Skip to main content

How Yale-New Haven Health System Cut Spending by Millions

Analysis  |  By Christopher Cheney  
   October 06, 2016

Embarking on a "quest for unparalleled value," YNHHS has pared down spending system-wide in four categories.

This article was originally published on May 2, 2016.

A health system associated with one of the country's most respected institutions of higher learning is learning how to adapt to leaner times in the healthcare industry.

Last week, Yale-New Haven Health System, which operates three hospital campuses in the south-central region of Connecticut, co-hosted the first annual National Symposium on Value Innovation at Yale.

During a break at the symposium, Stephen Allegretto, CPA, MPH, who serves as vice president of strategic analytics and financial planning at YNNHS, told me the health system's leadership saw reimbursement cuts coming to Medicare and Medicaid in 2012. "We looked to the future and said, 'Whoa, our revenue is going to dry up. We need to look at this and see how we are going to get money out of the organization,' " Allegretto said.

In her keynote address launching the Yale symposium, YNHHS President and CEO Marna Borgstrom, MPH, said the health system's leadership has been committed to generating value for patients as opposed to emphasizing cost-cutting alone. She described the effort as a "quest for unparalleled value."

"It's not about what we can do, or what we need. It's about generating value for our patients," she said.

On the quality and patient safety side of the value equation, YNHHS has adopted several initiatives over the past four years such as the development of rapid response teams and the deployment of predictive analytics in clinical settings that have contributed to significant gains in patient outcomes. At YNHHS's St. Raphael Campus, those actions have generated a 30% mortality rate reduction.

In September 2012, YNHHS spent $160 million to acquire the former Hospital of Saint Raphael, a struggling safety-net hospital in New Haven located about a quarter mile from the Yale-New Haven Hospital campus. The deal created a 1,541-bed, dual-campus hospital in the heart of the city.

Largely through consolidation of clinical services and achieving economies of scale linked to the Saint Raphael acquisition, YNHHS was able to achieve a one-time cost-savings of about $200 million from the acquisition deal, Allegretto said. According to Richard D'Aquila, executive vice president of YNHHS and president of Yale-New Haven Hospital, regulatory commitments helped drive the consolidation strategy, he told a symposium audience. "There was one hospital, one provider number, one model for clinical services."

Sustainable Cost-Cutting Initiatives
YNHHS was able to additionally reduce spending by about $150 million from 2012 to 2015, and the figure was a focal point at the symposium.

Related: Get Comfortable With Bundles

The organization had set a target for $125 million in cost savings over the four-year period, primarily in four categories:

  1. Human resources
  2. Clinical redesign
  3. Non-labor
  4. Labor

"We beat our target, and it is sustainable," Abe Lopman, senior vice president of operations at YNHHS, told an audience at the event.

Patient care accounts for about 83% of the health system's annual spending, so cost savings from clinical redesign were the biggest slice targeted for spending reductions, at $60.8 million. Actual costs savings from clinical redesign were $33.4 million, but the shortfall was not surprising, Lopman said. "This is something that has to be part of your culture. It takes time to do it. Over time, we expect it to be better."

The health system was able to exceed its cost-savings projections in three areas: human resources, labor and non-labor. The total cost savings targeted in those areas was $64.2 million, with $116 million in actual cost savings achieved.

Allegretto told me the $150 million in spending cuts were modest when calculated on an annual basis—he estimates the annual impact on YNHHS's total budget at less than 1%—but meaningful for the health system, nonetheless. "For us, it sounds like a lot of money, but we are a $3.2 billion organization," he said.

Furthermore, the spending reductions, combined with the Saint Raphael acquisition and other positive impacts on the health system's bottom line associated with value-based initiatives, has enabled YNHHS to eliminate 250 open positions and avoid laying off as many as 250 employees over the past four years, Allegretto said.

"It's going to get increasingly more difficult to avoid laying people off as [reimbursement] cuts continue; so when you look at that $150 million dollars, I look at it as an incredible achievement. And we've kept it out of the system, and that's the most important thing."

Although several initiatives have helped YNHHS get closer to achieving success in the health system's quest to provide unparalleled value for its patients, he told me a handful of factors made the launch of the effort four years ago possible, including the adoption of a Quality Variation Indicators methodology.

The QVIs feature 27 summary categories of negative clinical outcomes such as implant complication, transfusion reaction, air embolism, drug poisoning, shock, infection, and obstetric trauma. "We had this external urgency [from declining reimbursement]. We had EPIC going in, so we would have the capacity to standardize care. We had just come up with the QVI methodology. And then we were at a place where people started trusting the cost-accounting data… Those four things came up at the same time, and because the leadership saw the future, we started our cost-value initiative."

'Change is Going to be Difficult for Healthcare'
As is the case with any Herculean quest, YNHHS has faced several challenges implementing value-based initiatives over the past four years.

Convincing the health system's clinical staff about the importance of cost accounting to help secure the organization's ability to serve patients well into the future has been among the hurdles, Allegretto told me.

Teaming financial analysts with clinical staff has been an essential element in educating frontline caregivers about cost accounting, he said. At YNHHS, there are at least two financial analysts working in every service line, and they are paired with senior nursing staff. "It's a team approach to that education. There is not a sheet of paper that you give them, and say, 'Here are the concepts.' It's relationship-building. I can't point to three pieces of paper and say, 'Here are the educational materials that we gave to physicians.' "

From October 2015 to April 2017, YNHHS is hoping to generate as much as $3.5 million in cost savings from hip and knee replacement procedures in the federal Bundled Payments for Care Improvement program, Allegretto told me. But the anticipated spending reduction has come at the cost of lost volume because one orthopedic surgeon refused to give up his favorite implant when the health system reduced the number of device vendors from seven to two.

Related: Majority of Hospitals Eye Losses in CJR

The cost savings from standardizing hip and knee implants is estimated at a minimum of $2.3 million through April 2017, according to Keith Murphy, executive director of corporate supply chain at YNHHS.

As of Jan. 1, the surgeon who bucked implant standardization has taken 90% of his cases to a competing hospital, Allegretto said. "If we hadn't done that, we wouldn't have saved the $3.5 million across the system that we are going to save over the next couple of years."

Even the loss of one orthopedic surgeon to a competitor reflects the broader difficulty of adopting value-based initiatives in the healthcare industry, he said. "This kind of change is going to be difficult for healthcare, because where is he going to go? He is going to go to another organization and they're going to give him the implant that he wants."

Mary O'Connor, MD, director of the Musculoskeletal Center at the Yale School of Medicine and Yale-New Haven Hospital, told a symposium audience that the surgeon believed he was making the best decision for his patients, but the health system had indisputable data and value calculations in hand when negotiations reached an impasse. She recounted her pivotal remarks to the doctor: "Show me the data that shows your implant is better. You don't have it. I know you don't have it. So let's talk about cost, quality, and value."


Christopher Cheney is the senior clinical care​ editor at HealthLeaders.

Tagged Under:

Get the latest on healthcare leadership in your inbox.