December 6, 2017

'Find $25M in savings in 10 days,' the CEO ordered. Here's what happened next.

Daily Briefing

    Hospitals face unique challenges when it comes to reducing their costs—but the right strategies driven by the right leadership can spur big savings, Alex Kacik writes for Modern Healthcare.

    Dec. 14 webconference: Enhance financial accountability in a time of unprecedented cost pressure

    A difficult market

    According to Kacik, many hospitals and health systems have implemented first-round cost-cutting measures—such as layoffs, outsourcing processes via partnerships, and using technology to reduce utilization—to deal with the latest industry financial stressors. But health care leaders anticipate that lower reimbursement rates and demand for greater price transparency will further strain cost structures, Kacik reports.

    As a result, many executives are exploring second-round cost-cutting initiatives, such as centralizing clinical programs, shifting care to outpatient settings, ending peripheral service lines, and identifying more affordable ways of accessing capital, according to Paul Keckley, managing editor the Keckley Report.

    However, for many hospitals implementing these second-round initiatives can pose a big hurdle, particularly if the health systems are not integrated, Kacik reports.

    John Johnston, national partner of consulting at Advisory Board, explained that part of the problem hospitals face in cutting costs stems from the difficulty of curbing clinical variation without sufficient internal coordination and incentives. "Hospitals don't necessarily have a top-down strategy in place where they are looking at an entire organization and what priority should be placed on these initiatives," Johnston said. "Many of the initiatives they are looking at will not get them very far."

    Providers are also slowed in their efforts to curb costs by "a seemingly ever-expanding list of ideas on how to improve efficiency and outcomes," Kacik reports—which can make it hard to establish priorities—as well as a general market shift toward risk-based contracting.  

    But some health systems have cracked the savings code and have successfully implemented plans to reduce their hospitals' costs.

    A bold challenge: 10 days to identify $25M in savings

    In 2015, Lindsey Bradly, the former CEO of Trinity Mother Frances—a Texas health system since acquired by Christus Health—tasked the organization's leadership with finding $25 million in savings within 10 days. "He told us: 'In 10 days I need a plan of where we can find $25 million. I know you will be able to do it.' Then he walked out of the room. There was silence," Todd DeRoo, associate VP of supply chain at what is now Christus Trinity Mother Frances Health System, said.

    Bradly issued the challenge in response to news that the Texas Blues' PPO network for employees had been expanded into Trinity's market, meaning that the system would lose exclusivity in certain specialty procedures. To find the $25 million, Trinity created teams of providers and staff members across various departments tasked with brainstorming ways to reduce costs. Each team had a particular financial goal.

    The teams proposed multiple ideas, ranging from changes to the system's supply chain to proposals on how to curb clinical variation. For instance, the health system swapped out their specimen bags with less costly options manufactured by a non-medical vendor, saving tens of thousands of dollars each year, and renegotiated its contract with Johnson & Johnson for the arthritis and Crohn's disease drug Remicade, saving about $800,000, among other strategies. Ultimately, Trinity saved more than $25 million over a 12-month period, producing a double-digit margin last year.

    According to Kacik, the Christus system has since adopted similar team-based strategies across its hospitals, generating cost savings and a newly collaborative culture. "It seeps into the culture," Ali Birjandi, VP of performance improvement at Christus Northeast Texas, said. "Directors and managers are constantly looking for ideas. An entire organization is helping management reduce costs 24/7 as if it is their business."

    Sanford Health's $26M restructuring savings 

    Sanford Health in 2014 revamped its management team, eliminating 66 positions to reduce bureaucracy, facilitate decision-making, better align the organization with its health insurance plan, and help the organization adopt value-based care initiatives. According to Nate White, Sanford Medical Center Fargo COO and EVP, the restructuring helped save the health system $26 million in 2017.

    Sanford also collaborated with nurses, physicians, and transporters to reduce patients' average length of stay by around 3% over the past two years--an initiative that involved assessing data on how patients move through the health care system and identifying barriers that unnecessarily lengthen patient stays. In addition, the system curbed ED admissions by expanding its community dental clinic and collaborating with local homeless shelters to increase access to care.

    Other initiatives

    Meanwhile, Presbyterian Healthcare Services cut ED and hospital admissions by 50%, in part by implementing a home-care program for seniors in which providers served patients at home and tracked treatment adherence. "It has dramatically bent the cost curve and they live longer and healthier," Jason Mitchell, the chief medical and transformation officer for Presbyterian, said.

    And Montefiore Health System has improved its ability to handle risk-based contracts and boosted care quality by engaging its physicians, according to Vanessa Guzman, associate VP of quality improvement at the health system. Montefiore in 1995 established an independent provider organization (IPA) and uses technology to monitor patients post-discharge. "Together, as an IPA and ACO, we are able to carry out some of these high-cost functions but also work closely with the technology so we don't lose touch points with patients," Guzman said (Kacik, Modern Healthcare, 12/2).

    Next: Enhance financial accountability in a time of unprecedented cost pressure

    Join our webconference on Thursday, Dec. 14 at 1 pm ET to learn how progressive organizations are instilling financial discipline across the health system in a time of unprecedented cost pressure.

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