottom-Line Savings
Health systems just getting started with
cost-saving and quality-improvement efforts
increase their chances of long-term success
by starting small, on a per-case basis, and
understanding the costs behind each
healthcare encounter by provider.
Achieving this granular level of costing
accuracy requires good communication,
an executive champion, interdisciplinary
participation, and reliable data tools
and resources.

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Five Ways Organizations Achieve Healthcare
Financial Transformation
#2: Leveraging Artificial Intelligence to Resolve Uncompensated Care
By collecting uncompensated care (unpaid
balances) from patients for healthcare services,
health systems stand to curb one of their
highest costs.
Propensity-to-pay tools help organizations
target unpaid accounts by using artificial
intelligence (AI) to leverage external and
internal financial and socioeconomic data
and identify the likelihood that patients in
a population will pay their balances
(i.e., their propensity to pay).

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Five Ways Organizations Achieve Healthcare
Financial Transformation
#2: Leveraging Artificial Intelligence to Resolve Uncompensated Care
With propensity-to-pay insight, financial
teams can focus on patients most likely
to pay and connect patients who are
unable to pay with charity care or
government assistance.
Both health systems and patients
benefit, as patients can avoid
bad debt, and organizations
receive compensation for the
care they’ve delivered.

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Five Ways Organizations Achieve Healthcare
Financial Transformation
#2: Leveraging Artificial Intelligence to Resolve Uncompensated Care
With propensity-to-pay insight, financial
teams can focus on patients most likely
to pay and connect patients who are
unable to pay with charity care or
government assistance.
Both health systems and patients
benefit, as patients can avoid
bad debt, and organizations
receive compensation for the
care they’ve delivered.

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Five Ways Organizations Achieve Healthcare
Financial Transformation
#3: Increasing Cash Flow with Data and Analytics
According to a 2018 survey of hospital CEOs by
the American College of Healthcare Executives,
financial challenges (from declining reimburse-
ment to bad debt) are the number one issue
facing hospitals today.
In response, healthcare leaders must seek
opportunities to boost revenue through improved
financial performance and reimbursement.
Some common strategies include reducing the
number of outstanding bill hold accounts,
reducing A/R days, and managing DNFB cases.

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Five Ways Organizations Achieve Healthcare
Financial Transformation
#3: Increasing Cash Flow with Data and Analytics
Organizations can take the following actions to
increase cash flow using data and analytics:
Understanding common reasons accounts
remain unbilled.
Identifying opportunities for improvement.
Using data analytics and process improve-
ment to achieve financial goals.
Creating lasting improvements.
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Five Ways Organizations Achieve Healthcare
Financial Transformation
#4: Confronting Healthcare’s Cost Problem
For too long, U.S. hospitals have focused on
increasing revenue, volume, and growth.
At the same time, the healthcare system has
wasted hundreds of billions of dollars on supply
chain inefficiencies, variation, service duplication,
and suboptimal labor management, causing
expenses to exceed revenue.
Healthcare has focused on revenue for so
long that the industry has lost sight of runaway
costs brought about by high labor and technology
expenses, inefficient use of resources, and
supply waste.

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Five Ways Organizations Achieve Healthcare
Financial Transformation
#4: Confronting Healthcare’s Cost Problem
Recognizing the cost problem is a significant
first step toward solving it.
Five expense-controlling strategies can help
health systems return to a stronger financial
position:
1. Refocus on labor management.
2. Manage employed physicians.
3. Change the patient encounter environment.
4. Augment standard approaches with technology.
5. Manage patient access and flow through the
health system.

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Five Ways Organizations Achieve Healthcare
Financial Transformation
#5: Delivering Cost-Effective Care with Activity-Based Costing
Delivering high-quality, cost-effective care to
specific patient populations within a service
line is nearly impossible without a
sophisticated costing methodology.
Activity-based costing (ABC) provides a
nuanced, comprehensive view of cost
throughout a patient’s journey and reveals the
“true cost” of care—the real cost for each
product and service based on its actual
consumption.

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Five Ways Organizations Achieve Healthcare
Financial Transformation
#5: Delivering Cost-Effective Care with Activity-Based Costing
By understanding the true cost of care,
healthcare leaders can identify at-risk
populations earlier and more quickly implement
effective interventions (e.g., more careful
monitoring and earlier screenings).
Health systems that leverage the actionable
insight from ABC further benefit by implement-
ing the same, or similar, process and clinical
improvement measures across other
service lines.

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Better Care at Lower Costs:
Healthcare’s Ongoing Challenge
Given the complexity of healthcare delivery and
its associated expense, financial transformation
will be an ongoing challenge for health systems
in the COVID-19 era and beyond.
Organizations that adopt proven tools and
practices to better understand their cost drivers
and how those are tied to quality of care will
most successfully navigate the challenges,
thereby improving their bottom line along with
their patient care.

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For more information:
“This book is a fantastic piece of work”
– Robert Lindeman MD, FAAP, Chief Physician Quality Officer

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More about this topic
Link to original article for a more in-depth discussion.
Healthcare Financial Transformation: Five Leading Strategies
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The Medicare Shared Savings Program: Four Tools for Better Profit Margins and High-Quality Care
Will Caldwell, MD, MBA, Senior VP and Executive Advisor

20.
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Other Clinical Quality Improvement Resources
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