Healthcare Cost Control Lies in Optimizing Use of Services

There's no way around it. While your organization may still find nuggets of savings in the supply chain and the revenue cycle, the big savings going forward in cutting costs are probably going to come from utilization.

That's not an intuitive place to look for savings for hospital and health system CEOs. In fact, it's a complete departure from healthcare leadership intuition. After all, for so long, the equation was, increased utilization=increased revenues=increased profits.

But that's rapidly changing. Some of you probably think I'm looking for new ways to harp on "change" each week. But it's very true and perhaps even more important to get a head start, while your organization's success isn't totally dependent on cutting utilization and ultimately, improving outcomes.

We talked quite a lot about this trend of eliminating waste, and marrying the clinical and financial at our CEO Exchange in October. I thought I would share some of the insights as to why finding a way to begin to incorporate utilization management into the daily operation of your hospital or health system is so important.

Crouse Hospital in Syracuse, NY, led by a physician, has been quick to embrace the notion that decreased utilization will lead to increased margin, and the first step toward managing utilization to maximize patient care and minimize waste, for them, involved hiring senior quality officers, who are physicians themselves.

One of these senior quality officers recently sent an email to the entire medical staff reminding them to try to do their best to follow clinical and evidence based protocols for care because "did you know that if every doc ordered one less laboratory test per day on their patients, that it would save the hospital one million dollars?"

But his work goes beyond simple exhortation of his fellow physicians, says Paul Kronenberg, Crouse's chief executive officer.

"There's nothing more elegant than that simple statement, although we've now put in place through his leadership different ways of blocking ordering of tests in our system."

There's no way around it. While your organization may still find nuggets of savings in the supply chain and the revenue cycle, the big savings going forward in cutting costs are probably going to come from utilization.

That's not an intuitive place to look for savings for hospital and health system CEOs. In fact, it's a complete departure from healthcare leadership intuition. After all, for so long, the equation was, increased utilization=increased revenues=increased profits.

But that's rapidly changing. Some of you probably think I'm looking for new ways to harp on "change" each week. But it's very true and perhaps even more important to get a head start, while your organization's success isn't totally dependent on cutting utilization and ultimately, improving outcomes.

We talked quite a lot about this trend of eliminating waste, and marrying the clinical and financial at our CEO Exchange in October. I thought I would share some of the insights as to why finding a way to begin to incorporate utilization management into the daily operation of your hospital or health system is so important.

Crouse Hospital in Syracuse, NY, led by a physician, has been quick to embrace the notion that decreased utilization will lead to increased margin, and the first step toward managing utilization to maximize patient care and minimize waste, for them, involved hiring senior quality officers, who are physicians themselves.

One of these senior quality officers recently sent an email to the entire medical staff reminding them to try to do their best to follow clinical and evidence based protocols for care because "did you know that if every doc ordered one less laboratory test per day on their patients, that it would save the hospital one million dollars?"

But his work goes beyond simple exhortation of his fellow physicians, says Paul Kronenberg, Crouse's chief executive officer.

"There's nothing more elegant than that simple statement, although we've now put in place through his leadership different ways of blocking ordering of tests in our system."

"I don't think the public understands the sea changes that are happening with hospitalists," he says. "I'm a big advocate of standardization where it makes sense."

In Seligman's self-described "little community hospital," he has two adult medical hospitalist groups, a pediatric hospitalist group, and neurological and surgical hospitalists.

"Most important, they're experts in using our IT," he says. "That is the vehicle for so much of the standardization of process."

He says the hospitalists focus on order sets, and as part of a four-hospital system whose physicians have agreed on clinical standards, "we're able to say, as a network, that this is the way that the physicians have agreed to treat this particular problem.  We're not depriving a physician of the right to deviate from that, but we're establishing a standard and most of these orders are being written by a small group of people who work for the hospitals.  That has changed dramatically the amount of variability in practice."

The beauty of the process, says Seligman, is that not only does it drive out waste, it also drives out unexplainable variability over time, a key metric in clinical quality.

Neither of these CEOs would claim that they are close to a finished product in making this transformation, but they're implementing real change to the way they do business. If you're looking for somewhere to start, you could certainly do worse than focusing on variability and waste in the utilization chain.