How Healthcare Cost-Per-Case Improvements Deliver Big Bottom-Line Savings

Healthcare cost-per-caseWith the rising costs of healthcare and the continued pressure to lower costs, health systems are facing more pressure than ever to deliver cost savings. Many organizations have turned their attention to cost-per-case as an area for potential financial improvements, but many struggle to know where to start when looking for cost reduction opportunities.

Studies show that the best cost reduction strategies start with clinical improvements. In particular, health systems should begin by looking at ways to reduce clinical variation. Doing so can help them identify the biggest opportunities for, not only cost savings, but also improving care. If a health system is just getting started with cost saving and quality improvement efforts, it’s important to identify the best areas of opportunity, but it may be more important for long-term success to start small, on a per-case basis.

Providers may resist the added work of improvement efforts without evidence the additional work will pay off. For that reason, health systems can start with smaller projects in order to achieve quick wins and build trust. Many healthcare cost-per-case improvement projects have the ability to deliver relatively quick wins, sustained cost reduction, and better care.

The Importance of Costing Accuracy

The first step to reducing healthcare costs is determining the current costs. Health systems should calculate the cost-per-case per provider to help identify opportunities for savings. When doing so, costing accuracy is extremely important. While some organizations have accurate costing information, some may need to turn to other data sources, such as the general ledger or departmental sources to determine whether the costing information is accurate. Having accurate data is crucial to getting physician buy-in and keeping improvement efforts moving forward.

Once the team verifies it has accurate data for a specified group of cases, it can begin aggregating cost-per-case the cost data of supplies, labor, and other expenses for specific procedures by physician. This helps begin the process of identifying variability by physician for similar cases or procedures. Doing so may identify the cost effects of using different surgical supplies or a wide variation in the amount of time spent on a certain procedure. This process can then help teams identify best practices and cost-savings opportunities.

For example, a health system may have orthopedic surgeons who use several different brands of medical implants. Many physicians are unaware of the difference in costs between products, or where the system could save money by buying all medical implants from the same company through the supply chain in order to receive the best prices.

Four Strategies for Implementing Healthcare Cost-Per-Case Improvements

Identifying variation in costs and best practices for a procedure is a great first step, but the improvement team needs physician buy-in to make these changes. This can be easier said than done: many physicians initially resist taking on “one more thing,” and physician burnout is a well-documented and growing problem that health systems need to combat when tackling cost reduction and quality improvement efforts.

The following four strategies can help improvement teams see greater success when implementing healthcare cost-per-case improvement projects:

1. Understanding the Importance of Communication

Communicating clearly and frequently about the goals of the project and how teams will accomplish them helps facilitate change, and clearly explaining the data to providers is an important part of that. Providers need to understand how costing works—especially for direct variable costs that they have influence and control over. Secondarily, a general understanding of how overhead costs impact overall cost per case should be communicated.

For example, using the orthopedic surgery example, direct costs related to a specific procedure would include the cost of the surgeon and procedure-specific staff as well as the supplies needed for the operation (e.g., implantable medical devices). Overhead costs could include general support staff (e.g., billers and schedulers) and related costs (e.g., insurance, taxes, and facility costs). To gain accurate insights into costs, health systems may need to invest in a robust activity-based costing (ABC) system that allows leaders to understand the true cost of care across the continuum, relate those costs to patient outcomes, and deliver financial transparency to care providers and patients.

Transparent communication about financial goals helps improvement teams gain buy-in and build trust. In addition to transparency around finances, effectively communicating a focus on reducing variation and improving quality of care, as well as financial goals, will help achieve support and acceptance.

2. Identifying the Right Executive Champion

Along with effective communication, improvement initiatives need an executive champion to help lead the charge and disseminate clear goals to caregivers and providers. Choosing the CFO as the executive champion can give the impression that the focus is solely on cost savings rather than improving care. For that reason, the best choice for an executive champion is often the CEO, COO, CNO, or a service line leader. Change happens when there is clear direction from the top and goals are aligned throughout the system. These changes also need to be consistent with the system’s mission, vision, and values—which the executive champion can communicate.

3. Creating an Interdisciplinary Team

A best practice for health systems embarking on improvement efforts is to create a multidisciplinary team that includes clinical leaders, frontline staff, the executive champion, and other technical experts (e.g., data analysts). Once the team is assembled, it hosts a kickoff meeting during which the executive champion explains what the team’s accomplishing and why.

