How Healthcare Cost-Per-Case Improvements Deliver Big Bottom-Line Savings

How Healthcare Cost-Per-Case Improvements
Deliver Big Bottom-Line Savings

© 2019 Health Catalyst
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With the rising costs of healthcare and the
continued pressure to lower costs, health
systems are facing more pressure than
ever to deliver cost savings.
Many organizations have turned their
attention to cost-per-case as an area for
potential financial improvements, but many
struggle to know where to start when
looking for cost reduction opportunities.
Delivering Bottom-Line Savings in a Big Way

Studies show that the best cost reduction
strategies start with clinical improvements.
In particular, health systems should begin by
looking at ways to reduce clinical variation.
Doing so can help them identify the biggest
opportunities for, not only cost savings, but
also improving care.
If a health system is just getting started
with cost saving and quality improvement
efforts, it’s important to identify the best
areas of opportunity.
It may be more important for long-term
success to start small, on a per-case basis.

Providers may resist the added work of
improvement efforts without evidence the
additional work will pay off.
For that reason, health systems can start
with smaller projects in order to achieve
quick wins and build trust.
Many healthcare cost-per-case improvement
projects can deliver relatively quick wins,
sustained cost reduction, and better care.

The first step to reducing healthcare costs is
determining the current costs.
Health systems should calculate the cost-
per-case per provider to help identify
opportunities for savings.
When doing so, costing accuracy is
extremely important.
The Importance of Costing Accuracy

While some organizations have accurate
costing information, some may need to turn to
other data sources, such as the general ledger
or departmental sources to determine whether
the costing information is accurate.
Having accurate data is crucial to
getting physician buy-in and keeping
improvement efforts moving forward.

Once the team verifies it has accurate data
for a specified group of cases, it can begin
aggregating cost-per-case the cost data of
supplies, labor, and other expenses for
specific procedures by physician.
This helps begin the process of identifying
variability by physician for similar cases or
procedures.
Doing so may identify the cost effects of
using different surgical supplies or a wide
variation in the amount of time spent on a
certain procedure.

For example, a health system may have
orthopedic surgeons who use several
different brands of medical implants.
Many physicians are unaware of the differ-
ence in costs between products, or where
the system could save money by buying all
medical implants from the same company
through the supply chain in order to
receive the best prices.

Identifying variation in costs and best
practices for a procedure is a great first
step, but the improvement team needs
physician buy-in to make these changes.
This can be easier said than done: many
physicians initially resist taking on “one
more thing”.
Physician burnout is a well-documented
and growing problem that health systems
need to combat when tackling cost
reduction and quality improvement efforts.
Four Strategies for Implementing Healthcare
Cost-Per-Case Improvements

The following four strategies can help improvement
teams see greater success when implementing
healthcare cost-per-case improvement projects:
1. Understanding the Importance of Communication
2. Identifying the Right Executive Champion
3. Creating an Interdisciplinary Team
4. Recruiting the Right Tools and Resources

1: Understanding the Importance of Communication
Communicating clearly and frequently about the
goals of the project and how teams will accomplish
them helps facilitate change, and clearly explaining
the data to providers is an important part of that.
Providers need to understand how costing
works, especially for direct variable costs
that they have influence and control over.
Secondarily, a general understanding of
how overhead costs impact overall cost
per case should be communicated.

For example, using the orthopedic surgery example,
direct costs related to a specific procedure would
include the cost of the surgeon and procedure-
specific staff as well as the supplies needed for the
operation (e.g., implantable medical devices).
Overhead costs could include general support
staff (e.g., billers and schedulers) and related
costs (e.g., insurance, taxes, and facility costs).

To gain accurate insights into costs, health systems
may need to invest in a robust activity-based costing
(ABC) system that allows leaders to understand the
true cost of care across the continuum, relate those
costs to patient outcomes, and deliver financial
transparency to care providers and patients.
Transparent communication about financial goals
helps improvement teams gain buy-in and build trust.
In addition to transparency around finances,
effectively communicating a focus on reducing
variation and improving quality of care, as well
as financial goals, will help achieve support and
acceptance.

2: Identifying the Right Executive Champion
Along with effective communication, improvement
initiatives need an executive champion to help lead
the charge and disseminate clear goals to care-
givers and providers.
Choosing the CFO as the executive champion can
give the impression that the focus is solely on cost
savings rather than improving care.
For that reason, the best choice for an executive
champion is often the CEO, COO, CNO, or a
service line leader.

2: Identifying the Right Executive Champion
Change happens when there is clear direction from
the top and goals are aligned throughout the system.
These changes also need to be consistent with the
system’s mission, vision, and values—which the
executive champion can communicate.

3: Creating an Interdisciplinary Team
A best practice for health systems embarking on
improvement efforts is to create a multidisciplinary
team that includes clinical leaders, frontline staff,
the executive champion, and other technical
experts (e.g., data analysts).
Once the team is assembled, it hosts a kickoff
meeting during which the executive champion
explains what the team’s accomplishing and why.

