COST REDUCTION:
IDENTIFYING THE OPPORTUNITIES
Southwestern Ohio HFMA May Institute
May 17, 2012
Presented by:
Jamie Cleverley
Cleverley + Associates
Today’s Objectives
1) Confront national healthcare cost questions
a) Are we experiencing a national healthcare cost crisis?
b) If there is a crisis, do I have a role and responsibility to help
change it?
2) Examine characteristics of low-cost providers through a
national study of US acute-care hospitals
a)
b)
c)
d)
e)
How big is the cost gap?
Are certain demographic factors associated with higher cost?
What areas do “low-cost” providers excel?
Does “lower-cost” necessitate “lower-quality?”
What is the impact on margin?
3) Determine a framework for cost assessment and
management execution
|2|
CONFRONTING NATIONAL HEALTHCARE COST ISSUES
Confronting national healthcare cost issues
?
Are we experiencing a national
healthcare cost crisis?
|4|
20%
18%
6%
1966
2010
2020
Confronting national healthcare cost issues
What we know: Healthcare’s % of GDP is increasing
|5|
National Health Expenditures (top five areas)
Source: CMS Data Compendium 2011 Edition
Confronting national healthcare cost issues
What we know: All Healthcare segments are growing
|6|
Annualized Change in National Health Expenditures by Area
1980-1990 % Change
1990-2000 % Chg
Drugs
12.8%
Drugs
Physician
12.8%
Admin Priv Hlth Ins
Admin Priv Hlth Ins
12.4%
Nursing Home
Other
2000-2009 % Chg
11.6%
Drugs
8.4%
7.7%
Admin Priv Hlth Ins
8.1%
Other
6.1%
Hospital
6.9%
11.4%
Dental
7.0%
Other
6.5%
11.3%
Nursing Home
6.6%
Physician
6.4%
Hospital
9.6%
Physician
6.2%
Struct & Equip
6.3%
Struct & Equip
9.4%
Struct & Equip
5.9%
Dental
5.7%
Dental
9.0%
Hospital
5.2%
Nursing Home
5.4%
TOTAL ALL
6.6%
TOTAL ALL
6.8%
TOTAL ALL
11.0%
Source: CMS Data Compendium 2011 Edition
Confronting national healthcare cost issues
What we know: All Healthcare segments are growing
|7|
Source: CMS Data Compendium 2011 Edition
Confronting national healthcare cost issues
What we know: Government’s responsibility is increasing
|8|
Gross Public Debt as a Percentage of GDP
Confronting national healthcare cost issues
What we know: Government’s ability to pay is challenged
|9|
Context for Medicare payment policy
Growing health care costs have a significant fiscal impact on
federal, state, and local governments, as government payers
directly sponsor nearly half of all health care spending.
Furthermore, the federal government may be less able to provide
financial support to fiscally strapped states as a result of its own
long-term deficit picture. While the federal government’s shortterm fiscal outlook could modestly improve as the economy
recovers, the United States faces a long-term deficit that needs
to be addressed by cutting spending, by increasing revenue, or
by some combination of the two. Growth in health care
spending in the Medicare and Medicaid programs contributes
materially to that deficit.
Source: Medpac, “Medicare Payment Policy,” March 2012
Confronting national healthcare cost issues
What we know: Government’s ability to pay is challenged
| 10 |
Overall Medicare Margins 2001-2010
Source: Medpac, “Medicare Payment Policy,” March 2012
Confronting national healthcare cost issues
What we know: The result has been deteriorating margins
| 11 |
According to MedPac:
Why margins improved
Overall aggregate Medicare profit margins improved from
−7.1 percent in 2008 to −4.5 percent in 2010 for two
reasons: First, hospitals slowed their cost growth in
reaction to the economic downturn, and second they
made changes in documentation and coding that led to
higher hospital payments. Although the average hospital
Medicare margin is negative, we find that Medicare
payments more than covered the fully allocated costs of
the median efficient hospital, which operated with a 4
percent Medicare margin in 2010. We project overall
aggregate margins of –7 percent in 2012.
Source: Medpac, “Medicare Payment Policy,” March 2012
Confronting national healthcare cost issues
What we know: The result has been deteriorating margins
| 12 |
While the reasonableness of our
country’s healthcare cost structure can
be debated – our ability to fund
healthcare cost growth cannot.
