VHA Conference

The Economics of Better Patient Care
Industry professionals discuss the marriage of clinical matters with economics.

ST. LOUIS – Is it possible to tie together cost, product utilization and quality of care? Supply chain professionals gathered at the recent VHA Leadership Conference to find out.

The Conference was sponsored by Irving, Texas-based VHA, which, with the University HealthSystem Consortium, owns the Novation purchasing group. It was attended by professionals in finance, materials management, nursing, pharmacy and other disciplines.

Not surprisingly, products themselves played a big role at the conference. Approximately 275 vendors with Novation contracts exhibited at the Supplier Exposition. But an important underlying theme was the marriage of clinical matters and economics, that is, how to deliver better patient care more cost-effectively.

Gainsharing was a frequent topic of conversation, perhaps because this was the first VHA Conference to be held since VHA acquired Goodroe Healthcare Solutions in October 2005. Goodroe was founded by gainsharing pioneer Joane Goodroe, who remains with the company. “There’s a realization that there is a finite amount of money [for healthcare],” said Goodroe. “That’s a huge shift.” Without participation by physicians, however, it’s unlikely that healthcare costs can be reduced dramatically, she added.

Goodroe and others pointed out that while gainsharing has most often been associated with monetary paybacks to physicians who help reduce costs, the concept has broader applications. “When you establish a business relationship with doctors, you can do other things unrelated to supplies or gainsharing,” she said. Understanding physicians’ issues, such as the need for more and better staffing, can help hospital administrators gain the trust and cooperation of their medical staffs.

In his presentation on the strategic management of the healthcare supply chain, Eugene Schneller, Ph.D., professor, School of Health Management and Policy, Arizona State University, said that gainsharing is just one of several options for hospital administrators to consider as they begin to work with their physicians on cost-containment. Schneller pointed to a “continuum of incentives” that administrators can offer. But at all times, administrators must respect their medical staffs’ desire to control the conditions and content of their clinical work. They must also keep in mind that clinicians consider a product’s perceived outcomes and ease of use much more heavily than contractual relationships and cost.

Value analysis Long before “gainsharing” entered the supply chain lexicon, “value analysis” was front and center. Yet, both terms imply that marriage of cost and quality of care. In fact, value analysis is the process used to evaluate products based on clinical efficacy, safety and cost, said Terri Nelson, R.N., director of value analysis for Mayo Clinic Rochester (Minn.).

True value analysis demands clinical staff involvement, according to panelists who spoke on the subject. The goal is a “clinically integrated supply chain,” said Lori Weih, director of knowledge services for VHA Upper Midwest. Added Angelo Griego, R.N., chief nursing executive for Lake Region Healthcare Corp., Fergus Falls, Minn., “We found that quality and improved patient outcomes had to be essential to the value analysis process.”

Value analysis works only if hospitals are willing to do the following, said Weih and Brenda Peterson, R.N., senior director for VHA:

  • Actively nurture the relationship between hospital and clinicians, even if it means initiating difficult conversations.
  • Engage the leadership team and staff in setting and achieving goals involving significant dollar savings, increased competitive advantage and improvement in safety and quality of care.
  • Set clear expectations that everyone must participate in the value analysis process, without exception. Make it part of how the organization does business.

Hospitals that are unwilling to do these things will probably find they can control little more than the price of the commodities that come into their receiving docks, they added.

Building a financial case for clinical improvement
At the Conference, VHA released a 64-page monograph entitled “Building a Financial Case for Clinical Improvement,” authored by William Ward, associate professor, Johns Hopkins Bloomberg School of Public Health; and Lynn Spragens, president, Spragens & Associates. It is part of the 2006 VHA Research Series. In it, the authors make a strong case for carefully examining the financial impact of clinical performance improvement initiatives. All is not what it appears to be, they say.

“Blessed with institutional and staff support as well as new tools and techniques, [clinical improvement and patient safety projects] are saving lives, reducing suffering, and resulting in higher patient satisfaction,” they write. “However, models to track the financial impact of these projects have been scarce and their business impact far from clear. Where such attempts have been made, the focus is often on reductions in total charges or on savings in costs rather than on cash flow, which is the most reliable measure of impact on hospital financial performance.”

The authors point out the many reasons why determining the bottom-line impact of performance improvement initiatives can be difficult. For example, most hospitals are reimbursed in a number of different ways (e.g., prospective pay, fee-for-service, etc.). Hence, reducing length of stay might make economic sense in a prospective pay environment, but not necessarily in a fee-for-service one. In addition, hospital managers seldom have detailed information on patient revenue or fixed or variable costs at the unit level. “Financial information designed to describe the behavior of the entire hospital usually breaks down when it is applied to issues at the unit level,” write the authors.

What’s more, most hospitals tend to take a short-sighted look at potential savings. For example, while discharging patients more quickly from the ICU may reduce costs in that area, it may put additional burdens on the med/surg units that receive these patients. Likewise, cutting staff, such as nurses, may reduce costs in the short run, but may lead to more patient errors and staff burnout, leading to increased recruiting and training costs, not to mention litigation.

“Even though clinical care is a hospital’s core business, there are no standard models for calculating the economic returns of clinical improvement,” write the authors. “Accounting systems are designed to facilitate revenue, and most finance executives have little experience with the nuances of patient care that drive costs. On the other hand, most performance improvement executives and hospital unit managers generally have only a basic understanding of hospital finances and receive little information on their unit’s contributions to cost, revenue and margins. Even organizations that feel they can estimate the [return-on-investment] of their performance improvement programs seldom have hard evidence.” The authors make four recommendations:

  • Clinical care and patient safety are the healthcare organization’s core competencies, and healthcare executives should champion and nurture an unrelenting commitment to continuous improvement.
  • Finance staff should be active participants in the design, implementation and monitoring of performance improvement projects.
  • Budget and reporting processes should be revised to reflect the impact of projects across the authority lines and the continuum of care, and explicitly reflect the value of improved throughput.
  • Healthcare organizations should develop and implement reporting, recognition and reward strategies to promote ongoing improvements in cost efficiency and capacity management.

VHA also released a spreadsheet tool to help financial and clinical managers predict the bottom-line impact of performance-improvement initiatives.