4: Recruiting the Right Tools and Resources
Inaccurate data has little value and can cause
resistance to change.
Many healthcare organizations need to invest
in the right tools and resources necessary for
gathering accurate data and utilizing it to
affect change.
This may mean investing in a robust analytics
platform or an ABC solution or hiring
professional services for opportunity analyses
and strategic consulting, or all the above.
These are all important steps in setting
the team up for success and building
consensus and trust.

Achieving small wins is a great way for new improvement teams to build trust.
As the team prepares to tackle bigger projects, some examples of smaller
cost-per-case projects that can help the team build momentum many include:
Appropriate LOS reduction
improves the quality of care
and, in most cases, reduces
costs. Depending on the
system’s payment
arrangements, reducing LOS
can sometimes mean payments
to the health system from
certain payers are reduced.
Reducing length of
stay (LOS)
Clinicians frequently use
preference cards in the or that
includes a list of necessary
equipment and supplies for a
given procedure. When various
clinicians use different materials
for the same procedure, the
amount of cards increase, often
increasing material waste. Using
standard cards allows the
provider to reduce cost through
a more efficient supply chain.
Standardizing physician
preference cards
Another improvement project
that can produce a relatively
rapid win is looking at how
quickly an organization turns
over rooms. Auditing OR
schedules and how quickly they
turn over can identify wide
variation in operating times and
scheduling practices. Identifying
best practices can help increase
capacity in a high-turnover
situation and free up availability.
Auditing room
turnover times

The three examples above identify relatively smaller
improvement projects that may yield quick wins
while reducing cost-per-case and improving quality.
When improvement teams take an iterative
approach, the results, add up over time to
significantly impact the bottom line—that is, if the
system can sustain these changes over time.
Below are some keys to sustaining improvements:
1. Review often
2. Visually track progress
3. Be transparent
4. Celebrate success
Sustaining Improvements Long Term

1: Review often
Teams can schedule daily or weekly
huddles to review costing metrics and
progress towards both financial and
care improvement goals.
These huddles can be short stand-up
meetings of even 5 to 10 minutes.
Doing so keeps teams focused on
progress and provides frequent
opportunities for course corrections
if signs of backsliding appear.

2: Visually track progress
Teams should have baseline costing
data and be able to track their progress
towards a goal.
It’s especially helpful to represent
progress graphically over time and
make progress as visual as possible.
Teams can use other visual indicators,
such as color-coding data points that
are on target (green), at risk (yellow), or
off track (red).

3: Be transparent
Transparency helps teams make and sustain
financial gains and quality-of-care goals.
Having information about improvement
projects and progress charts in hospital
hallways shows the team’s commitment to
improvement and sends a message to
patients and families about the system’s
commitment to reducing costs and providing
high-quality care.

4: Celebrate success
Providing recognition to those helping usher
in change will better position improvement for
long-term success.
Not all projects will be successful, so teams
that are able to learn from mistakes and
adapt will be the most capable.

Tackling healthcare cost-per-case
projects can produce significant quick
wins for improvement teams and cost
reduction opportunities in the short term.
If these cost-per-case projects are
implemented sustainably—using an
iterative approach and adhering to
improvement best practices—cost-per-
case projects can add up to long-term
improvements and deliver big bottom-
line results.
Creating Scalable Improvements and Lasting Change

When embarking on a financial improvement
journey, it’s important for healthcare
organizations to invest both the necessary
time and money to provide access to and
clarity of data to drive lasting change.
In an environment where health systems
are increasingly asked to do more
with less, it’s necessary to identify
opportunities to reduce costs in
order to be sustainable.

Systems must also have a clear long-
term vision for financial viability that
includes incremental process
improvements and a path to providing
high-quality, affordable healthcare.
Providing appropriate, high-value care
at the lowest possible cost is the ideal
outcome for the patient, provider, and
health system.

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

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Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com
Steve joined Health Catalyst as a Senior Vice President, Professional Services after nearly
25 years’ experience at Intermountain Healthcare where he most recently served as the
Regional Chief Financial and Compliance Officer for Intermountain’s Southwest Region.
Vance also served as the Director of Strategic Planning in the same region and has
worked with advancing numerous financial and clinical process improvement efforts during his career
at Intermountain Healthcare. He holds a Bachelor’s degree in Accounting from Brigham Young
University and an MBA from Oregon State University.
STEVE VANCE

Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com
Health Catalyst is a mission-driven data warehousing, analytics and outcomes-improvement company
that helps healthcare organizations of all sizes improve clinical, financial, and operational outcomes
needed to improve population health and accountable care. Our proven enterprise data warehouse
(EDW) and analytics platform helps improve quality, add efficiency and lower costs in support of more
than 65 million patients for organizations ranging from the largest US health system to forward-thinking
physician practices.
Health Catalyst was recently named as the leader in the enterprise healthcare BI market in
improvement by KLAS, and has received numerous best-place-to work awards including Modern
Healthcare in 2013, 2014, and 2015, as well as other recognitions such as “Best Place to work for
Millenials, and a “Best Perks for Women.”

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