Confronting national healthcare cost issues
?
Are we experiencing a national
healthcare cost crisis?
| 13 |
Confronting national healthcare cost issues
?
If there is a crisis, do I have a role and
responsibility to help change it?
| 14 |
Cost/Unit & Utilization Considerations
Confronting national healthcare cost issues
If “yes,” I need to understand what I can control
| 15 |
Cost/Unit & Utilization Considerations
“As important as it is to manage the cost of medical services
and products, and eliminate wasteful utilization, there has
been a strong recognition that ultimately healthier
populations cost less,” said Dr. Ian Chuang, medical director at
the Lockton Companies, advisers to many medium-size
employers. His firm touts programs that encourage employees
to shed pounds, get active or quit smoking.
Ricardo Alonso-Zaldivar. “Obamacare Collapse Would Put Employers in Charge." US News & World Report.
April 24, 2012. http://www.usnews.com/news/us/articles/2012/04/24/the-next-health-care-overhaul-lookto-employers
Confronting national healthcare cost issues
If “yes,” I need to understand what I can control
| 16 |
Efficient providers—While Medicare payments are currently less
than costs for the average hospital, a key question is whether
current Medicare payments are adequate to cover the costs of
efficient providers. To explore this question, we have examined
financial outcomes for a set of hospitals that consistently
perform relatively well on cost, mortality, and readmission
measures. We find that Medicare payments more than covered
the costs of the median efficient hospital, with the median
efficient hospital generating a 4 percent Medicare margin in
2010.
Source: Medpac, “Medicare Payment Policy,” March 2012
Confronting national healthcare cost issues
If “no,” Medicare believes you should because they don’t see
additional value in higher cost providers
| 17 |
IS THERE A COST DIFFERENCE AMONG HOSPITALS?
Hospital Cost Index® Medians by Group – 2010
Low Cost
(QTR 1 HCI)
Low-Mid Cost
(QTR 2 HCI)
Mid-High Cost
(QTR 3 HCI)
High Cost
(QTR 4 HCI)
US CAH
Hospitals
US PPS
Hospitals
85.2
95.9
106.9
125.8
113.4
101.3
Cost differences among hospitals
How extreme are the cost differences among hospitals?
48% Difference b/t Low & High
| 19 |
Cost differences among hospitals
Median Net Patient Revenue (millions) by
Hospital Cost Index® Quartiles
| 20 |
Cost differences among hospitals
Urban/Rural Status by
Hospital Cost Index® Quartiles
| 21 |
Cost differences among hospitals
Organization Type by
Hospital Cost Index® Quartiles
| 22 |
Cost differences among hospitals
Teaching Status by
Hospital Cost Index® Quartiles
| 23 |
Cost differences among hospitals
Median Medicaid Days % by
Hospital Cost Index® Quartiles
| 24 |
Regional Divisions Used by the United States Census Bureau
Alaska
Arizona
California
Colorado
Hawaii
Idaho
Montana
WEST
Nevada
New Mexico
Oregon
Utah
Washington
Wyoming
Illinois
Indiana
Iowa
Kansas
Michigan
Minnesota
MIDWEST
Missouri
Nebraska
North Dakota
Ohio
South Dakota
Wisconsin
Alabama
Arkansas
Delaware
Dist of Columbia
Florida
NORTHEAST
Connecticut
Maine
Massachusetts
New Hampshire
New Jersey
New York
Pennsylvania
Rhode Island
Vermont
Cost differences among hospitals
Regional differences in hospital costs
SOUTH
Georgia
North Carolina Texas
Kentucky Oklahoma
Virginia
Louisiana South Carolina West Virginia
Maryland Tennessee
Mississippi
| 25 |
98.3
102.8
100.4
Cost differences among hospitals
Median Hospital Cost Index® by
Regional Divisions
101.7
| 26 |
Revenue Areas
Mid-High
Cost (106.9)
High Cost
(85.2)
Low-Mid
Cost (95.9)
2.9
2.5
2.8
2.2
1.4591
1.4722
1.4534
1.3507
IP CODING Overall Short Stay (LOS = 1)
20.8
19.7
19.2
18.3
OP CODING Change in RW (SMI) %
-4.9
-5.8
-5.1
-5.6
OP CODING Avg RW per OP Visit (SMI)
8.9878
8.8001
8.2003
7.6278
OP CODING Average ED Level
3.627
3.600
3.572
3.469
96.1
107.2
104.5
104.1
Low Cost
IP CODING Change in Medicare CMI %
IP CODING Medicare CMI
PRICING
Hospital Charge Index®*
*wage index adjusted
(125.8)
Cost differences among hospitals
In what areas do low cost hospitals excel?
