COST REDUCTION:
This presentation is the property of its rightful owner.
Sponsored Links
1 / 51

Gerry Haggerty Annual Leadership Institute May 18, 2011 PowerPoint PPT Presentation


  • 99 Views
  • Uploaded on
  • Presentation posted in: General

COST REDUCTION: IDENTIFYING THE OPPORTUNITIES. Gerry Haggerty Annual Leadership Institute May 18, 2011. Presented by: Jamie Cleverley Cleverley + Associates. Why cost?. Healthcare expenses are growing rapidly. 20%. 17%. Why cost?. 6%. 1966. 2009. 2019.

Download Presentation

Gerry Haggerty Annual Leadership Institute May 18, 2011

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Gerry haggerty annual leadership institute may 18 2011

COST REDUCTION:

IDENTIFYING THE OPPORTUNITIES

Gerry Haggerty Annual Leadership Institute

May 18, 2011

Presented by:

Jamie Cleverley

Cleverley + Associates


Gerry haggerty annual leadership institute may 18 2011

Why cost?


Gerry haggerty annual leadership institute may 18 2011

Healthcare expenses are growing rapidly

20%

17%

Why cost?

6%

1966

2009

2019


Gerry haggerty annual leadership institute may 18 2011

Healthcare expenses are growing rapidly

National Health Expenditures (top five areas)

Why cost?


Gerry haggerty annual leadership institute may 18 2011

Healthcare expenses are growing rapidly

Annualized Change in National Health Expenditures by Area

Why cost?

Source: CMS


Gerry haggerty annual leadership institute may 18 2011

Government payers are being challenged to fund growth

Why cost?

Source: CMS Data Compendium


Gerry haggerty annual leadership institute may 18 2011

Government payers are being challenged to fund growth

Gross Public Debt as a Percentage of GDP

Why cost?


Gerry haggerty annual leadership institute may 18 2011

Margins are deteriorating in key payer areas

Overall Medicare Margins 2001-2009

Why cost?

Source: Medpac, “Medicare Payment Policy,” March 2011


Gerry haggerty annual leadership institute may 18 2011

Improved margins will come through cost containment

Why cost?

  • Key points:

  • Access, quality not impacted so payment ok

  • Margin issues can be solved with cost containment

Source: Medpac, “Medicare Payment Policy,” March 2011


Gerry haggerty annual leadership institute may 18 2011

Today’s Objectives

Determine the differences between high cost and low cost facilities

Simplify initial cost assessment through one primary performance metric

Follow logical data progressions to identify specific hospital cost opportunities

Understand how appropriate action strategies can yield performance improvement


Gerry haggerty annual leadership institute may 18 2011

IS THERE A COST DIFFERENCE AMONG HOSPITALS?


Gerry haggerty annual leadership institute may 18 2011

How extreme are the cost differences among hospitals?

Hospital Cost Index® Medians by Group – 2009

Cost differences among hospitals

47% Difference b/t Low & High


Gerry haggerty annual leadership institute may 18 2011

Median Net Patient Revenue (millions) by Hospital Cost Index® Quartiles

Cost differences among hospitals


Gerry haggerty annual leadership institute may 18 2011

Urban/Rural Status by Hospital Cost Index® Quartiles

Cost differences among hospitals


Gerry haggerty annual leadership institute may 18 2011

Organization Type by Hospital Cost Index® Quartiles

Cost differences among hospitals


Gerry haggerty annual leadership institute may 18 2011

Teaching Status by Hospital Cost Index® Quartiles

Cost differences among hospitals


Gerry haggerty annual leadership institute may 18 2011

Median Medicaid Days % by Hospital Cost Index® Quartiles

Cost differences among hospitals


Gerry haggerty annual leadership institute may 18 2011

Regional differences in hospital costs

Regional Divisions Used by the United States Census Bureau

Cost differences among hospitals


Gerry haggerty annual leadership institute may 18 2011

Median Hospital Cost Index® by Regional Divisions

Cost differences among hospitals

96.9

103.9

100.1

101.7


Gerry haggerty annual leadership institute may 18 2011

Percentage of hospitals in each cost category by Regional Divisions

Cost differences among hospitals


Gerry haggerty annual leadership institute may 18 2011

In what areas do low cost hospitals excel?

Cost differences among hospitals

*wage index adjusted


Gerry haggerty annual leadership institute may 18 2011

In what areas do low cost hospitals excel?

