Hospitals should develop a systematic approach for identifying the patients and physicians who are driving higher costs in their organizations and then managing these outliers to reduce costs of care. 

At a Glance

  • A systematic approach targeting both the patients and physicians whose costs are above the norm is a sustainable way to effectively reduce costs of care.
  • Finance leaders should build teams of specialists who can provide data on outliers in real time, make changes as problems are identified, and track improvements. 
  • Using a care map analytic framework, hospitals can identify problem areas while establishing mechanisms to better control and manage costs in the long term.  

The spiraling costs of health care in the United States have prompted demands for better care at lower cost—yet efforts to reduce healthcare costs over the past decade have had limited impact. It is now imperative that hospitals adopt a new systematic approach to identify and address cost outliers: patients and physicians whose costs are well above the norm. This approach involves developing an infrastructure that enables hospitals first to tackle the low-hanging fruit of extreme cost outliers and then to implement an effective process for continuous improvement.

Where to Start

The first step toward an integrated approach to managing cost outliers is to identify the medical condition or course of care upon which to focus the hospital’s initial efforts. For example, some organizations may start with a high-volume, high-cost procedure, because many payers are looking critically at these types of procedures. Others—especially those in a managed care or accountable care setting—might start with chronic diseases. 

Another important consideration is the human component of addressing cost outliers: Hospital leaders should identify those areas of the organization that are most receptive to addressing financial concerns, and seek clinical leaders (physicians and nurses) who can be counted on as allies.

It may not be enough to work with the clinical chair; rather, there may be unofficial leaders whose buy-in will be critical. Ultimately, these clinical leaders will be the ones who will guide changes in their colleagues’ behavior to reduce costs of care delivery. 

The team also will require IT specialists. For example, effectively analyzing outlier cases requires complete and relevant clinical data on the patient who received the care, financial data on the economic outcomes of the care delivered, and quality data on the health outcomes that resulted, including how care was delivered. 

It will then be up to the team’s clinical leaders to interpret the clinical and quality components of outlier cases.

Four key steps are required to monitor care delivery for outliers in real time, identify cost drivers, and make systematic improvements.

Step 1: Build the Care Map

A care map defines the principal clinical activities involved in the patient’s treatment for a given episode of care, which can span several months, involve multiple clinical specialties, and generate thousands of service charges. The care map should be at a high level, enabling the clinicians and financial staff to look at the full cycle of care, rather than at the individual activities that are typically the focus of most process-improvement and cost-savings initiatives. 

Such a care map differs from a purely clinical treatment paradigm; rather, it serves as an analytic framework for organizing and analyzing financial, clinical, and quality data to monitor care delivery. It breaks something enormously complex—care delivery—into smaller pieces to enable conversations about how care is delivered. 

Developed in collaboration with key clinical staff involved in the treatment cycle, the care map should begin with the current standard of care and incorporate evidence-based medicine. It should include the major components of care and key decision points for the episode. For example, a typical care map for a surgical procedure would begin with a diagnostic evaluation, which may encompass services such as physician and specialist evaluation, lab work, imaging services, and more. 

Exhibit 1


Step 2: Associate Relevant Data

Each component of care has clinical, financial, and quality data associated with it. This dataset provides the means for monitoring the delivery of care and conducting analytics to identify outliers and areas for improvement. It’s easy to fall into the trap of data overload, however: Data should be limited to only what is truly critical for identifying and understanding outliers. 

Clinical data should provide insight into patient characteristics that may have an impact on physician decision-making. In the case of a surgical procedure, a diagnostic evaluation component of care may include data points such as important comorbidities, relevant patient demographics, and diagnostic results. A comprehensive copy of a patient’s medical records is overkill; all that is required is a limited number of critical data points that affect clinical decision-making and outcomes.

Common sources for clinical data include electronic and paper health records, computerized provider order entry systems, and clinical registries (e.g., the American College of Surgeons National Surgical Quality Improvement Program).

Financial data will typically consist of rolled-up hospital service charges or cost data from a cost accounting system. Financial data should be limited to only the data necessary to understand the component of care. For the diagnostic evaluation example, this data may include total overall charges or charges broken out by categories of services (e.g., lab tests, imaging, blood work). Because charge data often correlate directly with services provided, financial data can help measure adherence to practice standards.

Quality data can include a wide variety of process metrics and other quality assurance information. When a new protocol is instituted to address a quality issue, it may be appropriate and helpful to monitor adherence to the protocol by collecting data on compliance.

By integrating and linking quality metrics data to clinical and financial information, hospital leaders can quantify the impact of quality improvement efforts. For example, many surgical programs have instituted mandatory blood glucose testing prior to surgery in response to rising numbers of post-operative complications. Monitoring adherence to this protocol as part of the preoperative component of care holds the appropriate staff accountable and leads to reductions in complications and lower costs for post-operative components of care.

