Towing the Line

Balancing costs, product utilization and quality of care is possible, but it takes work.

Editor’s Note: The participation of those in the following article does not constitute an endorsement of the sponsor’s products or services.

Not only is it possible to tie together expenses, product utilization and clinical outcomes, it’s necessary in order to provide more efficient, better quality patient care, according to experts. Still, it’s no easy task. “We need to change directions, starting with the recognition that access to care, healthcare quality and efficiency are interrelated,” says Karen Barrow, senior vice president, business development, Amerinet. “Progress toward achieving a system of care that affords better access, higher quality and greater efficiency for everyone is lagging behind other nations. Instead, what one will most likely find is that newer technology is more expensive, its quality is equal or better [to older technology] and utilization [is based on] whether [a particular device or implant] is used for the right patient at the right time, for the best quality of care, at a fair cost.”

At the same time, Medicare reimbursement is changing to encourage hospitals to link costs, product utilization and quality of care, says Mary Beth Lang, senior vice president, business intelligence, Amerinet. For example, the Recovery Audit Contractor (RAC) program has examined improper payments, including underpayments, overpayments and billing and coding errors, she says. “Private companies contracted by the Centers for Medicare and Medicaid (CMS) review Medicare claims for underpayments and overpayments. Improper payments corrected by RACs from 2005 to 2008 totaled over $1 billion, with 85 percent coming from hospitals. This was a 318 percent return on investment for CMS,” she notes.

This places pressure on hospitals to protest findings of overpayments, Lang continues. “The concern here is that only 14 percent of challenged claims have been overturned,” she says. “In order to respond, hospitals need to immediately cleanse their item master and link it to the chargemaster.”

Quality first, then cost
The process of balancing costs, product utilization and care must involve three areas of the hospital, according to Patricia Tyson, vice president for VHA’s clinical specialty services: It calls for financial input from the CFO and/or the CEO, clinical input from physicians and clinicians, and administrative input from materials management or supply chain management. However, whereas hospital CFOs and administrators traditionally have focused on cost first, “they need to understand [the impact of] quality and product utilization before they can address cost issues,” she points out. “We need to begin with the issue of quality, then focus on patient outcomes, and then cost.” For every patient who undergoes the same procedure, there could be different ramifications, she explains. “Until we know the patient variations and the outcomes, we can’t [begin to evaluate] costs.

“In the last three or four years, hospitals have worked very hard to [contain] costs,” she continues. “But, even if they get prices down, if product utilization [costs] are still high, it’s like treading water. They can’t get ahead.”

“Today, financial executives can relate much better to quality of care and product utilization,” says Kathy Connolly, RN, BSN, MSEd, CPHRM, principal for Women’s Services for Premier Consulting Solutions. “They understand the importance of these pieces.” Connolly leads The Idealized Design of Perinatal Care project, in which 16 hospitals across the United States are identifying changes that can impact positive changes to perinatal care, including perinatal safety, product utilization and cost containment. “We are considering evidence-based guidelines and outcomes when balancing patient care and outcomes with costs,” she adds.

“Everyone must be at the table and understand what’s driving costs,” she continues. “For example, at one of the hospitals I was working with, someone had the idea that one vendor had less expensive IV kits. The nurses never were asked if they had any problems with that particular kit.” Sure enough, the nurses began writing up procedures as “adverse events” when the kits failed them, notes Connolly. “We must consider all of the variables [when balancing costs with outcomes] and include all of the individuals who touch on these variables.”

The right tools
Easier said than done, says Dawn Terry, RN, BSN, MBA, principal Breakthrough Series and Cardiovascular Services, Premier Inc. Evaluating cost vs. product utilization vs. quality necessitates pulling together and comparing many different databases, she explains. In the cath lab, for example, wound closure devices vary in price. Each physician has his or her preference. “To [compare them all] we need to run reports showing complications per physician per patient,” she says. Without efficient software tools in place, pulling together so many sources of data must be handled manually, and no one has that kind of time, she notes.

