Healthcare generates an estimated $1 trillion in waste each year, including supply costs, unnecessary tests, and surgeries that aren’t clinically indicated by best practices. One effective way health systems can reduce waste is by centralizing duplicated services into one high-performing center for that service. For example, instead of having a few cardiac catheterization (cath) labs, a health system can consolidate its cath services into one facility, cutting equipment, staffing, and space requirements. Despite its clinical and financial benefits, centralization can be challenging for health system leaders, who may face operational and political challenges when cutting services from certain locations. To navigate these challenges, leadership must use a data- and analytics-driven centralization strategy and a data and analytics system that can measure performance at the surgeon, facility, and program levels.

1. Addressing Healthcare Waste
Through Centralization

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Addressing Healthcare Waste
Health systems with duplicate services across
multiple facilities in close proximity have an
increased risk of unnecessary variation,
greater costs, and suboptimal outcomes.
By using data and analytics to identify high-
performing programs and centralizing
duplicated services at those locations,
health systems can improve clinical and
financial outcomes.

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Addressing Healthcare Waste
For example, an organization doesn’t likely
need three facilities in the same city doing the
same specialized services (e.g., three cardiac
catheterization centers in the same vicinity).
Duplication—whether in cath labs, specialty
imaging, or cancer treatment—tends to
result from competition between facilities,
an interest from medical staff leadership,
or a perceived need in the community,
among many other reasons.
All are legitimate motives, but, over time,
duplication can result in sub-optimization of
resources and performance.

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Addressing Healthcare Waste
Using outcomes and cost data, the health
system can identify the top-performing
center, whatever the service, from a cost
and quality perspective and consolidate
services accordingly.
In so doing, the organization reduces
costs associated with duplicated services.
It also consolidates its best clinicians,
support services, and equipment into
one place, ensuring patients the best
care the system offers at the most
appropriate cost.

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Addressing Healthcare Waste
While the financial and clinical benefits to
organizations, and to patients, of
centralizing services are clear, leadership
may face operational and political
challenges carrying out these
consolidations.
This presentation discusses the benefits
and opportunities in consolidation, as
well as common challenges.

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An Estimated $1 Trillion in Healthcare Waste
Healthcare wastes an estimated $1 trillion
annually in supply costs, unnecessary
tests, and procedures that aren’t clinically
indicated by best practices.
Figure 1 (next slide) shows the three
classes of waste (case-rate utilization,
within-case utilization, and efficiency), the
percentages each makes up, and the
waste subclasses.
Within the subclasses are several
instances where duplication of services
within a health system can increase waste.

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Examples of Removing Waste
Waste Class Waste subclass
3. Case-rate utilization
(#cases per population)
45% a) Inappropriate cases (risk outweighs benefit)
(e.g., many cath lab procedures; CTPA)
b) Preference-sensitive cases
(when given a fair choice, many patients opt-out)
(e.g., elective hips, knees; end-of-life care)
c) Avoidable cases (hot-spotting; move upstream)
(e.g., team-based care)
2. Within-case utilization
(# and type of units per case)
50% a) Clinical variation
(e.g., QUE studies; surgical equipment)
b) Avoidable patient injuries
(e.g., serious safety event systems; CLABSI)
1. Efficiency
(cost per unit of care)
5% a) Supply chain
b) Avoidable patient injuries
(e.g., regulatory reporting burden; redundant manual reporting;
current EMR function; billing/rev cycle thrash; long patient wait times)
Figure 1: Waste in the healthcare system
% of all waste

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Four Challenges of Centralization
Health systems face four challenges when they centralize a service:
1. Getting the Right Data
2. Navigating Cultural Challenges
3. Negotiating Sunk Costs
4. Impacting Reputation

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Four Challenges of Centralization
1: Getting the Right Data
Not all health systems have extensive outcomes and
cost data and an agile data platform (e.g., the Health
Catalyst® Data Operating System) to leverage it.
To make informed decisions about consolidation and
measure subsequent performance, organizations
must have both national and internal data and
advanced analytics tools to apply the data to
decision making.

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Four Challenges of Centralization
1: Getting the Right Data
The consequences and implications of
consolidation are too great to do otherwise.
Imagine closing a program and displacing
physicians and employees without complete
confidence in the information upon which
the decision was made.