Common sources of quality metrics include Centers for Medicare & Medicaid Services data, clinical society measures, department-defined processes, and other data routinely collected by an organization’s quality assurance department.

Step 3: Identify and Analyze Outliers

Identifying outliers is easier than analyzing them. Clinical team members will be essential to understanding the reasons for disparities. 

The hospital should work to present data on these outliers in a way that allows clinical leaders to understand extreme cases. The organization also should translate financial considerations into terms clinicians really care about. For example, rather than discussing the impact-of-care decisions in terms of dollars alone, a better approach would be to translate the impact on patient care—the extra minutes of operating room time that could have been used on another patient, for example. 

A care map provides a framework for analyzing the episode of care in a variety of different ways including by physician. It should include the following.

Component-of-care analysis. Although many outliers can be identified simply from total charges, analyzing each component of care individually often is necessary to understand why a patient was an outlier and identify ways to prevent future instances. Because a component of care comprises a unique group of related services, there are often areas within the component of care that have the potential for improvement or additional standardization. 

To ensure that only similar patients are analyzed together, clinical data (risk adjusted as appropriate) should be used to group patients. By examining each component of care individually, the analysis can be simplified, making it easier to identify outlier patients and clinicians.

Patient-level analysis. After a patient is identified as an outlier (in terms of cost, clinical presentation, or quality metrics), the analysis should dig more deeply into the patient’s medical care to determine if further action is warranted. 

Program-level analysis. To measure and manage care delivery for the entire episode of care, the data should be rolled up to the program level. At this level of analysis, the impact of decision-making or patient presentation in one component of care on the entire episode can be understood. 

Step 4: Monitor Care Delivery and Program Improvement

As outliers are identified and investigated, clinical leaders should address the underlying causes, which may require implementing new standards for procedures or having difficult discussions with their colleagues. By extracting key data, scorecards and reports can be built to provide leaders with critical information necessary for managing care delivery and preventing future outliers in real time.

The finance professional’s role is to actively work with clinical leaders to help them understand the financial implications of their clinical decision-making. 

A Foundation for Future Cost and Quality Improvement 

A structured approach to managing cost outliers can do more than address immediate high-cost procedures, patients, and physicians. Eventually, there should be fewer cost outliers, and those that do occur should be nearer to the mean. By then, the mechanisms and relationships will be in place to better manage cost and quality. This approach is especially critical under alternative payment models, such as bundled pricing, or in accountable care organizations, where hospitals can incur financial penalties for cost outliers.

In every case, starting by systematically addressing the causes of extreme cost variation will be critical to your organization’s future success. 

Jill E. Sackman, DVM, PhD, is a senior consultant, Numerof & Associates, Inc., St. Louis.

Levi Citrin, JD, is a business analyst, Numerof & Associates, Inc., Shorewood, Wis.


Case Example: Mapping Out a Surgical Procedure

Here is an example of how a care map can be applied to a surgical episode of care. The episode begins with the preoperative assessment and continues through 30 days post-discharge to include any follow-up visits and rehabilitation.

Build the Care Map

Diagram the patient’s experience moving through the episode of care. Each block represents a distinct group of related medical services often performed by medical professionals from different disciplines, service lines, and practices. In this example, the first step is the preoperative assessment prior to surgery. Although many services will vary by type of surgery, typically lab work, physical examinations, imaging, and the like will be related to this component of care.

Sidebar Exhibit 1


Associate Relevant Data

Match the relevant clinical, financial, and quality metrics data with each component of care. Include only those data points that are actually important for monitoring the quality of care. In our example, the surgical department established quality metrics that every patient must meet for the procedure to proceed. The department developed a form that the nurses complete for every patient, documenting important information and verifying that the necessary assessments have been completed. In our example, instead of including all of the quality checks as part of the data for preoperative-assessment component of care, we included only one data point: whether the quality process was followed. Cost information for all of the services associated with the component of care also is included. 

Identify and Analyze Outliers

Dashboards for the episode of care can be instrumental in identifying and monitoring for outliers. In our example, one dashboard looked at compliance with the preoperative assessment quality checks, making it easy to quickly identify situations where the proper procedures had not been followed. Another dashboard showed the overall cost for each component of care.

Outliers were easily identified. It turned out they often overlapped with instances where the proper protocols had not been followed.The chart below shows the breakdown of charges for patients for the anesthesia component of care. It’s easy to see that half of the surgeries used a more expensive supply pack. Identifying this issue led to an easy fix.

Sidebar Exhibit 2


Monitor Care Delivery and Program Improvement

Integrate reporting into the quality improvement process. Over time, the reports may change as an issue is identified and resolved. Ultimately, it’s the responsibility of clinical and financial leaders to work together to deliver high-quality care at a competitive price.

Publication Date: Monday, March 03, 2014

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