| 27 |
Cost Areas
Mid-High
Cost (106.9)
High Cost
(85.2)
Low-Mid
Cost (95.9)
5,637
6,447
7,143
8,273
Average Cost per Visit (RW =
1.0)*
68
77
87
104
INDIRECT
Overhead Cost %
32
32
33
34
INDIRECT
Capital Costs per Equivalent
Discharges™*
432
494
565
678
LABOR
Direct Cost per Routine Day*
369
382
416
464
LABOR
Man-hours per Equivalent
Discharges™
96.8
105.5
113.6
129.1
LABOR
Salary per FTE*
57,642
59,037
59,579
59,554
Low Cost
INPATIENT
OUTPATIENT
Average Cost per Medicare
Discharge (CMI = 1.0)*
*wage index adjusted
(125.8)
Cost differences among hospitals
In what areas do low cost hospitals excel?
| 28 |
Cost Areas
Mid-High
Cost (106.9)
High Cost
(85.2)
Low-Mid
Cost (95.9)
Low Cost
(125.8)
ANCILLARY
Avg Pharmacy Cost per
Medicare Discharge (CMI = 1.0)
525
608
667
712
ANCILLARY
Avg Medical Supply Cost per
Medicare Discharge (CMI = 1.0)
608
720
784
846
355
399
454
519
201
234
259
290
2,975
3,471
3,858
4,409
3.1
3.2
3.2
3.3
Avg Lab Cost per Medicare
Discharge (CMI = 1.0)*
Avg Radiology Cost per
ANCILLARY Medicare Discharge (CMI =
1.0)*
Ancillary Cost per Medicare
ANCILLARY
Discharge (CMI = 1.0)*
ANCILLARY
INTENSITY Medicare LOS (CMI = 1.0)
*wage index adjusted
Cost differences among hospitals
In what areas do low cost hospitals excel?
| 29 |
Financial Areas
Mid-High
Cost (106.9)
High Cost
(85.2)
Low-Mid
Cost (95.9)
46
49
49
53
EFFICIENCY Revenue/Net Fixed Assets
2.84
2.53
2.40
2.45
PLANT AGE Average Age of Plant
10.2
10.2
10.1
8.7
-2.2
-1.0
-1.4
-0.8
Low Cost
COLLECTION Days in A/R
INVESTMENT 2-yr Change in Net Fixed Assets
(125.8)
DEBT
Debt Financing %
50.3
49.6
46.3
45.5
ROI
Return on Equity
10.5
9.3
8.4
6.9
*wage index adjusted
Cost differences among hospitals
In what areas do low cost hospitals excel?
| 30 |
Financial Areas
Low Cost
Low-Mid Cost
Mid-High Cost
High Cost
(QTR 1 HCI)
(QTR 2 HCI)
(QTR 3 HCI)
(QTR 4 HCI)
MARGIN
Expected Profit on
DRGs %
11.0
0.6
-5.5
-15.9
MARGIN
Expected Profit on
APCs %
1.4
-12.1
-24.1
-45.5
MARGIN
Operating Margin
4.1
3.2
2.9
1.9
8,700
9,623
Cost differences among hospitals
In what areas do low cost hospitals excel?
Why are margins at high cost hospitals not lower?
Net Patient Revenue
PAYMENT
per Equivalent
Discharge*
7,336
8,079
*wage index adjusted
| 31 |
Examination of quality performance through CMS’
Hospital Compare Database is grouped into two areas:
 Process of Care Metrics
 Hospital performance relative to best
practices in five clinical areas
 Outcome of Care Metrics
 Thirty-day risk adjusted mortality and
readmission rates
Cost differences among hospitals
Does “lower-cost” necessitate “lower-quality?”
| 32 |
Five Assessment
Points
Areas of Evaluation
The Hospital Quality Index™ (HQI) takes the information available in CMS’ Hospital Compare database and
provides a single score for hospital performance. The HQI includes three assessment points for process of care
and two assessment points for outcome of care. The combination of these five assessment points results in the
HQI score. A higher score is desirable for all components, including the overall HQI score.
