Payers for medical care have begun a journey toward quality-related payments. This trend soon will shift the way health care organizations earn their margins.

Well-practiced habits of volume-based planning will not disappear. But health care organizations will need to develop new habits for making their margin. The more successful organizations will be those that learn how to budget for nursing not only as a fixed cost, but as a source of higher payments.

The Coming Margin Shift

So long as payments are volume-based, hospitals will plan for positive margins in three basic ways. They will:

  • increase the volume of services contributing to positive margins;
  • limit the volume of services where margins are bad;
  • reduce costs relative to the expected volume of any service.

These methods reduce labor costs, which makes sense for hospital leaders focusing on volume, as labor accounts for about two-thirds of hospital costs. Labor costs, at least theoretically, can be reduced to some degree without affecting quality or safety.

But achieving a positive margin through volume-based planning alone became more difficult when President George W. Bush signed the Deficit Reduction Act in 2006. Hospital-acquired conditions, such as some infections, falls and pressure ulcers, now generate unreimbursed costs — particularly extra length of stay — for which volume and labor cannot readily be adjusted. For financial as well as quality reasons, hospital leaders have learned to focus more attention on improving care processes.

The Patient Protection and Affordable Care Act also has made it more difficult. In 2013, 1 percent of hospitals' Medicare payments will be at risk under value-based payments, increasing to 2 percent in 2017. Penalties for certain 30-day readmissions start at 1 percent of reimbursement in 2013; they increase to 3 percent for a broader range of diagnoses in 2015. All told, QRPs are expected to account for at least 7 percent of hospitals' Medicare payments by 2017.

What these QRP methods mean, in practical terms, is that health care organizations are in competition with each other. Those earning the highest quality marks will earn more. Those earning the lowest marks will earn less.

QRPs will increase no matter how politics play out — because they work. And their impacts will run beyond the financial. In the future, to have a positive margin, hospitals will walk a narrow volume management path while climbing a mountain, hand in hand, with teams working at the unit level.

Nurses: Your Mountain-Climbing Partners

The margin shift may not radically alter marketing, purchasing, supply stream management, payroll, accounting, or coding and billing. However, at the edges — where hospital margins will be found in the future — the tactics that once produced optimal volumes at the lowest cost will not often produce the best performance at optimal cost.

First, hospitals' go-to source for trimming costs — nursing labor — will become their most important asset for success. It sounds odd when it has long made sense to adjust nursing labor to fit volume models. But nurses are a hospital's primary agents for care processes.

In the March 17, 2011, issue of The New England Journal of Medicine, Jack Needleman and colleagues show that lower nurse-to-patient ratios are associated with mortality and other poor outcomes. The Agency for Healthcare Quality and Research has supported studies showing that matching nursing skills to patients' needs improves patient outcomes. Nursing has a larger impact on patient satisfaction than any other single factor. Indeed, it is no accident that nursing-sensitive indicators were among the first items included in QRPs by the federal government and now some private payers.

The 2011 Report on the Future of Nursing from the Institute of Medicine notes: “By virtue of their regular, close proximity to patients and their scientific understanding of care processes across the continuum of care, nurses have a considerable opportunity to act as full partners with other health professionals and to lead in the improvement and redesign of the health care system and its practice environment.”

The value-based payment measures that will redistribute a margin's worth of hospital payments in 2017 show how essential nursing is to hospitals' future success. Two-thirds of survey ratings from the Hospital Consumer Assessment of Healthcare Providers and Systems, and many clinical process measures under VBP, are affected by what nurses do.

Getting the Most from Your Climbing Partners

How can hospitals get the most value out of nursing and thus succeed under quality-related payments? The IOM's Report on the Future of Nursing also says this:

  • Nurses should practice to the full extent of their education and training.
  • Nurses should achieve higher levels of education and training through an educational system that promotes seamless academic progression.
  • Nurses should be full partners with physicians and other professionals in redesigning health care.
  • Effective workforce planning and policymaking require better data collection and information infrastructure.

Here are other suggestions for leaders that I offer from my research:

  • Collaborate with colleges to train nurses in your community.
  • Recruit, hire and promote to nurses' personal and professional aspirations.
  • Support ongoing development of leadership competencies appropriate to nurses at all levels.
  • Foster measurably effective teamwork at the unit level that aligns nurses' personal and professional aspirations with organizational goals.
  • Retain experienced nurses with innovations that speak to their aspirations, like professional memberships or monthlong sabbaticals to conduct evidence-based studies.

Reaching Peak Success in the Future

Stuart Bunderson of Washington University in St. Louis studies people who experience work as a calling. Such people feel a moral duty to their work. This means they are willing to make sacrifices to serve. They are more present, more persistent and more productive. And a group's shared moral duty promotes strong group identification, giving meaning to their work lives. Many nurses want to feel a strong sense of calling and professional identity.

Hospital leaders can succeed better with QRP methods by encouraging nurses' personal and professional aspirations. Together, leaders and nurses can climb toward excellence in the pursuit of margin.

Richard Bogue, Ph.D., F.A.C.H.E., is the president of Courageous Healthcare in Orlando, Fla., and a lecturer at the University of Iowa College of Nursing in Iowa City.