At the Margins

Are you really reducing care variation costs?

by John Johnston, CPA, MHA

John Johnston, CPA, MHA

With hospitals facing slow revenue growth, health system leaders must confront mounting pressure to rein in spending. As leaders look to achieve significant—and lasting—savings, many are placing more emphasis on reducing unwarranted care variation. In fact, a recent survey found that CFOs consider it the single largest source—roughly 40%—of cost savings opportunities.

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But ask an executive to articulate his or her organization's care variation strategy and what often comes back is a wide-ranging list of discrete initiatives: length of stay reduction, order sets for sepsis, antibiotic protocols, blood utilization reduction, and the list goes on. While all are worthy endeavors, when we take a closer look, we often find that they were identified somewhat randomly, are consuming quite a lot of staff and physician time, and that there is no formal rollup of the initiatives into an organized structure. Most alarming, we often find that while there is a strong belief that these initiatives will result in cost savings, there is often very little financial rigor applied to the work underway.

More on care variation reduction

Recently a CMO of a 350-bed community hospital convened several physician leaders in response to a mandate from the CEO to reduce care variation costs by $20 million. We inventoried the various initiatives underway and celebrated all the (anecdotal) results being achieved.

Eventually, the discussion turned to financial impact and the narrative changed. Despite a general assumption that costs had been saved, no one was able to point to specific financial results that had been realized. Decision support leadership reluctantly pointed out that only randomly was cost accounting data being reviewed by the initiative teams, no work plans had been created to focus the work, and no financial measures were being tracked. Finally one of the physicians stated, "We think we are saving money, but we don't really know, and I have a feeling we will be disappointed with what we find out." Now the hospital is stepping back and evaluating the financial performance of service lines, DRGs, and clinical departments against benchmarks to identify the full scope of their cost reduction opportunity and make a data-driven decision as to where they should allocate resources.

To make the leap from mediocre financial results to large-scale impact, most system leaders need to get much more organized and much more rigorous in developing an overarching strategy for care variation and take a strong hand in guiding and measuring specific initiatives. Moving the needle on financial impact is best achieved through a systemic, centralized approach to care variation in which system-level leadership focuses efforts on the biggest drivers of cost and quality opportunity and tightly manages the initiatives with targeted work plans and timelines. At the highest level, it starts with leadership answering the fundamental questions: Where are our greatest financial opportunities? What are the most important drivers of clinical and financial improvement tied to care variation? How do we ensure our teams get the greatest results? How will we measure and track financial benefit to our bottom line?

Perhaps the greatest challenge with the unorganized approach to care variation is that initiative teams are launched but not given a work plan to guide their focus. When the improvement "agenda" is left to the initiative teams to figure out, they often devote the majority of their attention to important issues, but not necessarily the ones that impact costs. A health system in the Midwest recently identified over $4 million in cost savings tied to care variation in their sepsis population. A team of physicians and clinicians was convened with the charge to reduce costs. The team launched several initiatives but in 12 months, only $30,000 was saved via standardization of the antibiotic selection. A subsequent review of the team's initiatives revealed they had not focused on any of the top drivers accounting for the majority of the $4 million opportunity. So what happened? How did they get so far off track? We identified a few causes that offer good lessons for all of us as we pursue more ambitious clinical variation cost savings:

  • Focus teams on the big cost opportunity drivers. When unguided, clinical leaders often focus only on "line item" resources. In this case, the team locked in on antibiotic use, which carries a relatively low unit cost, but ignored their over-utilization of the ICU, which accounted for over 20% of the cost opportunity. Cost accounting data should be used to isolate the areas with greatest cost variation.
  • Quantify the gap to evidence-based best practice. Another big cost and quality opportunity ignored by the sepsis team was their poor success rate of early identification. A comparison of their processes against best practice revealed the clinical protocols that needed to be changed, and that this gap resulted in adding 2-3 avoidable days per stay.
  • Include all stakeholders to ensure full visibility. The sepsis team included hospitalists, nursing, pharmacy, and emergency department physicians, but care management and discharge planning were not involved, limiting the overall view of the entire stay. We relaunched and expanded the team to include all of the main departments involved in the care of sepsis patients, and even invited two local nursing homes to participate, which helped us address readmissions and more efficient discharges.

The financial pressures facing hospitals continue to increase, and care variation opportunities must be addressed in order to maintain viability. Now is the time to develop a centralized, system-level approach to care variation that will bring the right discipline and financial rigor to focus improvement teams on the right initiatives and track the resulting savings to the bottom line.

This article previously appeared on the hfm Healthcare Finance Blog.

Next, learn how to activate and drive care variation reduction at scale

Join us on October 31 at 1 p.m. ET for a 30-minute webconference where Ed Hock, Managing Director and John Johnston, Senior Vice President and National Partner, Advisory Board Consulting will share their on-site work with hospital executives to activate a comprehensive program for care variation reduction.

Case examples will illustrate how to lay the foundation through core competency innovations in operations and clinician engagement; how to identify and share knowledge and internal best practices; and how to effectively implement a continuous cycle of clinical optimization.

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View from the C-Suite: How to Activate and Drive Care Variation Reduction at Scale

Join John for a webconference on Oct. 31 to learn lessons for achieving and sustaining system-level gains on reducing care variation.

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