Richard D. Wagner
Allison O'Connor
Michael A. Moore

By using patient-focused cost management, healthcare organizations can improve quality while reducing costs.

At a Glance   

  • Using a healthcare consumer efficiency approach can help to develop practical ways to reduce costs and improve the community's health.
  • Finance executives can take a collaborative approach with physicians and other executives in their organizations to implement this approach.  
  • By analyzing its high-cost patient population, an organization can plan changes that will help it prepare for healthcare payment reform.  

Changing the healthcare payment system to account for outcome measurements and low-cost providers will drive needed change in cost and quality. The pressure on insurance companies to reduce premiums will drive lower payments to providers, and the budget issues at the federal and state levels will drive reductions in Medicare and Medicaid payment. In fact, some expect the Medicare payment rate to become the standard in the future. Such a change could result in a "one-payment" system rather than a "one-payer" system.

Accountable care organizations (ACOs) are the change vehicle for today. Many organizations are assessing how they might establish or integrate with an ACO. Size, structure, and location of a facility could be challenges to establishing and managing a care delivery structure such as an ACO. Internal operations and physician alignment also present challenges in creating the collaborative environment required for implementing these structures. Successful ACOs integrate infrastructure, governance/leadership, and the patient care model.

The patient care model, in particular, should be a primary focus for healthcare organizations. The patient care model focuses on care delivery rather than on the administration of care. Without change in patient care delivery to reduce costs and improve outcomes, the remaining portion of the structure will not drive real change. The new model should be aimed at improving the productivity of patient care by fully understanding the needs of the patient population and ensuring resources are best allocated to address those needs.

By focusing initially on improving care delivery rather than on developing infrastructure, teams build trust as they align to a common goal of caring for the health of their community. They create an atmosphere that focuses on building consensus around an issue to collaborate on solutions. Additionally, as Medicare payment declines and commercial payers follow Medicare's lead, healthcare organizations will need to take steps to reduce their costs. To accomplish this goal, they should establish cross-functional teams that collaborate to reduce cost and improve outcomes, thereby improving the productivity of care for the patient population.

The Process

Finance executives can work with other healthcare executives and physicians to address their facility's productivity in caring for patients. The following four-step process can help:

  • Identify the problem.
  • Analyze the trends.
  • Collaborate on a solution.
  • Implement the solution.

Identify the problem. Approximately 20 percent of patients contribute to 80 percent of an organization's costs, and most of which are related to chronic conditions, according to the Agency for Healthcare Research and Quality. This step focuses on identifying which patients are the organization's biggest cost drivers. Every community, healthcare organization, and patient population has its own mix of demographic, socioeconomic and clinical needs. By collaborating to obtain data, IT and accounting can identify the 20 percent of patients who are driving their organization's excess costs.

Analyze the trends. By cross-referencing demographic data with clinical data for each patient, an internal or external financial analyst can identify the trends and characteristics of the patients who are the organization's cost drivers-the patients who require more productive care management. Once these patients have been identified, they can be placed in target groups. Each target group will have a common demographic or clinical characteristic, such as zip code, address origin, common diagnosis-related group (DRG) or longer-than-average length of stay (LOS).

Collaborate on a solution. Engaging administrative, patient accounting, and clinical staff (including physicians, nurses, and ancillary support staff) is crucial to this step. These multifunctional teams may also include external partners, such as home health agencies or local nursing home administration. Because collaboration creates an opportunity to change traditional patient care management techniques, the discussion should be open to experimentation and creative solutions.

During a facilitated brainstorming session, out-of-the-box and nontraditional solutions should be encouraged and rewarded. This brainstorming venue will open dialogue between the clinical and administrative teams, create a sense of ownership for the functional areas involved, and allow floor staff, who do not usually participate in decision making, to contribute to potential solutions. Each identified solution should be prioritized into short-term, long-term and "back-burner" categories. Participants can realistically identify five or six goals in the short-term category, depending on the project.

Implement the solution. During this step, teams representing administration, accounting, and physicians are established and assigned to the tasks. Teams are expected to measure and monitor progress of the patient population for which the solution was identified. Every team should identify a project champion to lead each effort. The champion can lead the development of metrics, such as the dashboard indicated in the exhibit above, establish the process or work flow maps for the new solution, and create an ongoing reporting mechanism that will establish a platform for sustainable success.

A trial-and-error period of six to nine months should be established to allow the teams to realize positive results or identify the need to begin a new initiative from the brainstorm list. Depending on the resources involved, the teams should limit implementation to two or three initiatives at one time to maintain the integrity of the data and the ability to identify which initiatives are successful. Limiting the number of initiatives will also ensure that staff resources are not overburdened outside of their regular work duties.

