Why reining in wasteful healthcare spending requires more than just reducing costs

Healthcare organizations have better tools than ever to advance the quality of care and improve access. But legacy organizations still have not mastered a critical competency: eliminating waste. A recent study shows 30% of healthcare spending is wasteful, at a cost of $760 billion to $935 billion.

The need to reduce costs is high on healthcare leaders’ radar. A new report from Skokie, Ill.-based Kaufman Hall found that being able to identify and manage cost-reduction initiatives is healthcare finance executives’ top priority for 2020 (see exhibit below), but they struggle to act on opportunities:

• More than half of healthcare finance executives say they don’t have the tools to lower costs in the right areas without compromising quality.
• Cost accounting systems often fail to provide the support needed to reduce costs: 43% of finance leaders say they have an existing cost accounting solution, but it’s too simplistic or they have limited trust in the accuracy of results.

Eliminating waste is part of the solution to healthcare reform, but it should not be the sole focus. Healthcare organizations should balance their efforts to reduce cost with efforts to optimize revenue and improve clinical quality. Leaders can address all three priorities by using data to guide action that will have the most profound impact.

Top Financial Performance Management Priorities in 2020

1. Identifying and managing cost-reduction initiatives
2. Improved performance management and reporting to operational and C-suite leaders
3. Predicting and managing the impact of changing payment models

Source: Kaufman Hall 2020 Healthcare CFO Outlook

Dig deeper into costs by service line, department and physician

To rein in expenses and improve margins, finance leaders must dive into drivers of waste and low profitability. Survey results show 52% of healthcare finance leaders are seeking to improve profitability measurement by service line, patient and physician in 2020.

Modern cost accounting solutions that provide an accurate, comprehensive view of costs and support data-driven analysis at the activity, physician and patient level are critical. And especially critical is having access to reliable data, given that 43% of healthcare CFOs don’t trust the data their current cost accounting systems provide.

Hone your ability to uncover clinical variation

In an era of risk-based payment, healthcare organizations require the infrastructure and tools to identify variation in clinical care processes and supplies that fuel expense and waste. Yet even as healthcare CFOs say the ability to predict and manage the impact of changing payment models is a top priority, the Kaufman Hall report finds just 42% are seeking to improve clinical and quality analysis — capabilities that are essential under risk-based contracts.

Even though many organizations have tackled variation among physician preference items, changing the game on clinical performance requires robust data and analytics that not only identify clinical improvement opportunities, but also drive accountability in addressing them. For example, leading health systems are deploying clinical analytic solutions that can identify the physician who made the largest contribution to a patient’s clinical outcome, and that can create scorecards by individual physician and physician group measuring factors such as:

• Patient safety
• Quality
• Patient satisfaction
• Utilization
• Cost

Leaders can use this data to dig deeper, using severity-adjusted control charts, for example, to eliminate variation from evidence-based practices, lower cost and improve care. Such efforts not only improve quality of care and outcomes, but also increase reimbursement and incentive payments under value-based payment models.

Find creative opportunities for revenue improvement using data

Kaufman Hall survey results show revenue-increasing activities are not among finance leaders’ top three areas of focus when it comes to financial performance management. But they should be. Using data to explore new opportunities for generating revenue is key, especially when consumers are shopping for care based on quality, cost and convenience, and tech-enabled organizations are nipping at the heels of legacy organizations for revenue.

A Kaufman Hall survey on consumerism found:

• Nearly 80% of organizations report having no subscription-based primary care services.
• One-third offer widespread online self-scheduling for existing patients, but few offer this service for new patients.
• Just 38% of respondents offer widespread “save a spot” scheduling options to patients for urgent care.
• 60% offer “save a spot” for urgent care on a limited basis or not at all.

Lack of movement toward transforming patient access threatens health systems’ ability to compete against new market entrants that seem to understand consumers’ needs better than those that have been treating consumers for decades.

Healthcare leaders should look for ways to capture data around the consumer experience monthly, not just quarterly or annually. They should use a variety of sources, comparing their organizations’ performance with that of peers by service line, treatment type and more. This vital information can help them identify new investments for strengthening not only access and convenience, but also loyalty and revenue.

Become data strong for sustainable success

Healthcare CFOs have never been under more pressure to identify high-impact ways to eliminate waste and increase revenue. Yet 95% believe their organizations should be doing more to leverage data to inform strategy. In 2020, building strategic data strength through investments in modern cost accounting, analytics, benchmarking tools, and consumer-focused data capture and analysis will be critical to legacy organizations’ success.

Case study: LifePoint Health cost-accounting revamp streamlines decision-making

LifePoint Health, based in Brentwood, Tennessee, sought to pinpoint opportunities to achieve hard-dollar savings, but the organization lacked accurate, reliable, patient-level cost and profitability analytics. Worse, existing reports presented more questions than answers for leaders and staff.

To solve this problem, and fuel better business decisions, LifePoint revamped its cost-accounting process for service lines to improve the accuracy and accessibility of performance reporting. Key tasks included:

• Implementing a new cost accounting system across all LifePoint hospitals
• Streamlining data reconciliation and validation tasks
• Improving executive reporting with more timely and comprehensive views of service line trends
• Shifting the focus away from auditing tasks toward more strategic analysis

The health system enhanced transparency with executive reports that show precisely how dollars map by cost pool and by individual patient encounter. Service-level details help explain how volume mix changes might have influenced overall trends, with the ability to view year-over-year trends and drill down into per-case comparisons.