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Find the Hidden Dollars in Your Hospital (Without Reducing Labor)

Analysis  |  By Jack O'Brien  
   June 06, 2019

Healthcare leaders must be proactive and clever about eliminating waste in healthcare processes, fixing those that contribute to inefficiencies in their organizations while simultaneously gaining money.

This article appears in the May/June 2019 edition of HealthLeaders magazine.

It's not easy for hospitals and health systems to bring in more money, let alone understand where they are losing it.

Compressed margins and reduced reimbursement rates currently dominate the healthcare business. Competition driven by widespread industry consolidation and challenging patient volumes also add difficulty to the financial situation. These factors lead healthcare leaders to face tough realities about how to reduce costs in an effective and efficient manner.

To ease their bottom lines, health system executives must cut waste in their organizations. But where do they look?

For many, the instinctual reaction is to reduce labor costs, offload expensive full-time employees (FTE), and learn to do more with less. After all, labor traditionally accounts for a significant portion of most hospitals' expenses—it's responsible for 50% of total operating costs, according to a 2017 Deloitte survey.

Though labor expenses may be steadily increasing, they also come at a time when hospitals struggle to maintain their existing employee rolls and attract new talent. This is especially true considering the widespread nursing and physician shortage that some industry analysts say borders on a national crisis.

So reducing labor costs doesn't cut it anymore—hospitals have been there and done that.

Leaders must be proactive and clever about eliminating waste in healthcare processes. Their focus should be how to fix the processes contributing to inefficiencies in their respective systems while simultaneously gaining money.

HealthLeaders spoke with three healthcare executives who share cost-cutting ideas that don't include reducing labor. These ideas include a clinical-based approach, a financial fix, and a hybrid solution, all of which help healthcare organizations find those hidden dollars.

Erase waste with ERAS

Prior to assuming his CEO role at the American Association of Nurse Anesthetists in 2017, Randy Moore, DNP, MBA, CRNA, served as the director of perioperative and anesthesia services at Passavant Area Hospital in Jacksonville, Illinois.

Moore says that through his experience in hospital leadership, one of the most important ways to cut costs in healthcare processes is to decrease clinical variation.

This sentiment is shared by Lance Robinson, managing director of performance improvement at Kaufman Hall in Chicago. To make your organization more efficient, Robinson says, it is crucial to address clinical variation by controlling unnecessary variation as well as examining length of stay and care transitions to improve turnaround times for patients.

A foreign concept

Moore recommends that system leaders implement a foreign concept into their hospitals—quite literally—by using enhanced recovery after surgery (ERAS) protocols. This surgical process has been popular in Europe since the mid-1990s, as national health insurance programs prompted hospitals to conserve limited resources.

According to a 2011 study published in Canadian Urological Association Journal, ERAS protocols seek to "achieve early recovery after surgical procedures by maintaining preoperative organ function and reducing the profound stress response following surgery." The study lists the key elements of the protocols as "preoperative counselling," "standardized analgesic regimens," and "early mobilization," all of which are reliant on surgeons, anesthesiologists, and nurses working closely together.

Simply put, ERAS modifies the standard orders for patients prior to surgery as well as the approach used by surgeons and anesthesiologists during the procedure.

According to Moore, patients no longer need to abide by prolonged fasting periods prior to surgery, opioids are used sparingly during the procedure, and "multiple methods" are used to control pain, including the use of regional anesthesia.

But ERAS has not enjoyed as much widespread adoption in the U.S. healthcare system. This is partly due to high up-front costs that cause sticker shock as well as the need for instituting a multidisciplinary model reliant on a sizable leadership structure, says Moore. According to the study, ERAS protocols challenge the "traditional surgical doctrine," so implementation thus far has been slow in the U.S.

However, with the proper scale and clinical leaders overseeing the protocols, length of stay rates are reduced considerably and cost savings improve in the long term, says Moore.

