Misplaced Frugality – Mistakes Healthcare Providers Make

The cost of healthcare in the United States is a constant hot topic, and has been for some years now. Healthcare providers are under constant pressure to be more cost conscious while still maintaining a commitment to quality care. New health plans now in the marketplace, global payment mechanism or episode based reimbursement, an increase in the willingness of payers to take a hard line in negotiating with providers, and disruption from within the field of medical care that is bringing about a rise in new alternatives which often cost less (and can be priced lower) are all contributing to this pressure.

In a recent (November 2014) article in the Harvard Business Review entitled “How Not to Cut Healthcare Costs” authors Robert Kaplan and Derek Haas argue that by focusing on reduction of line item expenses and increasing the volume of patients seen – two of the main methods administrators turn to when they seek to improve the bottom line – but not attending to the proper mix of resources that are needed to be efficient and clinically effective, and not involving clinicians and other front line staff in the decision making process, the choices that are made will often lead to the opposite intended, mainly higher costs and poorer quality of care.

You can read the entire article online, but here is our synopsis.

There are five clear areas where mistakes are being made that result not in cost-cutting but actually in cost increases and often in lower-quality care. The authors identify these as: 1) Cutting Back on Support Staff, 2) Underinvesting in Space and Equipment, 3) Focusing Narrowly on Procurement Prices, 4) Maximizing Patient Throughput, and 5) Failing to Benchmark and Standardize. Here’s how each of these, in turn, becomes a problem. If you are part of the healthcare provider system, take heed!

1) Cutting Back on Support Staff

Since payroll is often 55 – 65% of most operational budgets, it is often the first targeted area for cutting expenses. Since clerical and administrative staff as well as back room support and front desk help are not identified as being direct “income generating” personnel – you don’t bill for your secretarial time – it seems logical that trimming the payroll by reducing the head count in these areas, through attrition or direct cuts, would be a good idea. The law of unintended consequences rears its ugly head quickly though. When clinicians and specialists end up spending more of their time on clerical tasks and paperwork, they spend less time working at the top end of their skillset, which is also the place where the highest income per hour is generated. It makes sense to be sure that you have adequate support staff to allow your most skilled and highest reimbursed personnel do not have to spend time doing tasks that a more economical staff member (in terms of payroll) can perform.

2) Underinvesting in Space and Equipment

Idle space is often seen as a terrible waste of resources. However underinvesting in space, equipment and (as seen above) support personnel can dramatically lower the productivity of the best resources. The authors cite the difference between two surgical practices, one which performs about 10 procedures per professional daily, and the other only 2 or 3. The difference is that the former practice provides two surgical suites per surgeon and the latter only one. Although the first group has a lot (half) of their space and equipment going unused all of the time, the latter suffers from enforced down time for the surgical staff, who have to wait between each procedure for the room to be cleaned, equipment to be re-sterilized and the next patient to be prepped. In the former case, this can all happen in the idle space while the skilled professionals move next door to their alternate suite. When that procedure is accomplished, the steps are reversed, with the team moving to the – now clean – second space right away. The cost of the idle space is far less than the cost of the down time for the qualified team of professionals. Additional examples are given that demonstrate the same point.

3) Focusing Narrowly on Procurement Prices

An over emphasis on negotiating best price packaging for equipment and materials from vendors is often undone by the failure to closely examine how these materials are used in practice. Paying better attention to this more practical aspect of materials management, and particularly soliciting input from the provider staff who thoroughly understand materials deployment and utilization can result in far more savings than just hard core negotiations with vendors.

4) Maximizing Patient Throughput

The trend lately has been to set standards, sometimes nearly impossibly high, relating to the numbers of patients seen by physicians in practice each day. If the measurement metric shifts to quality of outcomes however, it will often prove to be true that physicians will be more productive when they spend more time with fewer patients. For many conditions and to improve health in general, allowing physicians time to talk with the patient (and their families or caregivers) about proper post-procedure care will result in better outcomes overall, and can directly contribute to cost savings as in cases where some pre-procedure planning and in-home preparation could mean that a patient could go from surgery/recovery to home and bypass a more expensive trip to a rehab unit. These same types of savings can be realized in the general treatment of chronic illness, wherein more time spent with the patient often results in higher compliance with care plans, better outcomes, and a better bottom line for the healthcare practice.

5) Failing to Benchmark and Standardize

The authors speak (not exactly tongue in cheek) about “eminence based practice” rather than “evidence based practice”, and truth is that most professionals don’t like to have the way they do things scrutinized. However, using good benchmarking systems and examining the practice of individual clinicians followed by comparing and contrasting can often point out ways in which the best practices of individuals can become collective standardized practices, leading to both cost effectiveness and clinical excellence. An active, collaborative working relationship among professionals and between clinicians and administrators can bring about tremendous success stories. This article describes one example in which the Mayo Clinic, working with only five cardiovascular surgeons to help each of them learn how to improve their practice from facets of the other four, saved over $15,000,000 in three years!

Data gathering, benchmarking, process analysis, and a willingness to change. Encouraging collaboration among professionals and across specialties. Fostering an atmosphere in which all participants understand that they can both cut costs and provide quality care. Avoiding common pitfalls as described above. All of these factors can help make sure that we stop pursuing healthcare cost cutting measures that in the end work exactly opposite from what was intended.