Current trends make clear that hospitals and health systems must embrace a different approach to constrain the cost of care they provide.
The Congressional Budget Office projected in 2016 that 60% of health systems will be in the red in less than a decade at current course and speed. Nonetheless, expenses have still grown faster than revenues at most hospitals across the past two years, according to Moody’s Investor Service.
Hospital and health system executives nationwide now rank cost control as their top-most concern. The 146 respondents to Advisory Board’s annual C-suite poll earlier this year rated “preparing the enterprise for sustainable cost control” as their number one challenge and finding “innovative approaches to expense reduction” as their second-greatest concern. In response, leading providers are betting heavily on reducing unwarranted variation in care or Care Variation Reduction (CVR). This is welcome news.
It has long been recognized that unwarranted variation in how providers deliver care results in a tremendous amount of “waste” each year—billions of dollars spent on care that doesn’t improve outcomes. Additionally, all hospitals are already working on CVR in some capacity. Such efforts, however, are typically narrow in scope or pursued in organizational siloes. Our research has found that executives must effect three mind shifts among their leadership teams to generate year-over-year, multimillion dollar savings through CVR.
Mind Shift #1: Generating multi-million dollar cost savings must be trumpeted as a principal goal of CVR
Leaders at many organizations are still reticent to openly characterize cost reduction as a goal of their CVR efforts when meeting with their larger clinical staff. Instead, they focus the conversation narrowly on the positive impact CVR can have on care quality and assume such efforts will automatically yield cost savings as well. Achieving year-over-year, multimillion dollar savings from CVR, however, requires a more purposeful effort.
Advisory Board’s most recent analysis of CVR data should help hospital and health system leaders be more straightforward about what they need to accomplish through CVR. Our analysis shows that hospitals with both better quality outcomes and more standardized expenses deliver care at up to 30% lower costs.
More specifically, we analyzed cost and quality data for 20.6 million patients discharged from 468 hospitals between the spring of 2014 and last year. We then defined a top-quality subset of facilities for separate service lines using four well established patient outcome indicators, like complication rate, and assessed how all other facilities compared to these top-quality performers on cost for comparable patients. The results: top-quality performers delivered lower-cost care for 82% of the 983 diagnosis subgroups we analyzed. Among these 801 diagnosis subgroups, the range or spread of expenses for top-quality facilities was significantly narrower a remarkable 91% of the time; and an average single facility could save up to $29 million by delivering care in line with median costs for high-quality hospitals.
Mind Shift #2: Achieving clinical consensus on which care to standardize is only the tip of the iceberg
Organizations shifting to an enterprise-wide approach to CVR often over-invest in the upfront steps for cost-effectively scaling standardization. They pull in too many clinicians and spend too much time weighing the potential impact of standardizing care for myriad conditions. Such painstaking impact analysis is rarely worth the effort and risks exhausting the resources needed to actually embed care standards.
Using the same data set of 20.6 million patient discharges, we also quantified the CVR savings opportunity for different patient conditions by comparing average hospital costs to median costs for top-quality performers for each APR-DRG. While most hospitals must ultimately standardize care for 20 to 30 conditions to achieve long-term savings goals, there are multiple paths to this end. We found that the average annual savings opportunity for more than 30 APR-DRGs exceeds a quarter million dollars for a single facility and quickly scales into the millions for systems. Additionally, systems that invested heavily in close analysis of their savings opportunity by APR-DRG overwhelmingly confided to us that the results were more confirmatory than eye-opening. After sepsis, with an average savings opportunity three times greater than nearly every other APR-DRG, health systems can rely on more pragmatic factors like the prevalence of physician champions and overlap with other clinical priorities to determine how to sequence CVR efforts across the 20 or so patient conditions with the greatest savings potential on paper.
Even more importantly, organizations must maximize available resources for standardizing care for whatever conditions they prioritize. Determining which conditions to target is only the first step toward better care at lower costs through CVR. Organizations must then determine the principal points of unwarranted variation across the care pathway, ascertain the root causes of such variation, re-design the pathway to account for what are often workflow disconnects, ensure sufficient supports are in place to enable compliance, communicate out changes, and track performance. Our research has found that health systems must dedicate the overwhelming share of their CVR resources to completing all these next steps. Put another way, achieving clinical consensus on which conditions to target and what the care standard should be is rarely the rate-limiting factor on CVR; it is the resources needed to embed care standards into common practice.
Mind Shift #3: The most critical protocol to standardize is the process for standardizing care itself
While resource constraints may slow efforts to scale CVR enterprise-wide, they should never stop a hospital or health system from pursuing this strategy. The key is placing greater importance on building a strong institutional muscle for CVR than achieving lock-step compliance with any individual care pathway. Organizations striving to standardize care in siloes hit a wall as they introduce more and more care standards, regardless of the amount of resources they can marshal. People can only keep pace with so many different things at any one time. Fortunately the reverse is true as well. Organizations working on just one or two care pathways but focused on reducing the variance in their overarching process for minimizing variation soon discover that embedding successive care standards becomes easier to scale.