Exhibit 1


Case Study: Jane Phillips Medical Center

Jane Phillips Medical Center (JPMC) in Bartlesville, Okla., is a not-for-profit, short-term, acute care hospital. The facility has 137 beds, of which 87 are adult and/or pediatric care and 16 are coronary care. JPMC is sponsored by the St. John Health System, which owns or manages nine hospitals in northeastern Oklahoma and southern Kansas. JPMC was looking for new ways to address large write-offs among its Medicare patients. The project focused on the Medicare inpatient population for the previous fiscal year, which included more than $34 million in write-offs. Historically, the organization has lost money on this population. Because Medicare payments could become the future payment standard, JPMC needed to address this issue. Additionally, by focusing on reducing write-offs rather than simply cutting costs, JPMC could use its resources more efficiently and create a more sustainable impact to profitability.

First, JPMC needed to reduce the study group of nearly 2,800 unique patients who were responsible for this significant amount of write-offs. The team narrowed its focus to patients with write-offs of $40,000 or more for the time period identified. The team discovered that only 95 of the nearly 2,800 patients, or 3.4 percent, were responsible for $5 million, or almost 15 percent, of the total write-offs for this population.

Using the demographic and clinical information for each of the unique patient identification numbers, the team went through a process of aligning, connecting and cross-sectioning the data to allow for further analysis of the 95 patients. Using these data, they identified commonalities for age, gender, address, admission type, LOS and other admission-related data. As a part of this process, the team reviewed the patient charts for deeper commonalities once one was identified. Access to the chart data offered information regarding discharge summaries and admission data that was more specific to each case. Key findings were used later to find solutions. An important part of this data analysis was not to identify a solution now, but to identify commonalities to drive solutions later in the process. For example, the team found that 51.7 percent of the adjustments greater than $40,000 came from patients in three zip codes. (See the exhibit below.) That finding could help to identify which facilities in JPMC should be focused on first or to dispel myths about which facilities within the health system were the cause of the large losses.

The team also identified findings that were specific to physicians, DRG categories, and admission types. They identified more than 30 findings for further discussion during this process, including the following:

  • Of 22 physicians within the data subset, six physicians were responsible for 56 percent of the total dollar adjustments.
  • Adjustments of $40,000 or more represented more than one-third of the total adjustments.
  • Although patient gender divided evenly among the DRG categories, a significant percentage of the data set for cardiac DRG-related cases were male patients and for orthopedic DRG-related cases were female patients. Even further commonalities were found within these DRG categories, such as 78 percent of the adjustments of more than $40,000 came from patients admitted from the emergency department (ED) or urgent care.

Exhibit 2


Each finding was recorded, keeping patients and physicians anonymous to ensure unbiased analysis. This part of the process was intended to outline key facts and statistics within the data, ignoring popular opinion or cultural biases, which was critical to the success of the upcoming brainstorming session and the discussion of solutions. JPMC administration invited clinical team members, including clinical finance, case managers, ED and medical/surgical nursing, operations managers and administration to be part of the facilitated brainstorming session. During the four-hour session, each finding was discussed independently, opening the door for out-of-the-box ideas and solutions. Topics discussed and discovered during this process proved to be valuable, not only for the project, but also for overall operations. At this point, solutions were discussed at a high level, and every idea was captured without trying to prioritize or eliminate. New ideas were generated out of the discussion, and the collaboration across clinical and nonclinical teams opened the door for dialogue and questions that had not been raised previously within the organization.

More than 28 unique opportunities were identified during this session. The ancillary benefit from the session was the information sharing that occurred between staff and management. In fact, various reports and issues that were "quick implementation wins" were identified, and it was the start of creating a future venue for open dialogue among these groups.

The Solutions

For JPMC, the collaborative session produced a variety of creative solutions to lower costs and eliminate write-offs for the associated Medicare population. For example, many of JPMC's patients were seeking care for the first time in the ED after they had become eligible for Medicare. One solution established a community outreach program for new Medicare patients to align them with a physician and set up the first appointment. This program's goal was to eliminate high-cost ED visits and align patients with a regular physician for ongoing care management. Another solution involved creating a phone line dedicated to scheduling clinic appointments and arranging for hospital-provided transportation, which could eliminate using the ED as the first point of care and the high cost of using ambulances.

Other solutions centered on reducing the LOS or transfer wait times, which will reduce JPMC's cost of care. These solutions included working with patients earlier in the process to prepare for discharge by engaging nonclinical staff to arrange for hospital-provided transportation or to arrange transportation with family to eliminate delays, and working with affiliated organizations to reduce wait times for surgical transfers, which often took three to five days.