Unfortunately, “most hospitals don’t have these kinds of tools, or if they do, they aren’t used at the department level,” Terry continues. “We really can get the full value of a system when it is taken down to the department level. Drug-eluting stents, for instance, are one of the largest costs in the coronary intervention procedure. Our opportunity for improvement here is [to consider] what diagnostic tests take place before the procedure, whether they all are necessary and whether they all follow [federal] and hospital guidelines.” Similarly, with regard to post-surgical follow-up, providers must evaluate patient length of stay and whether or not a particular patient should go to the ICU, she adds. All of this data factors into cost savings, she says.

“Even beyond sticking to contract items, there are opportunities for savings and better clinical outcomes,” says Terry. “We want to see sustainable change, and the more often we can get all the right people together, [focusing on] similar agendas, the greater the opportunity for quality improvement and cost savings.”

Barrow agrees that hospitals must have “accurate data and qualified personnel to interpret that data” in order to move forward with regard to quality and performance improvement. With regard to the sophisticated information systems and benchmarking tools required to evaluate this data, she believes that many facilities do, indeed, have the systems they need. “They just don’t know how to tie it all together,” she says. “It takes qualified personnel with IT knowledge, clinical knowledge and administrative knowledge to get accurate reports.”

Lang says that more and more hospitals are re-training their staffs to pay closer attention to data, indicator definitions and peer benchmarking criteria. “Many hospitals are discovering that they are not conducting apples-to-apples comparisons when they adopt industry benchmarks,” she points out. “Using total supply expense as an example, many hospitals have not reviewed the HFMA/AHRMM definition of elements [they should and should not] include. This is causing false comparisons.

“Hospitals also are confused when it comes to multi-dimensional indicators,” she continues. “For example, how does labor expense or case mix index (CMI) impact a facility that is using the industry comparison of supply expense per CMI-adjusted discharge?” Hospitals are looking to new industry benchmarking sources to gain access to more reliable peer comparisons, and they are seeking help around indicator selection, she adds.

Equation for success
What, then, are the elements of a great performance improvement program? How do IDNs bring together – and align – supply chain executives, physicians, financial leaders and IT experts?

IDNs should focus on training and managing their staff, says Barrow. “In this era of rapid medical advances, healthcare providers need to invest in tracking and documenting, [and look at] what works well, for which patients, and when [their] rights need to be protected. For any business to move forward with excellence in quality and performance improvement, it is imperative to invest time and money in its staff.” A motivated, content staff means less turnover and better performance, she explains. In addition, the facility must “lean” out all of its processes for the most efficient throughput. And, it requires accurate data and the qualified personnel to interpret and implement data.

Indeed, all staff, including physicians, administrators and financial executives, must be motivated and incentivized to achieve the same goals with regard to balancing cost with outcomes, says Terry. In bringing together all three groups of individuals, “everyone must be incentivized to achieve the same outcome – both improving outcomes and saving money,” she says. “Otherwise, everyone is headed in different directions.”

Some hospital systems continue to favor gainsharing as a means of engaging physicians and aligning clinical and administrative goals. “Gainsharing is one of the many things we look at to engage physicians in cost reduction activities,” says Tyson. “Both hospitals and physicians want to see quality outcomes. With gainsharing, both have a common link and aligned goals.”

Better business models
It may be a daunting task to unite different areas of the hospital and motivate them to work closely to balance hospital expenses with clinical outcomes, but the future looks positive, notes Barrow. “Better business models already are being designed specifically for healthcare that will improve the financial and operating expenses,” she says. “The era of transparency is here and will evolve for more defined clinical models of care.

“I also see more outpatient procedures that are now done in the hospital, moving to their own facilities, and the design of care centers or campuses will [evolve],” she continues. Granted, the current physician and nursing shortage will continue to create staffing challenges, as will construction costs and space issues, she adds.

“The IT solutions already are here,” says Barrow. “I just think we need to get more qualified people to bring it all together [so they can] use the data that is at their fingertips. “

About the Author

Laura Thill
Laura Thill is a contributing editor for The Journal of Healthcare Contracting.
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