Aligning quality and finance for strategic advantage

Healthcare executives know the tension well: What’s right for patients doesn’t always look good on the balance sheet. Quality leaders, by nature of their roles overseeing operational and clinical excellence, define success in terms of patient outcomes. CFOs are focused on dollars and margin.

Bringing those perspectives into a unified organizational strategy is more important than ever. Rising labor and non-labor costs, coupled with inadequate reimbursements, are squeezing margins. For quality initiatives to be funded and scaled, CQOs, quality improvement directors and other clinical leaders must show how their proposals tie to financial performance — and communicate in a way that resonates with their financial partners.

Speaking the same language

The first barrier is vocabulary. Finance leaders discount “billed charges” because those figures don’t reflect what the organization actually collects after Medicare and Medicaid payments, negotiated discounts with payers, charity care and bad debts. What matters beyond gross revenue is net patient revenue, and more importantly, operating margin — the difference after direct costs (labor, supplies, drugs) and indirect costs (overhead, IT, compliance, executive salaries) are considered.

Even a 20% direct margin can be misleading. Once indirect costs are factored in, a seemingly profitable program may actually lose money. For credibility, quality leaders need to frame their proposals considering both direct and indirect costs to ensure they generate a positive return on investment (ROI) with value on investment (VOI) for the health system.

Demonstrating financial value

Beyond using the same vocabulary, overall financial literacy and connecting clinical and strategic priorities to financial impact are essential. These best practices can help quality leaders build compelling business cases:

• Pair ROI with VOI: While ROI quantifies the financial impact — such as reduced length of stay, fewer readmissions, and lower premium labor costs — VOI captures the equally critical but less tangible outcomes, including staff retention, patient experience, physician alignment and organizational reputation. Clearly articulating both ensures executives have a complete picture to make informed decisions that balance financial performance with patient and workforce impact.
• Build a phased case: Start with quick wins that show early financial and clinical results. Layer in longer-term investments (e.g., advanced care coordination, technology-enabled staffing models) with clear pathways to sustainability.
• Benchmark with external validation: Use benchmarks from national databases (e.g., Vizient’s Quality & Accountability Study, CMS Star Ratings) to show how performance gaps translate into dollars. Highlight how high-performing peers have achieved financial and clinical impact through similar programs.
• Link risk to growth: Show how investments protect against regulatory penalties, contract risk or margin erosion. Tie improvements to growth strategies such as preferred payer partnerships or expanded service lines.

Aligning to drive margin

Aligning quality and finance leaders is especially important for a healthcare organization’s growth strategies and specialty lines. For example, national data show that employing surgeons typically generates a negative professional margin. According to a recent Physician Flash Report, the median loss per employed surgeon is $435,000 a year. Yet hospitals make up for those losses in downstream revenue from admissions, imaging, procedures and follow-up care.

However, with average hospital operating margins around 4.6%, it takes $8.5 million in downstream revenue just to break even on one surgeon.

Additionally, not every specialty or service line contributes equally to system margin. Some physicians or programs are strategic “loss leaders” that open the door to downstream profitability. Others may drain resources despite appearing busy. Understanding that dynamic — and making investment decisions accordingly — is where quality and finance alignment can make a significant difference. Consider this case study:

Case study: APP-led pulmonary embolism model

At one hospital, leaders introduced an innovative approach to managing pulmonary embolism patients by using an advanced practice provider (APP) who followed patients through the entire journey, from ER admission to outpatient follow-up.

Over nearly two years, average length of stay dropped by 1.4 days compared with other hospitals in the system. That translated to almost 280 hospital days saved — a significant boost in efficiency and capacity.

But then the APP went on extended leave, and the role wasn’t backfilled. Almost immediately, length of stay rose by 1.6 days for patients who had a pulmonary embolism over the historical baseline. Forty-five hospital days were lost in just one quarter, and the clinic also missed out on 400 visits and revenue tied to 28 new diagnoses.

When finance leaders ran the numbers, the cost of disruption totaled more than $91,000 in a single quarter.

By contrast, sustaining the model would have produced nearly $400,000 in annual benefit — well above the cost of employing the APP.

This example is a reminder that reliable, standardized care pathways don’t just improve patient outcomes — they generate real, measurable financial value. If the program had been evaluated only in clinical terms, its true impact would have been overlooked.

No margin, no mission

Balancing patient care, strategy and financial sustainability is essential. Leaders must align what's right for the patient with what’s financially right for their organization. While quality costs money, defects cost health systems even more. Sustaining improvements requires quality leaders to develop financial credibility through data-driven translation of outcomes into dollars.

For C-suite leaders, the challenge is to stop treating quality and finance as separate lanes. When aligned, the result is improved, more efficient patient care and a more resilient organization prepared for the future.