Following the brainstorming session, the solutions were grouped into the following categories: process/procedure change, program/service extensions, administrative tasks and reporting. The 28 solutions were categorized to simplify allocating resources for implementation and for ease of managing the initiatives and assigning accountability. The process/procedure change initiatives would require a process or procedure change to the current established protocol, affecting both administrative and clinical teams. Program/service extension solutions involved establishing new services or providing new programs to the community. These new programs and services would require an internal champion and resources to manage and implement. Administrative tasks would require administrative ownership for engaging the group or external entity involved to improve or evaluate the current process or relationship. These solutions typically involved an external partner, such as a nursing home or home health agency. Finally, the
reporting solutions centered on creating a new reporting mechanism for monitoring and evaluating progress. For these solutions, a new reporting tool would need to be established to use the data already being captured to communicate the progress to nursing and physician staff.

After each solution was defined and categorized, the JPMC administrative team worked with the appropriate physicians and clinical leaders to prioritize the initiatives across a timeline. Project charters and teams needed to be assigned with the understanding that a successful implementation would require staggering each solution across a timeline and establishing metrics to measure success.

The JPMC administrative team identified more than $1 million in cost reductions and revenue enhancements from this process. The first step was to implement a working DRG system to estimate patient discharge dates and work with physicians to decrease LOS. In the first six months, they reduced LOS and costs by $231,000. They also have recently developed a physician scorecard that compares physicians' costs, revenues and LOS. The physicians have already provided positive feedback on the report. (See an example of the physician scorecard.)

This project has been enlightening for the entire leadership team. By drilling down on the database, the team identified costly opportunities that needed to be addressed. The solutions ranged from ensuring that ED discharge patients without a regular physician schedule follow-up appointments with a new clinician to educating the entire nursing staff about the cost of keeping patients an hour or more past normal discharge time. By reviewing the solutions as a team, all of the decision makers were engaged and became accountable for making changes.

The Results

The results of the defined exercise affected JPMC on multiple levels. First, the exercise centered primarily on reducing revenue losses among JPMC's Medicare population. As solutions are developed that address the Medicare population utilized in the initial population study, implementation efforts can also be expected to have a positive impact on the non-Medicare patient populations. Therefore, by focusing on one subsegment's Medicare costs, JPMC is creating solutions that will affect its entire patient population.

Second, the organization began to address its community's health by understanding the specific health needs of its patient population. For example, traditional disease-management programs, although important and successful, might not meet the needs of each unique community if its member are not generally at risk for those diseases and, therefore, would not be high-cost drivers.

Finally, as the market continues to define the infrastructure and leadership requirement for the ACO model, engaging in an analysis of productivity with respect to patient care will drive facilities toward the patient care portion of the ACO model. This process is the foundation for building collaboration between physician and hospital leaders. Additionally, as health systems look to integrate or create partnerships, a healthcare organization that has addressed the patient care model and reduced its costs will be an attractive candidate for partnerships where leadership/governance and infrastructure components can build off this foundation. Whether or not JPMC develops an ACO, the organization must still reduce its costs while improving outcomes.

Planning for the Future

The four-step process illustrated here is a starting point for organizations looking to affect their cost and quality today, while infrastructure models are being defined for tomorrow. Successful implementation requires establishing a team composed equally of physicians and administrators, establishing ground rules for meetings with clear expectations and creating communication plans and guidelines to facilitate planning and implementation.

Finally, the leadership team should acknowledge that the organization needs to make an investment today that will pay off tomorrow. Like JPMC, the organization that embraces what it can change today in terms of cost and quality will be better positioned for future models and regulations. This analysis of an organization's patient population and collaboration of a multidisciplinary team is necessary to make the changes that will help it meet the standard of the future payment system.

Richard D. Wagner, FHFMA, CPA, is a partner, Eide Bailly, LLP, Golden, Colo., and a member of HFMA's Colorado Chapter (

Allison O'Connor is a senior manager, Eide Bailly, LLP, Minneapolis, and a member of HFMA's Minnesota Chapter (

Michael A. Moore, CPA, is CFO, Jane Phillips Medical Center, Bartlesville, Okla., and a member of HFMA's Oklahoma Chapter (


About the Jane Phillips Medical Center   


  • 137 licensed beds
  • 664 employees
  • 5,502 discharges
  • 22,070 patient days
  • $269,557,172 gross revenue


Publication Date: Monday, January 02, 2012

Login Required

If you are an existing member, please log in below. Username and password are required.



Forgot User Name?
Forgot Password?

If you are not an HFMA member and would like to access portions of our content for 30 days, please fill out the following.

First Name:

Last Name:


   Become an HFMA member instead