A case for ERAS

Moore cites Johns Hopkins Hospital (JHH) in Baltimore as one organization that has implemented ERAS effectively, debuting the protocols in 2013.

"The ERAS protocol is a great example of an initiative we pursued at JHH that was intended to achieve the triple aim: improve health, reduce per capita cost, and improve the experience of care," says Claro M. Pio Roda, DrPH, who has served as CFO of Howard County General Hospital in Columbia, Maryland, since January 2018.

According to a 2015 Johns Hopkins School of Medicine doctoral thesis authored by Pio Roda, initial startup costs for the colorectal ERAS program at JHH totaled more than $175,000. The thesis study found that the "moderate scenario," based on average inpatient cost savings of $1,240 per case, produced a return on investment of 67% and an internal rate of return of 93%.

Pio Roda says the study calculated an incremental margin as a result of the additional cases JHH was able to treat by implementing ERAS. However, he also notes that the margin was partially offset by new operating costs associated with the program, including staffing, education materials, and supplies.

A follow-up study published in the Journal of the American College of Surgeons (JACS) in 2016, to which Pio Roda contributed, found U.S. hospitals that implemented ERAS protocols experienced a reduction in length of stay by 1.4 days.

Pio Roda says "the average cost savings per day tend to vary depending upon whether staffing costs are included," adding that the assumption is staffing costs will go away if length of stay decreases. He also mentions cost reductions "do not automatically happen," citing the fact that nursing staffing is not "perfectly variable with patient days."

In the JACS study, patient satisfaction rose from the 37th to 97th percentile as a result of ERAS implementation. First-year costs attributable to ERAS totaled $552,783 while savings reached $948,500, for a net savings of $395,717, according to the JACS study.

Pio Roda says JHH has continued to track the cost reductions associated with its colorectal ERAS program, reporting an average variable direct cost savings of $1,864 per case in the current fiscal year, 50% higher than the savings in his 2015 calculations. He says that for about 500 cases per year, this amounts to approximately $945,000 in annual savings, close to those calculated in the JACS study.

ERAS expands

"Even before the ERAS project was identified, the philosophy of our executive leadership that led to the collaborative was that if we focused on improving clinical quality, the financial benefits would follow," Pio Roda says. "This was another important factor in engaging the support and enthusiasm of the frontline clinical staff. It was much easier to engage them in a quality initiative than a cost-savings initiative."

Based on the program's internal success, the Johns Hopkins Armstrong Institute for Patient Safety and Quality rolled out the ERAS protocols to more than 750 hospitals nationwide in 2017. The effort was also supported by the American College of Surgeons, which pledged to provide a toolkit and senior executive to help trainees "overcome any barriers they may face."

While JHH has expanded its ERAS protocols to apply to different surgical pathways, Pio Roda says interested hospital leaders should start using ERAS with the colorectal surgery track based on its proven record of success. He also emphasizes the need for a collaborative approach to ERAS based off a multidisciplinary team led by "influential physician champions," with engaged frontline clinicians and supportive executives in the hospital administration.

For Moore, the results produced at JHH speak to the potential of the protocols.

"That moves the needle, that is real money, and that is a huge impact," Moore says. "I would go as far as to say that regardless of whether you're Johns Hopkins or a community hospital in central Illinois, you can make a pretty compelling financial case that ERAS, if done well and sustained, will result in better patient outcomes and lower costs."

Reconfiguring the revenue cycle

While leaders can look at restructuring clinical operations to recoup business, there is certainly ample opportunity to eliminate waste in revenue cycle management (RCM).

Deonne Henry, vice president of revenue cycle at Magnolia Regional Health Center (MRHC), a multispecialty hospital in Corinth, Mississippi, says she utilizes Lean to drive out inefficiencies and has applied it to the organization's RCM since arriving in 2016.

Her approach to optimizing RCM includes methods that MRHC had not previously attempted and that have delivered meaningful savings without reducing FTEs. And while MRHC has brought in some automated services offered by third-party vendors to home in on changes to RCM, the majority of the organization's operations are run in-house.

