Become best friends with your CFO to improve quality & patient safety

May 14, 2009

Last month we talked about the first of the three key areas that are vital to consider adding to your plan for improving quality and patient safety. These three areas are:

Rapidly get your process management activities under way and under control
Become best friends with your chief financial officer (CFO)
Make safety, quality, and performance improvement a profit stream by reducing COPQ

This month we will look at the vital importance of building a strong relationship with your CFO as part of your quality and patient safety plan and how you can get their attention by reducing COPQ.

You probably see your CFO when you attend executive meetings or when you have to defend your budget, but do you really consider the CFO as a key part of the patient safety and quality team? If you don't, you may be missing a key player who can really help you move your patient safety and quality program forward.

If you want to make the CFO a full member of your patient safety and quality team, you need to focus on speaking the language of the CFO and understanding how to benefit them.

Speaking the language of the CFO

The CFO is responsible for managing the financial aspects of the organization and typically does not come from a clinical background. It is unlikely that they are going to become "clinical", so we need to become "financial". To do this, we need to be able to speak at least a few phrases of "finance". You don't have to be a financial wizard—that's their job—you just need to be able to get their attention.

Make sure you understand the following key financial concepts and can talk about the impact of the quality and patient safety plan on them.

The difference between sales and profit. These often get confused. If our organization performs a complex orthopedic surgery and is paid $50,000, we can consider that a sale of $50,000. But the organization does not get to keep all that. It goes to pay for staffing, supplies, electricity, repayment on loans, and contribution to charity care etc. Many healthcare organizations consider themselves fortunate if they get to keep 2% of that as profit (or reinvestment, if you are a nonprofit). This means that there is only about $1,000 left after that surgery. If you don't know the exact ratio of profit for your organization, you won't be far off if you think -5% to +5%.

Cost of poor quality. If we did everything right, we didn't have any rework, we never wasted any surgical packs or food, we never had any claims or lawsuits or no-pay events, then we get to keep the profit for our stakeholders or reinvest it in new services, equipment, and staff members—and we make the CFO very happy. But if we make quality or patient safety mistakes, we are using up money the CFO had already planned to use to pay a supplier or to make a payment to the bank or to send us in our paychecks! The CFO now ends up with new unplanned expenses and has to scramble to find the money to deal with our quality and patient safety mistakes. All those avoidable costs are our cost of poor quality, sometimes called COPQ. This is your link directly with the CFO—we both can speak this language. We need to prevent COPQ, and the CFO needs to deal with any COPQ that we can't prevent.

Let's go back to that $50,000 surgery that generated $1,000 of profit. Did you imagine that your present COPQ could waste $1,000? Were there unused surgical packs that were opened? Did the surgery take an extra 20 minutes causing you to cancel another patient? Was there a postsurgical infection? Was an object retained after surgery, creating a potential legal claim? If you are not absolutely on the ball, you can easily eat up all the profit and more with just a few quality or patient safety issues. And you wonder why CFOs are always frazzled!

Consider a $30,000 no-pay event. That's all COPQ. If we do not get reimbursed for $30,000 that we spent on a patient, that eats up all the profit for $1,500,000 of other surgeries. If each surgery costs about $45,000, that means that the one no-pay event used up all the profit from the next 33 cases. From the CFO's perspective, that's a pretty good reason to avoid ever having a no-pay event.

Thinking of COPQ reduction as a profit stream. Now the good part. Did you know that quality and performance improvement can turn a profit? Of course, we have that in the back of our mind, but let's look at how powerful that can be.

For example, if we implement a quality improvement activity that saves $100,000 in COPQ, that's the same as if we just saved the organization $100,000 in profit. If we are making a 2% profit, that savings is equivalent to $5,000,000 of new surgeries! Think of the effort it would take to get those patients and then do all the surgeries.

Make sure you are thinking about the leverage of your quality improvement activities and the COPQ that they reduce. Convert that into "new sales it would have taken to benefit the organization as much as we did with our quality improvement activity." If you show some interest in thinking this way, you will warm your CFO's heart.

Return on investment (ROI). But there is no free lunch. If you want to do quality improvement activities, you need the staff resources and equipment to do them. The CFO is really looking for an ROI. If the CFO gives you the budget to pay for two additional quality people, the CFO wants to know how much COPQ reduction you will give them back. If that ROI is better than putting the money in the bank or in a different project, your quality plan looks like a good investment—probably a much better investment than Wall Street.

Make sure you talk with your CFO about the value of the COPQ reductions you can contribute to the organization. If you don't, they only see the cost side of the investment—and to a financial person, that's not very attractive.

Don't worry about being a financial wizard, but especially in today's economy, you need to make sure you are working closely with your CFO—and that means thinking (and talking) in a way that connects with them.

Ken Rohde 5/14/09