Poised for Peak Performance in Healthcare

A Practical Approach to Execute Expense Reduction and Revenue Enhancement Initiatives

Ali Birjandi

• Publisher: Productivity Press
• Year: 2018
• eBook ISBN: 9781351707435
• Topic: Business
• Subtopic: Management
• Index: Business

The current healthcare system is under attack by market, government, and consumer forces. To stay solvent, organizations must be performing at the top of their game. This book provides detailed instructions to bring organizations to the next level of performance by teaching all the secrets straight from the healthcare consultant's playbook in less than 100 days.

This book defines the coming challenges in the healthcare environment and provides a 10-step solution to develop the infrastructure for peak performance. These solutions include detailed implementation plans, software, reports, metrics, and the top projects that yield the highest financial rewards.

This is the first book of its kind to not just discuss the top strategies, but also provide step-by-step instructions to achieve results. The book defines the strategy, the tactics, the infrastructure, the targets, the solutions, the barriers, and the leadership required to achieve a high performing organization. With these simple instructions, any organization with the will to achieve a brighter future can be poised for success in the next decade in less than 100 days.

SETTING UP THE INFRASTRUCTURE IN 100 DAYS IN 6 KEY AREAS

II

Chapter 6

Non-Labor—The #1 Missed Opportunity in Healthcare

Opportunity is often difficult to recognize; we usually expect it to beckon us with beepers and billboards.

William Arthur Ward

To stay ahead of declining margins, US healthcare organizations have integrated several key expense reduction strategies into their routine annual Performance Improvement (PI) plans. This includes a traditionally untapped area of opportunity commonly referred to as non-labor. As the name implies, non-labor projects represent any aspect of expense control that take out waste unrelated to labor. Common categories of expense in non-labor include contracts, purchase services, materials management, IM, human resources, service lines, lab, pharmacy, radiology, surgery, and product utilization. Product utilization refers to the deployment of a product in a clinical setting and is considered to be the biggest untapped opportunity in healthcare today for non-labor. As most organizations are reactionary to expense control, they often lean toward labor for immediate returns, leaving non-labor overtime as one of the largest opportunities within most organizations.

Healthcare organizations have become very good at leveraging their size through consolidation and partnering with purchasing coalitions. This allows for reductions in costs through volume discounts and exclusivity contracts. Although this model has been in existence for years, organizations continue to have a significant number of contracts that are still negotiated at the facility’s departmental level. Because it is very difficult to track these individual contracts, there are almost always new ways, even today, to find opportunities and negotiate with vendors. Additionally, as new products and services come online, the dynamics of vendor arrangements are kept in a constant state of flux, which presents new opportunities to negotiate contracts. We will review contract negotiation in further detail in Chapter 11.

Although negotiating new contract rates and options is always an area of opportunity, the one area that has the largest capacity to impact non-labor expense reduction is clinical utilization. This opportunity is based on evaluating the efficiency by which care is provided to the patient. Typical opportunities in utilization include provider access to best practices, workflow optimization, consolidation of protocols, standardization in supplies and vendors, and utilization management of high-cost pharmaceuticals and devices. Clinical utilization has traditionally been very difficult to break into because it involves a partnership between administrators and physicians.

We know that 80% of healthcare costs associated with treating a patient are under the control of the provider. These costs are rooted in how the provider manages various aspects of patient treatment, such as the surgery performed, devices used, length of stay, and so on. Providers are typically unaware of or uninterested in the impact of their decisions on financial costs to the patient or the organization. A recent study revealed that less than 20% of providers, including doctors and mid-level providers, actually knew what the costs associated with their decisions were. Additionally, many providers don’t have benchmarks to compare their practices versus that of their peers. For example, in a recent orthopedics study, it was uncovered that the surgery time for rotator cuffs varied by more than 300% between various providers. This is just for one procedure, in one specialty. The ability for any organization to affect this variance, just by targeting the average surgery time, will have an impact that is worth millions.

Organizations can enjoy huge returns in non-labor expense reduction by following several key steps that have proven instrumental. These key features transform organizations from good to great by producing large-scale results. These include measuring correctly, developing targets, setting up the teams for sustainability, and driving accountability through leadership.

In order to begin the process of managing non-labor initiatives for expense reduction strategies, an organization has to be able to track and measure results financially and operationally. Financial measurements include Supply Cost per Case Mix Index (CMI) Adjusted Discharge and Drug Cost per CMI Adjusted Discharge. These indicators can also be measured by admissions, net operating income, or revenues. Additionally, many organizations break out implants and medical/surgical costs for more detailed accounting, opportunity identification, and results tracking.

