Hospitals and health systems are facing a new existential challenge that puts their financial stability at risk: sustained and significant increases in the costs required to care for patients and communities, according to the American Hospital Association.
Cumulative hospital expense growth more than doubled the cumulative increases in Medicare reimbursement from 2019 to 2022, leading many health systems to reevaluate care models and develop new ways to reduce costs while continuing to provide high-quality care.
"We are once again facing unprecedented times in the U.S. healthcare industry," Cliff Megerian, MD, CEO of Cleveland-based University Hospitals, told Becker's. "The new economic, staffing and payer mix reality demands that we create a health system that is flexible, resilient and can prosper under a Medicare payment structure across all care that we deliver for all patients."
With this in mind, UH launched its "Medicare Breakeven" project in August 2022 to reduce expenses, grow revenues and develop a model to help the system to bend its cost curve.
The project delivered significant reductions — in excess of $250 million annually — in fixed and indirect costs while continuing to provide high-quality patient care, according to UH. The health system is evaluating its next round of optimization opportunities to boost its finances by a further $175 million in 2024. Initiatives include revenue growth in key service lines and cost reduction.
"This is not merely a cost-cutting exercise," Dr. Megerian said. "It is truly thinking differently about how we operate our business."
"We accelerated our strategic plan, which included the implementation of Epic, volume-enhancing initiatives across our system and robust investment in new and expanded services in selected markets," he said. "And [we] are transforming how we work, designing a structure that will deliver the best value to patients and payers while operating within an evolving healthcare market."
To improve its cost structure, UH must equalize the demand-supply imbalance between those needing care and the health system's capacity to deliver it.
To achieve this, it is implementing new ways to support its workforce, such as finding ways to reduce unnecessary work with a focus on top-of-license activity, eliminating activities that do not improve care and exploring new technologies to reduce staff workloads. UH is also bolstering its provider pipeline through new "earn and learn" programs and its Future Nurse Academy.
Other UH initiatives include:
- Addressing unnecessary demand by reducing readmission rates through better population health management.
- Decreasing length of stay through improvements in discharge planning and increasing utilization of its hospital-at-home program to reduce the need for hospital beds.
- Enhancing the use of alternative care sites to provide services at a lower cost to patients and payers.
- Improving efficiency by evaluating its footprint against market demand.
- Creating specialized hubs of care.
"This enables us to maintain consistent care delivery and access while increasing the convenience for patients," Dr. Megerian said. "Like our Centers of Excellence, volume centers in our hospitals will be created to concentrate the delivery of some procedures. This not only improves efficiency and lowers cost, but we know quality improves when volumes for those services are concentrated in a location and sites specialize in a particular service, such as cardiovascular or cancer care."
UH's COE model is a prime example of how the health system has reduced length of stay and readmission rates, according to Dr. Megerian. The COEs feature a multidisciplinary team of experts who are dedicated to a particular condition and aim to provide a great patient experience, controlling costs and delivering better outcomes — all increasingly attractive to employers and their employees.
"The COE uses best practices that include a wide swath of care options, which allows many patients to achieve optimal outcomes without the need for surgery," he said. "In fact, 30% of patients referred for joint replacement surgery were able to avoid unnecessary surgery. In addition, among patients who have joint replacement, the length of stay in our COE was 1.09 days, compared with 3.14 days in an Ohio peer group."
Readmission rates also showed significant differences — 0.65% in UH's COE compared with 3.67% in an Ohio peer group, according to Dr. Megerian.
"Statistics such as these drive significant cost savings for the system but, importantly, represent a better outcome and experience for our patients," he said.
UH has also achieved positive results in the population health arena for many of its payers, including Medicare. The system earned shared savings from CMS for four consecutive years, including $12.1 million in 2023 — the highest amount it has received under the Medicare Shared Savings Program in a year.
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