Healthcare CEOs Reveal Cost-Reduction Strategies

Waste is the enemy. Not health plans, not employers, not Obamacare.

That was the message from hospital and health system senior executives who participated in discussions about cost control at our annual CEO Exchange in LaJolla, CA, last week.

We invited a select group of top leaders to this event. Yet for all their talents, they recognize that they have very limited ability to influence what happens under healthcare reform. They can't change readmission penalties, for example.

Waste, on the other hand, is internal. It's something they can presumably control. Maybe that's why they were so excited about their accomplishments and about what is left to accomplish. It was refreshing being the moderator of a discussion that for once, didn't focus on outside influences.

Instead, our discussion was proactive, with energized CEOs sharing insights about specific internal interventions they're leading at their hospitals and health systems to help drive cost from the system while improving quality.

We started with the premise that revenue cycle and supply chain initiatives over the past several years have yielded results, but are, in a sense, "over." Senior leaders have seen the results and know what to expect from them.

While that turns out to only partially be true, what got these CEOs excited was talking about process re-engineering.

"The real opportunities going forward will be in utilization—clinical utilization," said Paul Kronenberg, MD, CEO of Crouse Hospital in Syracuse, NY.

To hear shop talk from this group around process re-engineering was somewhat of a surprise. You get used to thinking of CEOs as somewhat disengaged from the messy details of healthcare. You think they prefer to focus almost exclusively on the big picture.

In other words, they hire others to handle these matters. But what I found was a group of CEOs who are intimately engaged with strategies aimed at cutting overutilization. This means we were absolutely right in targeting the high cost of waste as a key strategic issue in which they are intimately involved.

Overutilization of healthcare services, supplies, and labor is kind of like that itch on your back that you just can't scratch. You know it's there, and it's a huge distraction. You know you have to get on with your other work, but you just can't quite put that itch out of your mind. I came away from this discussion knowing that a certain group of senior leaders has procured back-scratchers, and they know how to use them.

Crouse, for example, has made it a priority to engage significant medical staff in its clinical utilization program.

"We hired quality officers that are full time physicians in surgery and medicine who are looking not just at quality, but at utilization tied to quality," Kronenberg says.

One of Crouse's quality officers frequently sends out "did you know?" statistical emails to his colleagues referencing cost savings opportunities because often physicians don't realize the true power of their ordering pens. For example, if each ordered one less test per patient it would save the hospital over a million dollars a year.

Kronenberg says the point is not to deter doctors from ordering necessary tests, but to help physicians to remember to check whether a potential test might have recently been performed on the patient.  

Another area of emphasis is on blood utilization. Hospitals could save "about $1.06 million per hospital per year" without changing patient outcomes, says an economic report from Premier. Crouse has taken the extraordinary step of including a blood utilization officer, who is a physician, on staff to help standardize guidelines surrounding transfusions. This move has reduced the hospital's transfusion costs significantly.

The next big frontier is variation in supplies, Kronenberg says.

Mark Brenzel, CEO of Lake Cumberland Regional Hospital in Somerset, KY, a LifePoint hospital, has a supply committee made up of clinicians. They're hammering suppliers. Several manufacturers are no longer in the hospital because they wouldn't meet targets on price.

His physicians agree that quality has not suffered and value has dramatically increased, Brenzel says.

While he concedes his revenue cycle is fairly lean, Ron Paulus, MD, CEO of Asheville, NC-based Mission Health, says there's tremendous opportunity for cost savings surrounding physician preference items.

Much of his re-engineering work involves culture change, which on the surface is simple, but unquestionably is ephemeral. Mission starts with the premise of getting each patient to the desired outcome, without harm, without waste, and with an exceptional experience.

To do that better, he's employed facilitators to go through processes with patients step-by-step, so that no opportunity to eliminate waste is missed. And that includes movement. I'll explain: Mission's ED workers might walk 4 or 5 miles a day in the course of doing their jobs.

Maybe 3.5 miles of that is wasted effort. By constructing detailed value stream maps around what workers—from frontline check-in folks to surgeons—are actually doing during the day, they can consider changes to work habits that produce real cost savings. Mission backfills labor needs during the evaluations so that frontline staff can fully participate.

These value stream maps are created from both the patient's and the clinicians' perspective. Sometimes that means following patients from beginning to end as they make their way through dozens of visits.

The process sounds time-consuming and expensive, Paulus concedes, but when you consider the power of changing a practice that may be multiplied thousands of times over the course of a year, you start talking about real savings when those habits are broken—habits that don't add value in the first place.

From the data generated from these mapping exercises, Paulus says team leaders are empowered to "eliminate what you can, and what you can't eliminate, you automate. Third, if you can, you delegate to a lower-level employee, and fourth, you engage patients in what they can actively be integrated into," he says. "Those are foundational components. From that data you get surprising insights."

And surprising cost cuts. Paulus's teams go into every redesign with a 15% cost reduction target in mind. The emergency department and medical-surgical departments have already undergone this redesign, with the OR and critical care on the horizon.

What's important about all of these activities, and they are a small sample from more than 20 CEOs who participated in our discussions over two days, is that they're at least co-led by clinicians, not executives with no medical training.

And by effectively preparing early for what others will do to you, that is, reduce your revenue stream through reimbursement cuts, you'll be ready to survive and thrive in a new, less generous reimbursement environment.

This is just a taste of the insights gleaned from the 2012 CEO Exchange event that we'll be sharing with you in the coming months through a range of Impact Analysis reports. Look for one on Sustainable Cost Reduction Strategies, in which I'll share dozens more ideas with you in which your peers are succeeding. I can't wait to get started.