April 16, 2019

Treat the Symptoms or Cure the Disease?: A Better Way to Turnaround Health Care System Financial Performance

Michael Rowan

Michael Rowan
Independent Board Advisor, Speaker, and Author/

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These are uncertain times for the health care industry. Almost daily we see press releases by prominent health systems across the country announcing the latest round of employee layoffs. These attempts at expense reductions are the result of lower profit projections as health care systems face the twin revenue challenges of patient volume declines and payment rate reductions. On the expense side the rising cost of medications and supplies coupled with the need to invest in new technology, facilities and information systems are eroding the bottom line for most health care providers.

The evidence of significant problems can be seen in the balance sheets and income statements of health systems across the country. The signs of financial turmoil include:

  • Patient volume declines
  • Downward trends in same-store revenue
  • Market share erosion as new ambulatory providers emerge
  • Falling collection rates and rising bad debt
  • Missed budget targets
  • Unaddressed capital needs

Health care is a very cyclical industry with its highs and lows tied to governmental legislation, policy and regulation as well as to the economic fortunes of local and regional business entities. Historically, health care providers have responded to industry downturns with a number of conventional interventions. These include:

  • Reductions in labor expense through layoffs, productivity improvements and restructuring the span of control
  • Supply chain management --- renegotiating purchasing contracts and supply prices
  • Program closures and service discontinuation
  • Efforts to improve coding and billing performance
  • Promotions and marketing efforts to increase the volume of high margin services
  • Renegotiation of reimbursement rates with payers

These traditional business-focused interventions are necessary and should be undertaken as a matter of course. However, health system executives should be looking at opportunities for fundamental changes to the care delivery process as a means to improve financial performance. More fundamental interventions could include:

Standardization around clinical best practices

For many years we have known that there is significant variation in clinical practice between providers with no demonstrated value as defined by improved clinical outcomes. It is estimated that up to 30% of all care delivered in the U.S. is unnecessary. This unnecessary care has an estimated cost somewhere north of $700 billion. In many health systems, a 100% variance exists in the cost, length of stay, complication rate and clinical outcomes for patients with the same case-mix adjusted diagnosis. Isn’t it time that we challenged ourselves to reap the benefits of reducing unnecessary variation in clinical practice by determining what the best evidence-based clinical practices are and then standardizing around those in our various health systems.

Improve provider productivity through the adoption of team-based care models

Studies suggest that a team-based approach to care, where a team of health care providers is responsible for a patient’s care, has the potential to lower the cost of care. In a typical clinic or physician office setting a physician attempts to cover all of a patient’s needs in one hurried 15-minute appointment. In the new model, a team of providers works to address the treatment, prevention and educational needs of an individual patient. A team may consist of a physician, a nursing professional, a technician, a pharmacist and a social worker. A model such as this allows all team members to perform at the top of their license which should improve productivity, efficiency, effectiveness, employee morale and patient engagement. Some studies have shown decreases in health care costs by as much as 50%. Five years ago Donald Berwick discussed the Alaska-based NUKA System of care delivery and noted that this team-oriented, prevention-based system could reduce hospital admissions by as much as 65%.

Shift care to the lowest cost site that is appropriate

It is estimated that in many health systems 30 – 50% of current hospital inpatients could be shifted to non-inpatient sites of care if there were better alternative delivery sites including intensive home care services, outpatient surgery centers with the capability for overnight observation, high-intensity ambulatory care services and telemedicine programs which pushed the envelope of state of the art technology. Hospital at Home Programs that allow patients to receive acute care at home have been effective in cutting the cost of care by as much as 30%. The current crop of demonstration projects related to orthopedic joint replacement bundles are a current world example of capturing the savings associated with placing patients in the proper, lowest cost site of care for their progressive stages of treatment, recovery and rehabilitation.

Improve care coordination

Today, though we are 5 years into widespread implementation of electronic medical records, coordination of care efforts for an individual patient by their multiple care providers is not a foregone conclusion. The management of patients with chronic conditions is a situation in which we see this lack of coordination create a significant financial and clinical burden. For a number of chronic conditions such as diabetes best practices and clinical guidelines have been developed and validated. Despite this fact, over one-third of individuals with diabetes do not have a foot or retinal exam nor receive a flu shot annually. Multiple examples of poor care coordination can be found for acute episodes of illness in the mismanaged transitions of care from the pre-acute stage to inpatient to post-acute and home care. Excessive lengths of hospital stays, re-admissions and unnecessary testing are the big ticket expenses that deteriorate health system profitability. Formal efforts to connect providers to information, redesign care processes and embed best practice care models are the key to tackling the 30% of care that is unwarranted or ineffective.

The time is here for health care systems to move beyond just the use of administrative and business-oriented interventions to address profitability challenges. The clinical process, our core business, is the primary generator of expenses in a health care system. The key to managing costs then is to change the process by which care is provided rather than focus primarily on lowering the cost of inputs to the current care process. To use a clinical metaphor, “Why only treat the symptoms of an illness rather than cure the underlying disease?”…….

Comments? You can contact me directly via my AdvisoryCloud profile.

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