Cost differences among hospitals

*wage index adjusted


Gerry haggerty annual leadership institute may 18 2011

What does the data reveal?

  • Various demographic factors are moderately associated with higher cost

  • In general, high cost hospitals can exist in any region, organization type or structure

  • Low cost hospitals excel in numerous operational areas. Length of stay and quality do not show significant differences across groups.

  • Low cost hospitals are more profitable in Medicare, but, have only slightly higher operating margins. Relatively speaking, high cost hospitals must be generating more revenue.

Cost differences among hospitals


Gerry haggerty annual leadership institute may 18 2011

MEASURING HOSPITAL COST


Gerry haggerty annual leadership institute may 18 2011

Why one facility metric of comparison?

H

  • Evaluates complete hospital cost position

  • Permits trending over time

  • Allows for comparative benchmarking

  • Traditional facility-level hospital cost metrics:

  • Cost per adjusted patient day (with or without CMI adjustment)

  • Cost per adjusted discharge (with or without CMI adjustment)

Measuring hospital cost


Gerry haggerty annual leadership institute may 18 2011

Issues with traditional ‘adjusted’ metrics

Measuring hospital cost

Adjusted Patient Days Formula:IP Patient Days X [1+(Gross OP Rev/Gross IP Rev)]


Gerry haggerty annual leadership institute may 18 2011

The ultimate goal in understanding and addressing cost issues

Measuring hospital cost

CREATE LOW COST PATIENT ENCOUNTERS

Inpatient CostsCost per Discharge

Outpatient CostsCost per Visit

Patient Encounter Cost:

Cost = (Q1 X C1) + (Q2 X C2) + … + (Qn X Cn)

Where Q = quantity of units and C = cost per unit


Gerry haggerty annual leadership institute may 18 2011

Facility-level cost comparison through one metric

Facility-level cost measure:

Hospital Cost Index®

Measuring hospital cost

Outpatient Costs

Outpatient Cost Index

Formula:

Your Medicare Cost per Visit (RW/WI adj)

US Median Medicare Cost per Visit (RW/WI adj)

Inpatient Costs

Inpatient Cost Index

Formula:

Your Medicare Cost per Discharge (CMI/WI adj)

US Median Medicare Costper Discharge (CMI/WI adj)


Gerry haggerty annual leadership institute may 18 2011

What about volume?

Equivalent Discharges™(Equivalent Patient Units™)

Measuring hospital cost

Inpatient Volume

Formula:

Total Gross Inpatient Charges

Hospital Average Medicare Charge per Discharge (CMI adj)

Outpatient Volume

Formula:

Total Gross Outpatient Charges

Hospital Average Medicare Charge per Visit (RW adj)

=

=

# OF EQUIVALENT IP DISCHARGES

# OF EQUIVALENT OP VISITS

+

# OF EQUIVALENT OP DISCHARGES

Multiply by Medicare payment conversion factor

=

# EQUIVALENT DISCHARGES


Gerry haggerty annual leadership institute may 18 2011

IDENTIFYING AND ACTING ON COST OPPORTUNITIES


Gerry haggerty annual leadership institute may 18 2011

Two approaches to cost reduction

2

1

Identifying and acting on cost opportunities

Strategic

ATB

  • Target set (5% reduction) and all areas must comply

  • Allows whole organization to be involved

  • Can jeopardize high-performing (lean) areas

  • Targeted areas identified for cost reduction

  • Can cause identified areas to feel ‘singled out’

  • Permits cost efficiency only in areas that are most weak


Gerry haggerty annual leadership institute may 18 2011

Understanding the three spheres of influence on cost

  • Intensity of Services

  • The mix and quantity of services/procedures

  • Nursing days(LOS)

Identifying and acting on cost opportunities

  • Productivityor Efficiency

  • Cost incurred to producea specific procedure

  • Nursing hours

  • ResourcePrices

  • Price per unit

  • Nursing salaries

COST


Gerry haggerty annual leadership institute may 18 2011

Evaluating cost at multiple levels to determine action areas

Survey

Survey

Identifying and acting on cost opportunities

Survey

Focus

Focus

Action

Action

Action


Gerry haggerty annual leadership institute may 18 2011

Creating strategic comparisons

Regional/Best Practice Hospital Market

WHO??

Identifying and acting on cost opportunities

Core HospitalMarket

SERVICES??

IS IT ACTIONABLE??