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Four Challenges of Centralization
2: Navigating Cultural Challenges
A downside of centralization is that the
health system must close a facility, or a
major department, and move or eliminate
groups of clinicians and employees.
To do this successfully, leadership must
align incentives among employees and
create a strong argument for why such an
impactful change is necessary.

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Four Challenges of Centralization
2: Navigating Cultural Challenges
For example, if a health system closes a
cath lab in one of its hospitals, that facility’s
financial performance will likely suffer.
Leadership shouldn’t, however, penalize
the hospital administrator for that decline.
They must instead reward extended
leadership (with financial incentives) for
doing the right thing for the patients and
the overall organization versus fighting for
preservation of their own hospital.

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Four Challenges of Centralization
2: Navigating Cultural Challenges
Secondly, the data must be used to
generate understanding and support for a
change in service or a closure.
It must be demonstrated to all involved that
the patient and the community benefit
overall from the difficult decision.

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Four Challenges of Centralization
3: Negotiating Sunk Costs
Health systems likely face sunk costs when
they centralize services—investments
they’ve made in equipment and services that
they may not get back if they discontinue a
service at one or more hospitals.
This loss may be a fact of centralization
that leaders must accept for the long-term
health of their organizations.

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Four Challenges of Centralization
3: Negotiating Sunk Costs
This may, however, be mitigated by redeploying
space for a more appropriate or productive service.
For example, many spaces can now be better
utilized to meet the growing demand for
outpatient services.

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Four Challenges of Centralization
4: Impacting Reputation
When an organization closes facilities to consolidate
services, its leadership must anticipate changes or
challenges to its reputation within the community.
Even though consolidation aims to improve delivery
of care for specific services and throughout the
system overall, community members may think less
of a facility if it’s not performing a certain service.
This perception may exist even though it previously
performed that surgery at a lower frequency with
higher costs.

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Four Challenges of Centralization
4: Impacting Reputation
Again, the data should be used in this scenario
to explain the change to community leaders
and members.
It is much harder to disagree with such a
decision if people can understand the
expected improvement.

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Meeting the Challenges of Centralization with a
Data-Driven and Patient-Focused Strategy
Consolidation can be very difficult, and only systems
with a data-driven foundation can do it well.
Health systems can address each of the
consolidation challenges above by prioritizing
data and patient outcomes in their decision
making process.
To succeed, they need data and analytics
embedded in their processes so that each
decision, from closing facilities and letting
staff go to accepting sunk costs, is backed
up by both national and internal data.

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Meeting the Challenges of Centralization with a
Data-Driven and Patient-Focused Strategy
Data is the only way leadership can justify
difficult decisions because it objectively finds
high-cost, low-performing facilities for certain
services, allowing the organization to centralize
around its low-cost, high-performing centers.
The best data and analytics vendor systems to
support variation reduction are the ones that
determine variation at all levels—surgeon,
facility, and program.

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For more information:
“This book is a fantastic piece of work”
– Robert Lindeman MD, FAAP, Chief Physician Quality Officer

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More about this topic
Link to original article for a more in-depth discussion.
Addressing Healthcare Waste Through Centralization
Reducing Unwanted Variation in Healthcare Clears the Way for Outcomes Improvement
Josh Ferguson, Clinical Outcomes Improvement, Director
Healthcare AnData-Driven Approach to Improving Cardiovascular Care and Operations Leads to $75M
in Improvements ― Health Catalyst Success Stories
Leading Adaptive Change to Create Value in Healthcare
Val Ulstad, MD, MPA, MPH
Boosting Readiness and Change Competencies Key to Successfully Reducing Clinical Variation
Health Catalyst Success Stories
Communication in Healthcare Culture: Eight Steps to Uphold Outcomes Improvement
David Grauer, MBA, MHSA , Sr. VP Professional Services

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Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com
David comes to Health Catalyst after 23 years in executive leadership positions at
Intermountain Healthcare, a Utah-based, not-for-profit system of 22 hospitals, 185 clinics,
and 1,400 employed physicians that is widely recognized as a leader in clinical quality
improvement and in efficient healthcare delivery.
For the last nine years, Grauer served as CEO/Administrator of Intermountain Medical Center, a
502-bed hospital in suburban Salt Lake City that is both Utah’s largest hospital and the flagship of
Intermountain Healthcare. Previously, he was CEO/Administrator of two other Intermountain
hospitals: Cottonwood Hospital and TOSH—The Orthopedic Specialty Hospital.
David Grauer, MBA, MHSA