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Health System's Value Transformation Initiative Cuts Costs by $53.9 Million

Analysis  |  By Christopher Cheney  
   June 24, 2019

Over a three-year period, NYU Langone Health was able to cut costs while maintaining clinical quality.

A value transformation initiative at NYU Langone Health (NYULH) in New York generated net cost savings estimated at $53.9 million over three years, according to a new medical journal article.

U.S. healthcare spending surged from 4.4% of the gross domestic product in 1950 to nearly 18% in 2016. U.S. per-capita healthcare spending is higher than any other industrialized nation, but healthcare quality ranks at the bottom of industrialized countries.

The new journal article, which was published in BMJ Quality & Safety, provides insights and direction for other health systems seeking to boost the value of care, the article authors wrote.

"Overall, we were able to achieve and sustain substantive cost savings at a major academic medical center while maintaining quality of care, thereby increasing the value of care provided. In an era of increasing value consciousness, our program provides a template for effective conduct of similar work at other institutions," they wrote.

The value-based initiative featured 74 projects in four primary areas:

  • Supply chain management such as surgical trays
  • Operational efficiency including improvement of discharge processes
  • Care of outlier patients such as individuals at the end of life
  • Resource utilization including blood management

The initiative has several key differences compared to value-based efforts at other health systems, the journal article authors wrote. "It integrates the cost-accounting strengths of some initiatives with the clinician-led and front-line-driven agenda of others. It does not consist of a few high-profile, major projects, but rather dozens of smaller ones. Moreover, unlike most other published programs, this initiative was institution-wide, not limited to a particular department."

Value-based initiative results

The value initiative was launched in April 2014, and examination of the effort's impact collected data from more than 160,000 hospitalizations through December 2017. Several positive impacts were generated:

  • Adjusted variable costs fell 7.7%
  • Admissions with medical diagnosis related groups (DRGs) were reduced an average of 0.2% per month compared to pre-initiative levels
  • In comparison to other teaching hospitals, expense per hospitalization improved from 13% above median to 2% above median
  • Length of stay was reduced by about half a day
  • Total cost savings were estimated at $59.3 million, with about $10.3 million in savings for medical patients and $49.0 million for surgery patients
  • Annual intervention costs were about $1.5 million, so net savings were estimated at $53.9 million

Initiative leadership and shared savings incentive

In 2014, NYULH formed a value-based management task force to lead the initiative.

The health system's chief medical officer served as chairman of the task force. Two deputies reported directly to the task force chairman—a project leader with an MBA degree and a clinical leader who was a practicing hospitalist. The deputies' responsibilities included project prioritization and oversight as well as meeting with stakeholders for new projects. The task force leadership also including all hospital-based vice deans and senior vice presidents.

Health system departments that posted costs below projection received shared savings averaging 25%. The level of shared savings was determined based on performance metrics such as length of stay. Shared savings funding was expected to be used for department-specific value improvement programs such as supporting physician salary time that was dedicated to value-based efforts.

Keys to success

According to the journal article, there were eight contributing factors to the value initiative's success:

  • The effort was launched by the dean and CEO, and it was sponsored by the chief operating officer, which demonstrated institutional commitment
  • The program was data-driven, including urgency to address unsustainable Medicare losses, robust cost-accounting, and a centralized performance dashboard
  • To motivate clinicians, performance improvement was compared to other high-quality but lower cost academic medical centers
  • The focus of the initiative was value rather than cost reduction—every effort accounted for both quality and cost
  • Most projects had significant information technology elements, and there was vigorous support from the health system's chief information officer and information technology staff
  • The deputies to the task force chairman were a clinician and an MBA-degree holder, which helped ensure that clinical and business considerations were at play in every project
  • The initiative's shared savings program boosted alignment between individual departments and the health system
  • High-quality project managers were "the lifeblood" of the initiative

Christopher Cheney is the CMO editor at HealthLeaders.


C-Suite leadership played a crucial role in NYU Langone Health's value transformation initiative.

Rather than focusing on a handful of major projects, the health system's value initiative featured dozens of relatively small projects.

A shared savings program aligned the value-driven goals of individual departments and the health system.

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