 Outcome of Care Metrics
 Process of Care Metrics

Twenty-five metrics used in the
areas of Heart Attack, Heart
Failure, Pneumonia, and Surgical
Infection Prevention

Thirty-day risk adjusted
mortality and readmission
rates for heart attack, heart
failure, and pneumonia
% Natl Avg
% Reporting
% Top Ptile
Natl Mort Scr
Natl Readm Scr
(% the hosp is
above or below
the natl avg for
process of care)
(% of process of
care metrics
reported by
hosp)
(% hosp scores at
highest level for
process of care
metrics)
(Thirty-day risk
adjusted
mortality rate for
hosp)
(Thirty-day risk
adjusted
readmission rate
for hosp)
Cost differences among hospitals
Does “lower-cost” necessitate “lower-quality?”
Hospital Quality Index™
*A higher score is desirable in each area
| 33 |
Quality Areas
Mid-High
Cost (106.9)
High Cost
(85.2)
Low-Mid
Cost (95.9)
Low Cost
(125.8)
PROCESS
% National average
102.79
102.66
102.24
101.50
PROCESS
% Areas reported
89.66
93.10
93.10
89.66
PROCESS
% At or above 10th percentile
29.63
28.57
28.57
30.77
OUTCOME National Mortality Score
101.58
100.49
99.71
99.24
OUTCOME National Readmission Score
98.77
99.47
99.50
99.99
OVERALL
97.14
96.78
96.31
95.67
Hospital Quality Index™
Cost differences among hospitals
Does “lower-cost” necessitate “lower-quality?”
HIGHER SCORES ARE DESIRABLE IN ALL AREAS
| 34 |
Quality Areas
Cost differences among hospitals
Does “lower-cost” necessitate “lower-quality?”
| 35 |
1) Various demographic factors are moderately associated
with higher cost
2) In general, high cost hospitals can exist in any region,
organization type or structure
3) Low cost hospitals excel in numerous operational areas.
Length of stay and quality do not show significant
differences across groups.
Cost differences among hospitals
What does the data reveal?
4) Low cost hospitals are more profitable in Medicare, but,
have only slightly higher operating margins. Relatively
speaking, high cost hospitals must be generating more
revenue.
| 36 |
MEASURING HOSPITAL COST
1) Evaluates complete hospital cost position
H
2) Permits trending over time
Measuring hospital cost
Why one facility metric of comparison?
3) Allows for comparative benchmarking
Traditional facility-level hospital cost metrics:
1) Cost per adjusted patient day (with or without CMI adjustment)
2) Cost per adjusted discharge (with or without CMI adjustment)
| 38 |
Total
Costs
(000)
Patient
Days
Gross OP
Rev (000)
Gross IP
Rev (000)
Adj Pt
Days
Cost/
Adj Pt
Day
Data prior
to rate
increase
60,000
12,000
70,000
60,000
26,000
2,308
10% OP rate
increase
60,000
12,000
77,000
60,000
27,400
2,190
Measuring hospital cost
Issues with traditional ‘adjusted’ metrics
Adjusted Patient Days Formula:
IP Patient Days X [1+(Gross OP Rev/Gross IP Rev)]
| 39 |
CREATE LOW COST PATIENT ENCOUNTERS
Inpatient Costs
Cost per Discharge
Measuring hospital cost
The ultimate goal in understanding and addressing cost issues
Outpatient Costs
Cost per Visit
Patient Encounter Cost:
Cost = (Q1 X C1) + (Q2 X C2) + … + (Qn X Cn)
Where Q = quantity of units and C = cost per unit
| 40 |
Facility-level cost measure:
Hospital Cost Index®
Inpatient Costs
Inpatient Cost Index
Outpatient Costs
Outpatient Cost Index
Formula:
Your Medicare Cost
per Discharge (CMI/WI adj)
US Median Medicare Cost
per Discharge (CMI/WI adj)
Formula:
Your Medicare Cost
per Visit (RW/WI adj)
US Median Medicare Cost
per Visit (RW/WI adj)
Measuring hospital cost
Facility-level cost comparison through one metric
| 41 |
Equivalent Discharges™
(Equivalent Patient Units™)
Inpatient Volume
Outpatient Volume
Formula:
Total Gross Inpatient Charges
Hospital Average Medicare Charge
per Discharge (CMI adj)
Formula:
Total Gross Outpatient Charges
Hospital Average Medicare Charge
per Visit (RW adj)
# OF EQUIVALENT IP DISCHARGES
# OF EQUIVALENT OP VISITS
=
Measuring hospital cost
What about volume?