"According to our financial employees, the greatest gain we've achieved simply comes down to our accounts receivable (AR) days and our cash on hand," Henry says. "When I started at MRHC, we were at 58 days in AR, but by 2018 we had reduced those down to 46 days. Our collections got better, our cash on hand got better, and our coding got better. And the way we've done that, we started to set goals together in a collaboration that we all agreed on."

As MRHC's AR days declined, its cash-on-hand days grew from 85 days in 2017 to 99 days by the end of 2019, while also seeing the total profit margin percentage jump from -7.8% in 2017 to

3.4% in 2018. Similarly, debt service coverage increased from 1.2% in 2017 to 2.1% in 2018, and debt-to-capitalization ratio rose from 114.1% in 2017 to 127.7% in 2018.

Pay upon arrival

Henry says the streamlining process in her revenue cycle department began when she realized that a large portion of waste could be eliminated by addressing issues at registration areas, making them more "patient-centric." At the time, MRHC's manual patient insurance verification process was helmed by one employee and caused massive inefficiencies in the organization's system.

"The primary goal in the beginning was to preregister patients and collect payments prior to arrival or preregister and collect upon arrival for those who did not desire to pay over the phone," Henry says. "We knew that if we wanted patients to preregister, we had to eliminate any waiting upon arrival. The goal was to expedite them to the test area and bypass the waiting to complete paperwork and demographics."

MRHC uses a tracking system that classifies patients into three preregistration categories and allows the front desk clerks to verify at registration the pre-populated patient's financial status. According to Henry, the three categories are: patients who paid within payment plans, those who pay upon arrival, and those who are unable to pay.

"Clerks know upon arrival that patients are preregistered and paid or merely needing to pay," she says.

Patients who are unable to pay meet with clerks to obtain financial assistance applications, she says.

In an additional effort to bolster preregistration and secure payment prior to an appointment, MRHC offered patients discounts ranging from 25% to 50% for preregistration, which Henry says resulted in up-front collections of $1 million in 2017 and $1.2 million in 2018.

"We knew in order to convince patients to preregister and pay prior to services rendered, we needed to make it enticing. So we developed prompt-pay discounts," she says.

With the comprehensive preregistration implementation, wait times fell from nine minutes in 2017 with nine full-time clerks working on this task, to four minutes in 2019 with five full-time clerks.

This strategy worked so well for the hospital that it has also applied streamlining processes for RCM backend operations, Henry says.

Consequently, MRHC's newest focus is on claims and denials, which sits at about 8%—"a tremendous gain," says Henry, one that is also within the industry average of 5%–10%, according to the American Academy of Family Physicians.

"You can't eat the elephant all at one time," Henry says. "If we're going to eat it one bite at a time, we're going to focus on the 80/20 rule to identify the 20% of our problems that cause 80% of issues. Then, we can focus on the 20% of activities that would account for 80% of returns."

The triage treatment

Bill Manns, MHSA, who in October 2018 became president of St. Joseph Mercy Ann Arbor and Livingston hospitals in Ann Arbor, Michigan, has a proven résumé when it comes to cost cutting.

After years spent in executive positions at both Trinity Health and Ascension Health, he served as COO of Alameda Health System in Oakland, California, where he led a $23.1 million financial turnaround for the organization.

A self-described "Lean nerd," Manns says he is focused on utilizing cost management processes in his new job in Michigan but is also emphasizing a bottom-up approach to identifying areas for improvement.

"In my [more than] 27-year career, [hospital executives] haven't asked enough questions," Manns says. "We haven't gotten the executive suite to the shop floor of the hospital to actually see what is happening. We assume a lot, and I think that's kind of dangerous."

While Manns has only been at St. Joseph Mercy Ann Arbor and Livingston hospitals for a short time, he cites examples of how he found hidden dollars while in his former roles at health systems through a hybrid approach involving clinical projects and strategic organizational solutions.