Gerry haggerty annual leadership institute may 18 2011

Case example 1: Intensity issue

HOSPITAL COST INDEX®

Identifying and acting on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Case example 1: Intensity issue

MEDICARE LOS

Identifying and acting on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Case example 1: Intensity issue

TOP INPATIENT OPPORTUNITIES – CASE 1

Identifying and acting on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Case example 1: Intensity issue

?

How do we know costs are high?

This is a top opportunity MSDRG based on Medicare and All-Payer data

Identifying and acting on cost opportunities

?

What is the opportunity?

Length-of-stay variation appears to be the central cost driver

Heavier ICU

Longer LOS


Gerry haggerty annual leadership institute may 18 2011

Case example 1: Intensity issue

?

What is the opportunity?

  • Potential savings for septicemia treatment cost(based on all payer MSDRG 871):

    • No net reduction in LOS – just reallocation of ICU to Routine

      • Reduce ICU LOS by two days

      • Increase Routine LOS by two days

Identifying and acting on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Case example 1b: Intensity issue

?

How do we know costs are high?

This is a top opportunity MSDRG based on All-Payer data (Medicare data excludes subprovider)

Identifying and acting on cost opportunities

?

What is the opportunity?

Length-of-stay variation appears to be the central cost driver

Physician variation at Case 1 is significant

Significantly lower average LOS


Gerry haggerty annual leadership institute may 18 2011

Case example 1b: Intensity issue

?

What is the opportunity?

  • Potential savings for rehabilitation treatment cost(based on all payer MSDRG 945):

    • Reduction of LOS to US average (1.47 day savings per case)

    • 566 Cases X 1.47 Days X $350 direct cost per day = $291,207

    • 566 Cases X 1.47 Days X $750 fully allocated cost per day = $624,015

Identifying and acting on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Case example 2: Productivity issue

HOSPITAL COST INDEX®

Identifying and acting on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Case example 2: Productivity issue

?

How do labor costs/productivity compare?

Routine care department costs are at the Custom Group 66th percentile

Direct cost per patient day is higher than comparison peers and Custom Group

Identifying and acting on cost opportunities

Productive hours per patient day are higher than group median


Gerry haggerty annual leadership institute may 18 2011

Case example 2: Productivity issue

?

What is the opportunity?

  • Potential savings for routine care treatment:

    • Savings projected at Custom Group median level

    • Case hospital cost per day ($413) – Custom group median cost per day ($343) X Case hospital routine days (21,563) = $1,509,410

  • Alternative method of potential savings for routine care treatment:

    • Case hospital productive hours per day (15.40) – Group median productive hours per day (9.62) X Case hospital Salary and Benefits per hour ($29.19) X routine days (21,563) = $3,638,070

Identifying and acting on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Case example 3: Resource price issue

HOSPITAL COST INDEX®

Identifying and acting on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Case example 3: Resource price issue

TOP FIVE DEPARTMENTAL SAVINGS OPPORTUNITIES

Identifying and acting on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Case example 3: Resource price issue

TOP SUPPLY SAVINGS DRGs(Medicare Data)

Identifying and acting on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Case example 3: Resource price issue

  • Notes on MSDRG 247 (and 246):

  • Submitted “all payer” claims data also shows supply and pharmacy cost opportunity

  • There is virtually zero variation in stent item code use by physicians, however, there is significant variation in the number of stents per patient (seen at right).

  • Some cases exceed four stents (could be 246 categorized)

  • Cost per stent is significantly higher compared to US averages. Cost per unit savings is $600,000 annually.

NUMBER OF STENTS – PHYSICIAN LEVEL

(All Payer Submitted Data)

Identifying and acting on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Process

DATA – Understand your position

RELATIONSHIPS – Understand the cost drivers

Identifying and acting on cost opportunities

OPPORTUNITIES – Know where to take action

EXECUTE – Implement strategy

MANAGE – Track progress


Gerry haggerty annual leadership institute may 18 2011

Summary

In light of tightened federal reimbursement (and likely commercial, as well), hospitals must address cost to remain viable

Demographic factors do not significantly influence hospital cost – hospitals in multiple settings can be either high or low cost

Hospitals can follow “data paths” to identify and take action on cost opportunities


Gerry haggerty annual leadership institute may 18 2011

Thank you. Questions?

Jamie Cleverley

Principal

Cleverley + Associates

Email: [email protected]

Phone: (614) 543-7777


  • Login