=
+
# OF EQUIVALENT OP DISCHARGES
=
Multiply by Medicare
payment conversion factor
# EQUIVALENT DISCHARGES
| 42 |
IDENTIFYING AND ACTING ON COST OPPORTUNITIES
1
2
ATB
Strategic
o Target set (5% reduction) and all
areas must comply
o Allows whole organization to be
involved
o Can jeopardize high-performing
(lean) areas
o Targeted areas identified for cost
reduction
o Can cause identified areas to feel
‘singled out’
o Permits cost efficiency only in
areas that are most weak
Identifying and acting on cost opportunities
Two approaches to cost reduction
| 44 |
o The mix and quantity
of services/procedures
o Nursing days
(LOS)
o Cost incurred
to produce
a specific procedure
o Nursing hours
o Price per unit
COST
o Nursing salaries
Identifying and acting on cost opportunities
Understanding the three spheres of influence on cost
| 45 |
Level of
Comparison
Metric
Purpose
FACILITY
Hospital Cost Index®
Identify position and extent of
cost opportunity
Survey
Medicare Cost per Discharge
(CMI/WI adj)
Determine level of inpatient
opportunity
Survey
Medicare Cost per Visit
(RW/WI adj)
Determine level of outpatient
opportunity
Survey
INPATIENT CASE
Cost by MS-DRG
Are certain MS-DRGs higher cost
Focus
OUTPATIENT CASE
Cost by APC
Are certain APCs higher cost
Focus
DEPARTMENT
Department Relative Value Unit
Comparisons
Are certain departments driving
costs higher
Action
LINE ITEM
Costs by item code
Are certain items higher cost
Action
PHYSICIAN
Costs by physician
Are certain physicians higher cost
Action
Identifying and acting on cost opportunities
Evaluating cost at multiple levels to determine action areas
| 46 |
Regional/Best Practice
Hospital Market
WHO??
Core
Hospital
Market
SERVICES??
Identifying and acting on cost opportunities
Creating strategic comparisons
IS IT ACTIONABLE??
| 47 |
HOSPITAL COST INDEX®
Identifying and acting on cost opportunities
Case example 1: Intensity issue
| 48 |
MEDICARE LOS
Identifying and acting on cost opportunities
Case example 1: Intensity issue
| 49 |
TOP INPATIENT OPPORTUNITIES – CASE 1
DRG Definition
Top Five Medicare Opportunities at the US Average
871 Septicemia w/o MV 96+ hours w MCC
853 Infectious & parasitic diseases w O.R. procedure w MCC
189 Pulmonary edema & respiratory failure
064 Intracranial hemorrhage or cerebral infarction w MCC
177 Respiratory infections & inflammations w MCC
Top Five Medicare Opportunities at Local 1
871 Septicemia w/o MV 96+ hours w MCC
189 Pulmonary edema & respiratory failure
853 Infectious & parasitic diseases w O.R. procedure w MCC
177 Respiratory infections & inflammations w MCC
004 Trach w MV 96+ hrs or PDX exc face, mouth & neck w/o maj OR
Top Five All Payer Opportunities at the US Average
795 Normal newborn
775 Vaginal delivery w/o complicating diagnoses
945 Rehabilitation w CC/MCC
871 Septicemia or severe sepsis w/o mv 96+ hours w MCC
765 Cesarean section w CC/MCC
Case 1
Cost
Comparison
Cost
Annual
Savings
13,755
44,630
11,147
16,422
16,599
11,394
30,187
9,435
10,883
12,681
930,385
794,335
600,837
454,212
352,699
13,755
11,147
44,630
16,599
68,140
9,703
8,368
30,960
10,249
51,099
1,596,610
975,550
751,814
571,568
408,981
2,982
4,273
20,854
15,214
9,082
1,354
3,162
15,956
12,694
7,065
4,999,741
3,080,234
2,771,768
2,079,387
1,508,694
Identifying and acting on cost opportunities
Case example 1: Intensity issue
| 50 |
?