Supply Cost per CMI Adjusted Discharge is measured by taking all supply costs and dividing it by the number of discharges for that time period (typically a month). The discharges are often adjusted for CMI in order to account for the acuity of the patients. For example, patients with a higher CMI tend to be sicker and retrospectively are more resource intensive when it comes to supplies. It is important to note that pharmacy costs are always included in total supply costs. Therefore, when breaking down total supply costs, all the parts that make up those costs, such as medical/surgical, drugs, and implants, should be listed.

Non-labor operational metrics are tightly associated with the utilization of products and services. These include average time for procedures, devices used per procedure, supplies used by provider or service line, and process efficiency indicators. Additional indicators are those associated with lab, pharmacy, and radiology, and are often tracked as a rate against discharge, patient, or admission. These indicators tend to be much more targeted at a tactical level versus general supply indicators. As the utilization of products in clinical pathways comes to the forefront of healthcare, new metrics will be developed for the measurement of efficiency and productivity.

Because non-labor can be defined broadly, there are a whole host of other metrics that can be used to measure performance. For example, if the technology department is part of the non-labor initiative, metrics such as cost per license, information technology (IT) costs per Case Mix Index (CMI) Adjusted Discharge, or net operating income can be used. The key is to use the PI function or decision support systems (DSS) to help identify measures that are relevant, available, and easy to capture. In this process, the PI function along with the team members should work together to reach a consensus on what metrics will be used and quickly lock in the baseline measures before moving forward with the initiative. In the end, if it cannot be measured, it is not worth doing.

Once the baseline metrics are locked in, the team needs to determine targets for the initiative. Targets for non-labor projects can be derived from several sources. This includes internal and external benchmarking systems and the incremental approach. There are several good external benchmarking tools being used in the industry today, including those provided by Truven Benchmarking and Premier. In this process, data is submitted, normalized, and compared against a group of peers. Internal benchmarking is predominately used by multi-hospital systems. The model is the same as external benchmarking, except that it uses internal hospitals as the compare group. The drawback of internal benchmarking is that the ability to normalize is limited and the entire system could potentially be low-performing. The incremental approach uses an arbitrary marker as a target. For example, if an organization has an average run rate of $1500 per CMI Adjusted Discharge, that could be the ceiling target. Once that target is achieved, the next average becomes the ceiling.

Once the target has been identified, a gap analysis needs to be completed so that the variance can be quantified in terms of dollars. For example, let’s assume an organization with 20,000 annual discharges has a current run rate of $1500 per CMI Adjusted Discharge and their target has been set at $1300 per CMI Adjusted Discharge. The variance of $200 is multiplied by the number of annual discharges to provide the dollar opportunity. In this case, $200 × 20,000 discharges represents a $4 million opportunity in this organization.

Before a non-labor project can be kicked off in an organization, leadership has to be aligned behind it. This means getting the chief financial officer (CFO), chief operating officer (COO), and chief executive officer (CEO) to agree to mobilize the organization and hold leadership accountable to the targets. The best environment in which to push this type of initiative is one where there is a burning platform for change. Without a burning platform, motivating staff who are busy with their daily jobs will be that much more difficult. A CEO I once worked with would often say “Don’t waste a good crisis.” If the organization is going through financial problems, feel free to show how this initiative can help it get to its margins.

The advantage that non-labor expense reduction has over other initiatives is that it is free. It targets the ideas of existing staff who do the work day in and day out. As subject matter experts, these associates are the ones who can tell how to make that job more efficient. Additionally, non-labor put against revenue-generating projects has the distinct advantage in that, dollar for dollar, it has a greater impact on the bottom line. For every dollar of new revenue, only 10 cents makes it to the bottom line. Yet every $1 of cost reduction adds $1 of revenue to the bottom line. This should make non-labor not just a good project, but a great project for any organization at any point in time.

Once the CEO and CFO buy into the initiative, the PI leader or project manager (PM) must begin preparation for kick-off. The communication and kick-off for the non-labor program has two phases: executive kick-off and team kick-off. These events typically occur within 30 days of each other and require extensive amounts of preparation.

The executive kick-off should not take more than 1–2 hours based on the size of the organization. In this meeting, the CEO, CFO, and PM set the stage for the program objectives and details of the path forward. The first half of the presentation should provide the “why” behind the initiative, details of the program, and the provider-based dyad model. The second half should focus on selecting the functional categories, steering committee members, team lead names, and provider partners. During this presentation, it is important to show successes in other organizations and the expected pitfalls and opportunities.

The executive kick-off typically includes all C-Suite leaders and vice presidents. There are several critical requirements that must precipitate from th...

Table of contents

• Cover
• Half-Title
• Title
• Copyright
• Dedication
• Contents
• Preface
• Acknowledgments
• How to Maximize the Value of This Book
• About the Author
• SECTION I KEY REQUIRED CHANGES IN THE DELIVERY MODEL
• SECTION II SETTING UP THE INFRASTRUCTURE IN 100 DAYS IN 6 KEY AREAS
• Closing: Your Organization Is Only 100 Days Away from High Performance
• Index