Neville Onley and Alfa D'Amato are showing how finance professionals working with medical staff in the New South Wales health system are delivering better outcomes.
At a glance
- NSW Health is using activity-based management to understand and manage the finances of its hospitals.
- Activity-based management provides patient-level cost information, and the finance team works with the clinical team for the best patient outcomes.
- Most of the costs of care are incurred at the start of a hospital visit. Cutting stays short saves only a little, and results in more admissions, and higher overall costs.
- NSW Health sees value-based management as the next step in healthcare financial management.
No matter where you are in the world, the funding of healthcare systems has always been politically fraught. Both sides of politics readily accuse the other of mismanagement. The political right has long been derided for its “cost-centre”, profit-first principles of funding patient care; the left is accused of over-funding, waste and lack of accountability.
While Neville Onley and Alfa D’Amato are not interested in discussing the political dimension, there is no doubt that their strong adherence to the activity based funding of the sector and its next phase partner – activity-based management – are traditionally right-ofcentre concepts.
Yet this says nothing of their record in turning around health management in New South Wales (NSW).
Onley is executive director of activity-based management at NSW Health and D’Amato is the acting deputy CFO. Their views on the best way to fund health care show obvious synchronicity. They were implementing the changes when block funding was replaced in 2012 by activity-based funding.
They were instrumental in transforming this into activity-based management, and they are still there – working as closely as ever – as the health system progresses towards the next phase of the funding evolution, to value-based management.
These are terms that students learn in Accounting 101, but Onley and D’Amato are melding the theory with new analytics tools and an understanding that finance staff need to work collaboratively with medical staff to improve outcomes for the hospital system.
Both Onley and D’Amato believe that the use of big data – and the transformation of accountants from number crunchers to human-centric evaluators of costs and benefits – has made the difference. There simply weren’t the tools to apply real activity-based management into the system five to seven years ago. We have them now.
When activity-based funding arrived in 2012, the critics sharpened their knives. It was said that hospitals with costs above the fixed price (or units) would be forced to improve efficiency, reduce waste and cut unnecessary costs, forcing them to take on more (cheaper) day surgery, thinning staffing and reducing lengths of stay. Worse, hospitals might discard unprofitable activities and only offer the most profitable. In other words, cut-price health care was deemed to have arrived.
Not so, say its adherents. The old system worked by measuring costs at the departmental level through top-down allocation procedures. The money was often spread between services and departments, so costs for say, transportation, information technology, equipment and security were allocated, and funds were also distributed to medical services such as women’s health, pharmacy and radiology.
The problem was, it did not provide accurate patient-level cost information. Activity-based funding, and later more involved activity-based management, was designed to take the patient – not a clinical department – as the core unit of analysis.
Managers should be able to provide a detailed breakdown of each clinical activity, including the variation of time from one patient to another and the use of specific personnel, equipment, supplies and space, at each step of the care cycle.
"We are not asking accountants to be philosophers or mathematicians. We need to bring forward a balance of skills. We need to support business, but it is still our role to do more with less. Thinking how best to so this is our role as well." Alfa D’Amato, NSW Health
Now, says Onley, everything has to be “evidence based”. Once you know the unit cost of a hip replacement, and you find that one hospital is overcharging or undercharging for it, that’s not where the story ends, but where it begins. You, as an accountant, are required to find out exactly why this particular hospital x, is charging more or less than hospital y.
In the old days, the accountant simply crunched the numbers – a particular clinic or division had either blown the budget allocated or it hadn’t. Accountants were then asked to go out, scrutinise and investigate all lines of inquiry (in the nicest possible way, of course). This is where the real evolution is happening.
“With activity-based funding and management in particular, it’s not just straight financial evidence, not just profit and loss we’re looking at,” says Onley.
“We went and costed every interaction the public has with our hospitals and facilities. It created a huge database that we could then use for decision-making in terms of funding and service delivery, and make sure resources are at the right place at the right time for when work needs to be done.”
The new, multi-tasked finance person needs to become part of management, actively supporting the provision of health care. “They need to get out of the office and meet other clinical elements of the business, so that when they’re reading financials, they know what they’re talking about and can tell that story with accuracy,” Onley says.
The big data story
With the big data available, the profit and loss ledger can be correlated with other factors. It could be compared with similar services in the region. Population density and demographic data can be accounted for, as well as the complexity of the patient care being offered by any individual hospital.
