The Cost Containment Struggle
Charles E. Hart, MD
President and CEO
Regional Health, Inc.
Rapid City, SD
Chief Financial Officer
Our Lady of the Lake Regional Medical Center
Baton Rouge, LA
Paul Kronenberg, MD
Senior Leadership Editor
HEALTHLEADERS: Why is revenue cycle still such a high priority even though hospitals have been concentrating on it for years?
LIMBOCKER: Revenue cycle is a large one for us, but we're not only trying to plug remaining holes in the revenue cycle, we're also trying to automate it. There are a lot of costs on both the hospital and the payer side in processing claims. We're also always looking at labor productivity, and supply chain is, from a benchmarking perspective, what might be our largest opportunity at this point.
KRONENBERG: Our first effort was around the supply chain, and we got input from the hospital staff in addition to people in materials management and purchasing. We formed several committees, collectively called the supply expense reduction task force, that developed several value analysis teams. They've even looked at what doctors order in lab testing. So there were a lot of opportunities, for example, in smoothing out how certain tests were ordered so that they would not be duplicated. Certain tests don't make any sense to do more than once during a hospitalization, yet if people didn't find the result, they would order the test again. Now they order one, and that one method saved close to $100,000 a year. What we haven't done on the revenue cycle, which we're paying attention to now, are things like point-of-service collections. Energy is also an opportunity. There are grants for energy efficiency. We have significant steam costs. These are things that we're looking at as well. Just replacing a lot of the electrical fixtures is going to save us a few hundred thousand over a multiyear period.
HART: In the revenue cycle, we feel like we're pretty well down the chain. What I see as one of the biggest challenges for us in the revenue cycle isn't truly a cost saver, but it's something that's going to affect our reimbursement, and that's patient satisfaction. The area of billing and how confusing it is—that customer service side of it—is where we're at now with our revenue cycle. That said, we have cut our accounts receivable days down from 87 to about 50 over the course of about two years. When it comes to supply chain, we've taken that to a whole other level. Premier, our GPO, helped us create a new corporation to aggregate our purchases with a sister institution. Now we have 40?50 hospitals in our group purchasing collaborative within our GPO. Our greatest opportunities are in construction, capital purchases, and supplies. Construction represents about $110 million next year with an opportunity to save 2%?4%. Last year, combining group purchases of CT machines saved us $30,000 per machine. By combining 42 contracts between organizations, we saved $1.5 million last year. This concept allowed a small rural system like us to obtain the purchasing power of a much larger organization without sacrificing our independence.
KRONENBERG: It's clear that size matters when it comes to purchasing, and through our GPO and VHA we can put together such collaborative efforts, but you have the benefit of being in a system already, linking with another system to double or triple or quadruple your purchasing power.
LIMBOCKER: We've joined with a larger healthcare system for some vendor contracting; I call it almost a mini-GPO. They developed their own GPO and went out and sought other partners similar to the situation Dr. Hart described. We started about nine months ago and the early returns are positive.
WAITER: Some of our clients who see what's coming with healthcare reform want to get ahead of it and start managing costs proactively. Some others are slow to adapt. A lot of our clients see the value in productivity management—not only setting labor productivity standards. The real benefit is to have the discipline to monitor, measure, and manage labor productivity on a biweekly or weekly basis. Clinical operations are the most difficult areas to tackle, but are the most important in order to ensure that labor costs are not creeping out of control.
KRONENBERG: We're all living in a fee-for-service environment, moving (hopefully) to a different delivery system. So we have been dabbling with the future as we live in the present. We started a few programs initially with grant support and we continued them around transitions of care. We were one of the first hospitals, believe it or not, to have the transition coach program around congestive heart failure. We've had it for four years. We've had experience with a trained nurse making visits in the patient's home, looking at their medications, making sure that they have a follow-up appointment, making sure that they become more self-sufficient so that they learn how to care for themselves rather than running to the emergency room. We've had some preliminary success, but right now, until we get penalized for readmissions, all the good work is hurting us a little bit in the current fee-for-service environment.
HART: The schizophrenic reimbursement environment makes this extremely difficult. I feel the same way. I feel like I know where we need to go, and a lot of our people feel like we need to go now, but getting there is so difficult without payment reform. It'll take your labor productivity standards and just blow them up because you need to add additional resources. I always tell my board I feel like I've got one foot on the dock and one foot on the boat. We've gotten into grant programs where we have coaches working with patients with chronic, complex diseases. That's been a very successful program for all parties. But now that the grants have run out, how do we continue to sustain it because we're not reimbursed for these services? In reality we are penalized for doing the right thing.
LIMBOCKER: We're in a catch-22 as healthcare leaders. The one thing we know is that our fee-for-service payment is going down, especially relative to inflation. What we don't know is how fee-for-service would be replaced. The ACOs are quasi-capitation models to some degree. So we're all focused on cost reduction. You're so focused on cost reduction, yet you want to plan for the future, invest in care across the continuum and preventive health. We've recently used our employee health insurance population to try health coaches and a medical home that we developed a couple years ago. The program is called Healthy Lives and our intention is to use it with the employee base, and then perhaps go from that point to commercial payers.
HEALTHLEADERS: The emergency department and surgery represent the biggest challenges in improving efficiency according to the survey. In what clinical areas are you having the most difficulty in finding efficiency and improvements?
HART: A lot of it has to do with what happens outside the emergency department. You get a patient ready to admit, and maybe there's not a bed ready or radiology is backed up. I believe the biggest opportunity in the emergency department is the unnecessary testing. The number of CT scans or lab tests that are unnecessary is huge. They are performed for legal reasons, patient expectations, or as a standard protocol. There's a lot of opportunity there if we can change those expectations, risks, and institute evidence-based medicine. If you document a good reason for not doing a test and explain it to your patient, you're going to be in good standing legally as well as meeting your patient's expectations.
KRONENBERG: I do agree that the ED is the most challenging area because of the mix of patients. One of the biggest problems is the overutilization of emergency departments. People are using that service as primary care because of the lack of primary care physicians or access to them. Maybe we should think about whether or not that should be the primary care delivery service for certain subsegments of patients who don't have chronic conditions.
HART: I've always been amazed with the amount of interest in stopping people from going to the emergency department. But the emergency department is a fixed cost. It's going to be there regardless—quite a bit of it—so to focus so much energy on this part of the cost equation is the wrong approach. It's such a small part of the larger equation.
- CEO Exchange: Preparing for Population Health
- Advocate, NorthShore Deal Would Create 16-Hospital System
- Interventional Radiology No Longer a Sub-Specialty
- Top Reason for Nurse Turnover: Managers
- CEO Exchange: Pressure is On to Partner, Drive Quality
- Power of price: In South FL and the nation, healthcare costs often are shrouded in secrecy
- 3 Strategies for Retaining Millennial Employees
- Two NY hospitals to offer free hip and knee replacement surgeries for qualifying patients in December
- Hospital mergers may lead to higher prices
- Healthcare data of 1 million NJ patients compromised since 2009