How do we know costs are high?
1. This is a top opportunity MSDRG based on Medicare and All-Payer data
DRG Definition
Top Medicare Opportunities at the US Average
871 Septicemia w/o MV 96+ hours w MCC
Top Medicare Opportunities at Local 1
871 Septicemia w/o MV 96+ hours w MCC
Top All Payer Opportunities at the US Average
871 Septicemia or severe sepsis w/o mv 96+ hours w MCC
?
Case 1 Comparison
Cost
Cost
Annual
Savings
13,755
11,394
930,385
13,755
9,703
1,596,610
15,214
12,694
2,079,387
What is the opportunity?
1. Length-of-stay variation appears to be the central cost driver
Heavier
ICU
Longer
LOS
Case 1
Case 2
Local 1
Local 2
Regional 1
Regional 2
US
ICU Days
4.55
2.10
0.96
2.61
1.60
4.49
2.38
Routine Days
3.63
4.59
4.39
4.96
4.50
2.96
4.58
Total
8.18
6.69
5.35
7.57
6.10
7.45
6.96
Identifying and acting on cost opportunities
Case example 1: Intensity issue
| 51 |
?
What is the opportunity?
2. Potential savings for septicemia treatment cost
(based on all payer MSDRG 871):
• No net reduction in LOS – just reallocation of ICU to Routine
o Reduce ICU LOS by two days
o Increase Routine LOS by two days
ICU
Routine
TOTAL SAVINGS
Direct Cost per
Day
$821
$350
Change in
Days
-1,650
1,650
$ Change
-1,354,650
577,500
$777,150
Identifying and acting on cost opportunities
Case example 1: Intensity issue
| 52 |
?
How do we know costs are high?
1. This is a top opportunity MSDRG based on All-Payer data (Medicare data excludes subprovider)
DRG Definition
Top All Payer Opportunities at the US Average
945 Rehabilitation w CC/MCC
?
Case 1
Cost
Comparison
Cost
Annual
Savings
20,854
15,956
2,771,768
What is the opportunity?
1. Length-of-stay variation appears to be the central cost driver
LOS
Case 1
US
Difference
14.52
13.05
1.47
2. Physician variation at Case 1 is significant
Physician
MSDRG 945 Cases
Average LOS
XXX270
159
12.8
XXX271
148
15.2
XXX272
131
15.0
XXX273
128
15.5
Significantly lower
average LOS
Identifying and acting on cost opportunities
Case example 1b: Intensity issue
| 53 |
?
What is the opportunity?
3. Potential savings for rehabilitation treatment cost
(based on all payer MSDRG 945):
• Reduction of LOS to US average (1.47 day savings per case)
• 566 Cases X 1.47 Days X $350 direct cost per day = $291,207
• 566 Cases X 1.47 Days X $750 fully allocated cost per day = $624,015
Identifying and acting on cost opportunities
Case example 1b: Intensity issue
| 54 |
HOSPITAL COST INDEX®
Identifying and acting on cost opportunities
Case example 2: Productivity issue
| 55 |
?
How do labor costs/productivity compare?
1. Routine care department costs are at the Custom Group 66th percentile
2. Direct cost per patient day is higher than comparison peers and Custom Group
Routine Direct Cost per
Patient Day WI
Case Hospital
Competitor
Custom
Group
413
363
343
3. Productive hours per patient day are higher than group median
Mgmt
hrs/day
Techs
hrs/day
RNs
hrs/day
Licensed Voc
Nurses
hrs/day
Aides &
Orderlies
hrs/day
Clerical
hrs/day
Total
Productive
hrs/day
Case Hospital
2.04
0.46
0.68
6.56
3.68
1.97
15.40
Group Median
0.20
0.01
5.89
0.63
2.31
0.59
9.62
Identifying and acting on cost opportunities
Case example 2: Productivity issue
| 56 |
?