Hospital x may be doing far more difficult surgery than hospital y. Hospital z may have a higher success rate, but a slower throughput of patients. This may indeed be a good thing, as hospital z has a far lower percentage of patients returning with complications. These are the stories accountants need to tell.
If these kinds of parameters are acknowledged and understood, then the story begins to unfold and the difference in outcomes becomes more intelligible. Managers, clinicians and executives will all be apprised.
D’Amato says this is an environment where finance data can support and influence decision making. “Traditional accounting has not had a great reputation in the health sector,” he says. “Clinicians and administrators would tend to avoid us because they knew the moment they walked into a finance department and needed something, our answer was always no. We need to support them with options, using knowledge of the entire story.”
D’Amato enthuses that accountants are going to become more influential in decision-making. “Now that we can offer options, we can start to see activities and processes as investment opportunities, not as cost cutting procedures.”
Information cuts both ways. None of the above precludes accountants from making hard decisions when they see obvious waste. Before activity-based funding and management became the norm, Onley says there was no shortage of hospitals convinced that their suppliers were good value and their methods the most efficient and cost-effective. When the managers and clinicians were shown evidence of exactly the opposite, many were flummoxed.
What Onley and D’Amato have been working towards is a collegial atmosphere among clinicians, hospital managers and finance people. Part of the deal has been to ensure equivalence of understanding across the sector – that different hospital staff in equivalent fields get together to talk about their respective work.
“Before that they were all working in siloes,” Onley says. “Now there’s a more horizontal nature to the thinking.”
Onley’s management team is as diverse as it is possible to get – a mini logistics centre working on the same platform. “I have nurses and clinicians, I have IT-savvy people, accountants, costing people and analytics people. I can identify things – talk to clinicians – and I know exactly who can talk to the hospitals on their level.
“We have to bring other skills into a finance team and that is what I’m advocating. We need people with the skills or the capacity to break out into relevant areas to get all the other sides of the story.”
Hospital funding and management is not easy, and the information both Onley and D’Amato are retrieving sometimes makes their work more difficult and complex. It can open up cans of worms that were previously hidden. Higher costs, Onley now realises, are not always a factor of efficiency.
Indeed, efficiency in the health arena may be the underlying cause of costs rising. “I might see costs going through the roof and with a little talk with the clinicians and managers I then find that it’s a positive – people are staying for shorter periods,” he explains.
Healthcare innovation and financial sustainability. Listen now.
Higher costs are incurred in the hospital system in the first few days of a patient’s treatment and tend to diminish at the end of treatment. “If you’re able to cut days off the back-end of the hospital stay, you’re knocking off the cheaper end, but putting more people through at the more expensive end,” Onley says.
D’Amato agrees: “The new way of thinking for accountants is actually thinking,” he says.
This does not just apply to the health management arena, but also to all facets of financial control and in all businesses, he believes.
“Cause and effect is the obvious thing,” he says. “We’re not asking accountants to be philosophers or mathematicians. We need to bring forward a balance of skills. We need to support business, but it is still our role to do more with less. Thinking how best to do this is our role as well.”
The diverse, multi-disciplinary management that Onley and D’Amato are advocating is not happening in a vacuum in NSW. It’s happening throughout Australia and worldwide.
“There’s an appetite globally to introduce better mechanisms to manage government portfolios such as health,” Onley says. “We are the largest portfolio of the NSW state government and growing at a faster rate due to demographics than any other area. People are living longer with chronic conditions.”
He and D’Amato are talking to their counterparts in Canada, Ireland, the UK and in the Middle East, and there is a common cause – all of them are trying to find ways in which funding models can be used in health settings to drive efficiencies and effectiveness without putting patient safety at risk.
The next step? Both are adamant that the future lies in value-based management. Instead of creating units of costs that now exist for hip replacements and cardiac arrests, this will be about creating something a little more complicated: units of value.
“We’ll be looking to understand where the real value is, the best ways of measuring it and even creating a standardised measurement,” Onley explains.
D’Amato’s take on value-based management is a little different. It’s less about measurement and more about the accountant becoming more valuable and actually influencing decisions.
“Once we are all on same page we will then be able to create incentives,” D’Amato says.
“We’re now looking at what are the most important and critical things we have to invest money into and asking ourselves how best to get there, all the while allowing the system to be flexible and agile to deliver on that goal.”
Onley says the transformation in the health sector has been enormous over the past five to seven years, and he is proud of what has been achieved. “I liken NSW Health to an aircraft carrier – we have managed to turn the ship around. The best part is that we did it before anyone realised the wind was coming from another direction.”
The core skills required of the new management accountant