Before Manns' current position, he served as president of Mercy Health Saint Mary's in Grand Rapids, Michigan, for five years, and he says he set out to better the patient experience in the hospital's emergency department (ED) by cutting out wasteful processes. Manns says his first move was to bring the nurse leaders out into the waiting room to round on patients and explain the treatment process.

This approach later evolved from the nursing side into another area of clinical operations at Mercy Saint Mary's.

Manns says he decided to institute the providers in triage (PIT) policy, which he says resulted in the hospital witnessing its most significant change in metrics: a decrease in average length of stay from 339 minutes to 270 minutes.

The PIT policy was born from a vertical patient review, an analysis that broke down the patient flow from registration to the waiting room to triage as well as other aspects of the healthcare journey.

The goal of the clinical mission was to have providers meet patients where they were rather than shuffling them around after being admitted. Manns says the vertical patient review applied to patients experiencing approximately 50 conditions, ranging from urinary tract infection to pain and rashes.

"We don't have to spend a lot of money on new capital equipment, the latest and greatest machine to do X, Y, and Z," Manns says. "Let's actually have the providers out front engaging with the patients coming to see them versus having the patients register, sit down, come back, get triaged, sit down, and come back to ask how long it's going to take. Let's have the providers there to greet them and demonstrate respect for them. When patients see that, they tend not to leave and they're seen quicker."

The results of these actions caused the patient-left-without-being-seen rate to fall dramatically, from 3.02% to 0.42% over a six-month period. This decline in patients leaving the facility prematurely also helped Mercy Saint Mary's recoup lost business, providing the hospital with $567,193 in additional revenue for fiscal year 2018.

"If you think in terms of win-win, the emergency medical group wants to take care of more patients, and if we can decrease the left-without-being-seen [rate], then they get to see more patients and provide more services," Manns says.

"I think [it was key] getting [providers] involved early, helping them understand the 'why' behind it, as well as our role within the community to provide services," Manns says. "This was opposed to giving [providers] one more thing to do or dictating to them that they needed to come out front and see patients."

Manns adds anecdotally that patients reported to the organization a greater willingness to sit and wait because they knew that the first person they were going to see was a provider.

Social worker–led efficiencies

In addition, Manns says St. Joseph Mercy Ann Arbor implemented the Complex Care Social Work (CCSW) program, which allows social work teams to better engage with frequent ED users by anticipating patient volume trends.

The CCSW team helps with enrolling patients for insurance coverage, Manns says, along with scheduling appointments and arranging transportation, as well as providing additional community support to address patient social determinants of health.

Similar to the PIT program at Mercy Saint Mary's, the results have been positive. Since CCSW was implemented in January 2017, the program has helped reduce patient hospital utilization by 56%, says Manns, and ED visits fell from 401 before CCSW to 315 afterward, while inpatient stays decreased from 163 to 146 after implementation.

"The approach isn't just about how we want to cut costs, it's more about how we interact and become more efficient and how best to use our resources," Manns says.

During February 2019, the CCSW accounted for a 28% decrease in inpatient stays at St. Joseph Mercy Ann Arbor, along with a 17% decrease in overall hospital utilization year to year and a 13% decrease in ED visits.

While the implementation of CCSW and PIT made a noticeable impact on the health system's financial standing, Manns says, the changes have also ensured that sick patients do not forgo necessary care. The clinical and financial issues are interrelated, Manns says, and share an equal importance.

"For me, it's about how we engage the men and women who are taking care of our patients and ask them how we can do it better," Manns says. "The healthcare costs continue to increase, and I think we are approaching this dangerous tipping point where the general public is going to push back. It's not a tenable scenario, so we have to find better and more creative ways to drive out waste, because we can't keep doing the same thing we've been doing for the past 30 years."

Correction: The CCSW was instituted at St. Joseph Mercy Ann Arbor.

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.


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