What is the opportunity?
4. Potential savings for routine care treatment:
• Savings projected at Custom Group median level
• Case hospital cost per day ($413) – Custom group median cost per
day ($343) X Case hospital routine days (21,563) = $1,509,410
5. Alternative method of potential savings for routine care treatment:
• Case hospital productive hours per day (15.40) – Group median
productive hours per day (9.62) X Case hospital Salary and Benefits
per hour ($29.19) X routine days (21,563) = $3,638,070
Identifying and acting on cost opportunities
Case example 2: Productivity issue
| 57 |
HOSPITAL COST INDEX®
Identifying and acting on cost opportunities
Case example 3: Resource price issue
| 58 |
TOP FIVE DEPARTMENTAL SAVINGS OPPORTUNITIES
Department
Direct Cost
Cost per
Unit
Output Unit
Percentile
within
Group
Savings at
Peer Group
Median
Central Services
and Supply
22,084,462
153.74
Adj. Pt Days
74
10,565,391
Employee Benefits
24,476,953
13,535.37
Fac FTEs
86
7,382,994
Nursing
Administration
2,747,723
53.06
Dir Nursing Hrs
86
2,645,790
Operating Room
9,351,278
22.19
Wtd Procedures
69
1,915,205
Pharmacy
12,931,830
90.02
Adj Pt Days
61
1,579,007
Identifying and acting on cost opportunities
Case example 3: Resource price issue
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TOP SUPPLY SAVINGS DRGs
(Medicare Data)
MSDRG Description
247
227
246
Perc cardiovasc proc w drug-eluting
stent w/o MCC
Cardiac defibrillator implant w/o
cardiac cath w/o MCC
Perc cardiovasc proc w drug-eluting
stent w MCC or 4+ vessels/stents
Case 1
Supply Cost
US Supply
Cost
Case 1
Discharges
Total
Savings
5,783
4,612
286
334,831
32,342
20,246
11
133,058
8,716
6,257
42
103,271
Identifying and acting on cost opportunities
Case example 3: Resource price issue
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Notes on MSDRG 247 (and 246):
NUMBER OF STENTS – PHYSICIAN LEVEL
(All Payer Submitted Data)
• Submitted “all payer” claims data
also shows supply and pharmacy cost
opportunity
• There is virtually zero variation in
stent item code use by physicians,
however, there is significant variation
in the number of stents per patient
(seen at right).
• Some cases exceed four stents (could
be 246 categorized)
• Cost per stent is significantly higher
compared to US averages. Cost per
unit savings is $600,000 annually.
Number of
Max
Average
Physician
Patient
Number of Number of
Code
Claims
Stents
Stents
Highest two averages:
XXXX1
2
4
2.5
XXXX2
5
5
2.4
Volume greater than 20 claims:
XXXX3
78
5
1.7
XXXX4
33
4
1.6
XXXX5
22
3
1.5
XXXX6
64
3
1.5
XXXX7
50
4
1.4
XXXX8
24
4
1.4
XXXX9
44
3
1.4
XXX10
59
4
1.3
Lowest two averages:
XXX11
1
1
1.0
XXX12
1
1
1.0
Identifying and acting on cost opportunities
Case example 3: Resource price issue
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DATA –
Understand your position
RELATIONSHIPS –
Understand the cost drivers
OPPORTUNITIES –
Know where to take action
EXECUTE –
Implement strategy
MANAGE –
Identifying and acting on cost opportunities
Process
Track progress
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Summary
1) Our country’s healthcare cost crisis rests primarily on our
inability to fund projected cost growth. As a result, reduced
federal reimbursement (and likely commercial, as well) will
force hospitals to reduce cost to remain viable.
2) Demographic factors do not significantly influence hospital
cost – hospitals in multiple settings can be either high or low
cost. Further, data reveals that low-cost providers can also be
high-quality.
3) Hospitals can evaluate facility cost position and then follow
“data paths” to identify and take action on cost opportunities.
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Thank you. Questions?
Jamie Cleverley
Principal
Cleverley + Associates
Email: jcleverley@cleverleyassociates.com
Phone: (614) 543-7777
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