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5 Cost Reduction Priorities for CEOs

Rene Letourneau, for HealthLeaders Media, November 11, 2013

"We realize there is only so far we can go [with labor and supplies] so we are looking at other areas that might be big picture areas as far as utilization, evidence-based medicine, blood utilization, and we're really trying to work with the medical staff to get that alignment around those cost reduction areas," Thibodeaux says.

J. Thomas Jones, president and CEO at West Virginia United Health System in Fairmont, says he and his executive team are looking to their best clinical performers for ways to trim utilization throughout the system.

"What we are concentrating on now is really finding in each of our system's hospitals what produces the best outcomes at a lower cost and how we get buy-in across the system to do it the same way in every system hospital," Jones says.

Michael Rowan, executive vice president and chief operating officer at Englewood, CO-based Catholic Health Initiatives, agrees that physician utilization should be a key area of focus, especially because his organization is moving to risk-based payer contracts in which high utilization of expensive resources could result in financial penalties.

"We're big on trying to get focused on the clinical side... to manage utilization and clinical variability," Rowan says. "We also need to address and prepare ourselves so we don't get into short-term thinking. If we look at a typical patient and how much outpatient diagnostic testing they get, we haven't evolved from thinking of it as revenue to thinking that it is an expense. We've got enough markets and enough contracts out there where those things really are expenses now, and so we have to look at how we make that mindset shift."

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4 comments on "5 Cost Reduction Priorities for CEOs"


Tom O'Brien, Sr VP Healthcare (12/12/2013 at 10:34 AM)
Two paths to success... 1) Cost must be at the transaction/process level. TDABC costing has been the best source for this (see Harvard Business Review, "The Strategy That Will Fix Health Care" by Michael E. Porter and Thomas H. Lee in the October 2013 - page 11) 2) Change management. EVEN if you have good data to share with the physicians a strong change acceleration process is key. Data alone will not get you to the finish line!

Rob Tholemeier (11/29/2013 at 11:56 AM)
One of the things I have been looking for is the use of activity based costing in HCOs, which seems to be almost unheard of. I do not see how you can effectively reduce costs unless you know them. In labor intensive industries, with high paid labors, it seems like the adoption of activity based costing is a pre-requisit. Rob Tholemeier Chilmark Research

Stefani Daniels (11/12/2013 at 1:39 PM)
Back on July 14, 2008 HealthLeaders Media published an article 'The Myth of Length of Stay." In it, I presciently entreated execs to stop their slavish focus on LOS and instead focus on cost per case...it is the last pool of untapped opportunities to drive costs down. The volume of excessive, wasteful, and duplicative interventions that physicians prescribed is well known to those of us who have been on the front line. I'm delighted that execs finally see the light - though not surprised it took so long.