4. Recruiting the Right Tools and Resources

Inaccurate data has little value and can cause resistance to change. Many healthcare organizations need to invest in the right tools and resources necessary for gathering accurate data and utilizing it to affect change. This may mean investing in a robust analytics platform or an ABC solution or hiring professional services for opportunity analyses and strategic consulting, or all of the above.

These are all important steps in setting the team up for success and building consensus and trust.

Example Projects for New Improvement Teams

Achieving small wins is a great way for new improvement teams to build trust. As the team prepares to tackle bigger projects, some examples of smaller cost-per-case projects that can help the team build momentum include the following:

  • Reducing length of stay (LOS)—Appropriate LOS reduction improves the quality of care and, in most cases, reduces costs. Depending on the system’s payment arrangements, reducing LOS can sometimes mean payments to the health system from certain payers are reduced. But, in order to achieve VBC in the long term, health systems will need to improve this metric, even if this means reduced reimbursement from some payers in the short term.
  • Standardizing physician preference cards—Clinicians frequently use preference cards in the operating room and include a list of the necessary equipment and supplies for a procedure. Knowing what supplies to have on hand for what procedure aids in safety and efficiency, as well as billing accuracy. However, if every clinician develops her own unique cards with different equipment from different suppliers, the number of preference cards and supplies needed can expand rapidly—often with packages opened but not used, creating unnecessary waste. This affects the ability of the supply chain to obtain the best pricing on supplies and has other costing implications, such as in the orthopedic implant example. Implementing a standardized procedure can help providers make smart decisions for the health system and reduce costs by eliminating unnecessary supplies.
  • Auditing room turnover times—Another example of an improvement project that can produce a relatively rapid win is looking at how quickly an organization turns over rooms. An audit of how a health system schedules operating rooms and how quickly they turn them over can identify wide variation in operating times and scheduling practices. Identifying best practices can help increase capacity in a high-turnover situation and free up room availability.

Sustaining Improvements Long Term

The three examples above identify relatively smaller improvement projects that may yield quick wins while reducing cost-per-case and improving quality. When improvement teams take an iterative approach to change, these improvement projects, and the results, add up over time to significantly impact the bottom line—that is, if the system can sustain these changes over time. Below are some keys to sustaining improvements:

  • Review often: Teams can schedule daily or weekly huddles to review costing metrics and progress towards both financial and care improvement goals. These huddles can be short stand-up meetings of even 5 to 10 minutes. Doing so keeps teams focused on progress and provides frequent opportunities for course corrections if signs of backsliding appear.
  • Visually track progress: Teams should have baseline costing data and be able to track their progress towards a goal. It’s especially helpful to represent progress graphically over time and make progress as visual as possible. Teams can use other visual indicators, such as color-coding data points that are on target (green), at risk (yellow), or off track (red).
  • Be transparent: Transparency helps teams make and sustain financial gains and quality-of-care goals. Having information about improvement projects and progress charts in hospital hallways shows the team’s commitment to improvement and sends a message to patients and families about the system’s commitment to reducing costs and providing high-quality care.
  • Celebrate successes: Providing recognition to those helping usher in change will better position improvement for long-term success. Not all projects will be successful, so teams that are able to learn from mistakes and adapt will be the most capable.

Creating Scalable Improvements and Lasting Change

Tackling healthcare cost-per-case projects can produce significant quick wins for improvement teams and cost reduction opportunities in the short term. If these cost-per-case projects are implemented sustainably—using an iterative approach and adhering to improvement best practices—cost-per-case projects can add up to long-term improvements and deliver big bottom-line results.

When embarking on a financial improvement journey, it’s important for healthcare organizations to invest both the necessary time and money to provide access to and clarity of data to drive lasting change. In an environment where health systems are increasingly asked to do more with less, it’s necessary to identify opportunities to reduce costs in order to be sustainable. Systems must also have a clear long-term vision for financial viability that includes incremental process improvements and a path to providing high-quality, affordable healthcare. Providing appropriate, high-value care at the lowest possible cost is the ideal outcome for the patient, provider, and health system.

Additional Reading

Would you like to learn more about this topic? Here are some articles we suggest:

  1. How to Increase Cash Flow Using Data and Analytics
  2. Five Action Items to Improve HCC Coding Accuracy and Risk Adjustment With Analytics
  3. Today’s Top Five Healthcare Payer Financial Opportunities
  4. How UPMC and Health Catalyst Improve Outcomes Using Innovation in Activity-based Costing
  5. Five Solutions to Controlling Healthcare’s Cost Problem
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