HRET logo, click here to go to the site home page

Transforming health care
through research and education

Hospitals in the Pursuit of Excellence logo, click here to go to the HPOE home page
Skip main navigation

Educational Resources

Educational resources broken down by research area.

Resources section header image

Click here to subscribe to HRET Resources RSS feed Business Case for Quality: Tracking the Cash Flows

George Pink, PhD, University of North Carolina; Marci Thomas, CPA, MHA, University of North Carolina; Kerry Kilpatrick, MBA, PhD, University of North Carolina; Leslie Brown, MSPH, University of North Carolina - October 08, 2010

Click here to access this resource

Few would argue against improving the quality of patient care.  But payors such as Medicare, Medicaid, and health plans give health-care providers little incentive for instituting innovations in the quality of patient care.  In fact, sometimes providers are actively discouraged from implementing quality-enhancing interventions that peer-reviewed research has shown to be effective.  This is because those who purchase medical care are generally unwilling to pay a premium for higher quality or better service.

But are health-care providers actually losing money whenever they implement quality-enhancing interventions for their patients?  Can they make a “bottom-line” case for improving the quality of care?  While studying Sutter Medical Center’s use of fetal fibronectin testing for the management of pre-term labor pain and Sharp Memorial Hospital’s pharmacy pain management service, researchers discovered that most of the staff members they interviewed spoke about benefits in solely qualitative terms (such as patient satisfaction).  Many informants were unfamiliar with the proper procedures and types of information required to accurately analyze the costs (and savings) created by a quality-enhancing intervention.

To assess the financial impact of two quality-enhancing interventions, Dr. Pink and his colleagues prepared a business case for each organization’s program.  These assessments: detailed methods for estimating the net cash flows that accrued; demonstrated how to examine costs and revenues from the perspective of individual business units; and showed staff how to employ quantitative data to analyze return on investment.

In assessing Sutter Medical Center’s use of fetal fibronectin testing, researchers discovered that the business case for the quality intervention was negative because of the loss of inpatient days paid on a per diem basis.  However, being able to send home women who were not in pre-term labor enabled staff to focus on caring for women who truly needed to be in the labor and delivery unit.  Because of the Center’s ever-increasing number of maternity patients, the beds did not remain empty.

The business case for Sharp Memorial Hospital’s quality intervention was also negative.  Contrary to staff assumptions, the study showed that patients on the pharmacy pain management service actually had a longer average length of stay.  Researchers speculate that the difference in expected outcome may be explained by physicians’ tendencies to refer more difficult cases to the service.

By using the methodology and the business model developed by the researchers during the study, other health-care providers will be able to:

  • understand the prospective or retrospective impact of a quality-enhancing intervention;
  • propose an equitable division of cost when more than one business unit benefits from the implementation of an intervention;
  • support the presentation of the provider’s business case to payors when negotiating contracts;
  • determine whether to implement, continue, or discontinue a quality-enhancing intervention.

This is not to say that quality-enhancing interventions should be considered only when there is a positive impact on the bottom line.  Concern for the community, professional ethics, and increased market share are all good reasons for improving the quality of patient care.  But using a business case approach to assess the impact of improved quality gives health-care organizations--and those who pay for their services--a practical way to determine whether certain investments in the quality of patient care make sense from a financial perspective.

Terms of Use  | Privacy Policy

©2006-2016 by the American Hospital Association. All rights reserved. Noncommercial use of original content on is granted to AHA Institutional Members, their employees and State, Regional and Metro Hospital Associations unless otherwise indicated. AHA does not claim ownership of any content, including content incorporated by permission into AHA produced materials, created by any third party and cannot grant permission to use, distribute or otherwise reproduce such third party content. To request permission to reproduce AHA content, please click here.