Experts Outline Cost-saving Strategies for Hospitals

Date Posted: November 15, 2012

November 15, 2011 - U.S.-based hospitals struggle to make ends meet amid ever-shrinking operating margins and reimbursement dollars, prompting healthcare leaders to look for cost-saving strategies that balance the budget without compromising care.

“Medicare Zero: A Comprehensive Analysis of the Impact of Health Reform and the Debt Deal on Medicare Funding of Hospitals and Strategies for Financial Services” reports that hospitals operated at minus 1 percent with a Medicare margin of minus 5 percent in 2009. Six percent of the CMS hospital Inpatient Prospective Payment System (IPPS) will be at risk by 2016, “placing greater pressure on hospitals to excel from a quality standpoint in spite of steadily declining funding from Medicare,” according to the 2011 white paper by MedeAnalytics, a healthcare management firm in Emeryville, Calif.

“The sheer magnitude of the financial challenge posed by these increasingly potent forces dictates that hospitals should focus attention on improving the efficiency and effectiveness of their core activity--the process and delivery of care,” wrote author Ken Perez, senior vice president of MedeAnalytics, who suggested that cost-saving strategies be directed toward low-margin Medicare severity diagnosis-related groups (MS-DRGs).

Indeed, Todd Nelson, MBA, technical director for senior financial executives/accounting with the Healthcare Financial Management Association, advises hospital leaders to analyze MS-DRGs “to determine the reasons for low margins. Although an organization may not be able to change the reimbursement they receive from Medicare for low-margin MS-DRGs, they certainly can have the effect on the costs by looking at the utilization, purchasing and labor patterns for a particular subset of patients,” he explained.

“Are hospital costs higher than normal due to purchasing, or is it labor or utilization that causes certain MS-DRGs to be low margin? Is the payment level from Medicare for that particular MS-DRG low? Is it some combination of the two?” Nelson asked.

A two-year effort of documentation and coding improvements (DCIs) that aims to move diagnosis-related groups to MS-DRGs holds promise of increasing government reimbursements according to MedeAnalytics. DCIs--which “refined reimbursements, allowing more dollars for ‘sicker’ patients with supporting documentation”--increased hospital payments from the Centers for Medicare & Medicaid Services (CMS) and Medicare Payment Advisory Commission by almost 6 percent in 2008 and 2009.

Among other suggestions, the MedeAnalytics paper suggests that chief financial officers (CFOs) should meet with chief medical officers and clinical leaders “to forge or reinforce a financial-clinical partnership.” Meetings allow CFOs “to assess a hospital’s current financial condition; explain the impending increased financial pressures and likely impact on the organization; and solicit support and assistance of clinical leadership.”

Nelson echoed this point, saying that CFOs collaborate with their clinical counterparts to reduce costs and improve quality. He endorses partnerships as a way for financial personnel to “understand clinical needs and provide data and interpretation in a more meaningful and real-time manner,” and noted the many forms they take.

“In some instances it is by providing finance resources within the clinical department, a dedicated resource in the operating room, pharmacy or other clinical area. Other ways include sitting on quality committees or clinical integration workgroups and providing information and education on the cost impacts of decisions as they are being made, as well as follow-up analysis after a period of change,” he explained.

AnnMarie Papa, DNP, RN, CEN, NE-BC, FAEN, president of the Emergency Nurses Association, said clinical–financial collaboration improves quality and reduces costs. She called the unit-based clinical leadership councils at the Hospital of the University of Pennsylvania in Philadelphia an example of “a successful model with great outcomes.”

“This is a collaborative, inter-professional group that makes recommendations for practice, examines quality data and discovers creative solutions to improve quality and patient care. Our premise is that doing the right thing for our patients has a positive impact on the patient experience, patient and staff satisfaction, as well as the overall bottom line,” Papa commented.

To optimize operating room utilization, hospital personnel should improve scheduling, method changes, process standardization and operational reporting, advises Perez. Data analysis and review of supply and drug utilization, ancillary testing and inappropriate usage can improve emergency department (ED) operations and reduce costs, it adds.

Papa said improving hospital EDs requires “an institution-wide, integrated approach that includes all areas of the hospital from medical to administrative staff.” She added that boarding and crowding in the emergency department is not cost-effective, and suggested hospital leaders “educate the public on the appropriate use of the emergency department and redirect patients to appropriate treatment options.”

“Efforts focused on the entire continuum of care improve throughput and reduce costs,” Papa concluded.