On Jan. 25, Asit Gosar with Objective Health, a specialized group within McKinsey & Company, discussed strategies for hospitals to improve their margins in a webinar presentation and subsequent Q&A session for Becker's Hospital Review.
During the presentation, titled "Optimizing Performance in the Face of Reform: Strategies for 2012," Mr. Gosar conducted a poll to identify the areas in which attendees were focusing their cost-saving strategies. For 2012, 46 percent of respondents said labor productivity and operations presented the largest opportunity for margin improvement. Forty-three percent said revenue cycle and/or service line growth, 32 percent said physician resource utilization, 20 percent said supply expenses and 14 percent said purchased services.
Mr. Gosar and Objective Health previously helped a non-profit hospital with roughly 300 beds to capture savings across all five of the areas mentioned in the survey. Here are a few of the strategies Mr. Gosar identified Objective Health using to help that hospital identify cost savings.
Supply expenses
• Moving from branded to generic drugs for certain indications resulted in an annual $54,000 cost savings opportunity for the hospital.
• By implementing common clinical processes to reduce patient service costs — without reducing patient safety or satisfaction — the hospital saw a cost savings opportunity of roughly $1.3 million.
• Finally, by comparing unit prices for high-cost drugs and surgical products to national benchmarks, the hospital a cost savings opportunity of $86,000 per year.
Labor productivity
• The hospital and Objective Health identified the 10 most productive departments within the hospital and implemented productivity improvement strategies. Four of those 10 departments saved a combined $2 million, or roughly 65 percent of the total savings opportunity. Overall, the productivity improvement projects could save $3.2 million annually.
• The hospital also assessed its excess length of stay at various DRG levels. By reducing the ELOS, the hospital found it could free up 17 percent of its bed capacity and save $15 million in variable costs per year.
Physician variation
• By examining physician variability on a DRG case-level basis, the hospital and Objective Health identified which conditions drove the majority of costs. Just 10 DRGs represented a 2-3 percent cost reduction opportunity. By reducing variables when treating these conditions, the hospital was able to bring down the largest drivers of cost.
Service line growth
• The hospital prioritized service lines based on its projected growth and changes in economics. Specifically, it found its non-oncology general surgery line carried the most opportunity for growth — roughly $913,000. By identifying underperforming service lines, the hospital was able to identify a total savings opportunity of $1.7 million.
Q&A session
Following the presentation, Mr. Gosar was joined by Benjamin Reigle, a knowledge expert with Objective Health, to address attendee questions. They answered numerous questions in the time allocated for Q&A, including questions such as:
• Who, within the hospital, leads these improvement processes?
• How does healthcare reform change the priorities of hospital service lines?
• How should accountable care organizations pursue performance improvement while facing uniquely challenging revenue constraints?
Download a copy of the presentation by clicking here (pdf).
View or download the Webinar by clicking here (wmv). We suggest you download the video to your computer before viewing to ensure better quality. If you have problems viewing the video, which is in Windows Media Video format, you can use a program like VLC media player, free for download by clicking here.
Learn more about Objective Health.
Learn more about Objective Results.
During the presentation, titled "Optimizing Performance in the Face of Reform: Strategies for 2012," Mr. Gosar conducted a poll to identify the areas in which attendees were focusing their cost-saving strategies. For 2012, 46 percent of respondents said labor productivity and operations presented the largest opportunity for margin improvement. Forty-three percent said revenue cycle and/or service line growth, 32 percent said physician resource utilization, 20 percent said supply expenses and 14 percent said purchased services.
Mr. Gosar and Objective Health previously helped a non-profit hospital with roughly 300 beds to capture savings across all five of the areas mentioned in the survey. Here are a few of the strategies Mr. Gosar identified Objective Health using to help that hospital identify cost savings.
Supply expenses
• Moving from branded to generic drugs for certain indications resulted in an annual $54,000 cost savings opportunity for the hospital.
• By implementing common clinical processes to reduce patient service costs — without reducing patient safety or satisfaction — the hospital saw a cost savings opportunity of roughly $1.3 million.
• Finally, by comparing unit prices for high-cost drugs and surgical products to national benchmarks, the hospital a cost savings opportunity of $86,000 per year.
Labor productivity
• The hospital and Objective Health identified the 10 most productive departments within the hospital and implemented productivity improvement strategies. Four of those 10 departments saved a combined $2 million, or roughly 65 percent of the total savings opportunity. Overall, the productivity improvement projects could save $3.2 million annually.
• The hospital also assessed its excess length of stay at various DRG levels. By reducing the ELOS, the hospital found it could free up 17 percent of its bed capacity and save $15 million in variable costs per year.
Physician variation
• By examining physician variability on a DRG case-level basis, the hospital and Objective Health identified which conditions drove the majority of costs. Just 10 DRGs represented a 2-3 percent cost reduction opportunity. By reducing variables when treating these conditions, the hospital was able to bring down the largest drivers of cost.
Service line growth
• The hospital prioritized service lines based on its projected growth and changes in economics. Specifically, it found its non-oncology general surgery line carried the most opportunity for growth — roughly $913,000. By identifying underperforming service lines, the hospital was able to identify a total savings opportunity of $1.7 million.
Q&A session
Following the presentation, Mr. Gosar was joined by Benjamin Reigle, a knowledge expert with Objective Health, to address attendee questions. They answered numerous questions in the time allocated for Q&A, including questions such as:
• Who, within the hospital, leads these improvement processes?
• How does healthcare reform change the priorities of hospital service lines?
• How should accountable care organizations pursue performance improvement while facing uniquely challenging revenue constraints?
Download a copy of the presentation by clicking here (pdf).
View or download the Webinar by clicking here (wmv). We suggest you download the video to your computer before viewing to ensure better quality. If you have problems viewing the video, which is in Windows Media Video format, you can use a program like VLC media player, free for download by clicking here.
Learn more about Objective Health.
Learn more about Objective Results.