4 Means of Sustainable Cost Reductions
There's an expression that every obstacle presents an opportunity. The leaders at Denver Health and Hospital Authority in Colorado can relate. For while Denver Health has a less-than-ideal payer mix—35% Medicaid, 28% uninsured, 10% Medicare, and 28% other—and faced rapidly increasing costs, they used these challenges as an opportunity to get creative and come up with sustainable cost-saving measures.
Denver Health is a safety-net system and the largest provider of care to uninsured and Medicaid patients in Colorado. In 2010 it averaged $374 million of billed charges from uninsured patients, or nearly a third of the system's total billed charges.
As any healthcare financial leader knows, collecting from the uninsured is a challenging task. Denver Health's collection rate on the $374 million was roughly 5 cents on the dollar, with the rest categorized as bad debt and charity care. Healthcare leaders bemoan such losses, but they can also inspire creative thinking, because if a healthcare organization isn't making money from its patients then it needs to save money elsewhere.
Denver Health CFO Peg Burnette, CPA, says that back in 2005 the organization's cost growth rate was becoming unsustainable; bad debt and charity care were draining the bottom line, while the cost per unit of service was increasing. Under the direction of CEO Patricia Gabow, MD, the organization began seeking creative ways to contain costs. Beginning with the revenue cycle, Denver Health chose the Lean Production Model as the performance improvement methodology to turn things around.
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