An HFMA Healthcare Financial Pulse Resource
Feel like quality and cost-efficiency have to be at odds? Not so, says the Institute of Healthcare Improvement (IHI) in its recent report Increasing Efficiency and Enhancing Value in Health Care: Ways to Achieve Savings in Operating Cost per Year. The report presents a series of steps to reduce operating costs by 1 percent to 3 percent a year while maintaining or improving quality.
HFMA recently spoke to Maureen Bisognano, executive vice president and COO for IHI and an author of the report, to learn more about the process of realizing “dark green dollars,” or actual savings that accrue to the bottom line by reducing inefficiencies through quality improvement projects.
HFMA: Traditionally, hospitals have found the identification of cost savings around quality improvement efforts to be somewhat challenging. Why?
Bisognano: The identification of cost savings associated with quality improvement has two troublesome aspects.
First is making the connection between quality improvement and budgeting. When clinical people are able to reduce length of stay by a day by decreasing the incidence of complications, for example, they typically go to finance and ask, ‘About how much is a day worth?’ Then they multiply that figure by the number of days saved and tell hospital administration, ‘We’ve been able to save $250,000 or so.’ But when you ask the finance people if the savings were ever realized, they always say no, because in fact budgets haven’t changed. So there is a missing piece between the process changes that frontline team members are making and the budgeting changes that middle managers and team leaders need to make.
The second reason is that many savings from quality improvement efforts show up in a different area than where the work happens. For example, a nurse manager or middle manager may focus on savings by not allowing overtime or by running short-staffed. Over the long haul, however, there may be more staff turnover. So while the budget looks good in the short run for the nursing unit or department, costs will be incurred in the human resources department for recruitment and hiring and orientation.
HFMA: Instead of a business case, a hospital’s mission to “do the right thing” has tended to be the driving force behind quality improvement projects. Yet your organization believes there is a business case to be made. Can you describe this perspective?
Bisognano: The hospital budget focuses on basic financial cost categories: the number of FTEs, the amount of overtime, the use of supplies. But that’s not how waste appears. Waste appears in delays, failures to hand off patients efficiently, and duplication.
One of the main problems in a hospital is patient transfers. In the average hospital, a patient often will be transferred two or three or even four times during the hospitalization. Every time that patient is transferred, there is at least some waste. Nurses often have to rewrite the medical record, call down to pharmacy to stock the appropriate medications on the new unit, and call dietary to make sure dietary trays get to the right place. Linen gets thrown away; many of the supplies are thrown away. That whole transfer process is a waste, but it doesn’t show up on anybody’s budget.
We are giving healthcare leaders a new set of ‘waste glasses’ so to speak, so they can better identify where waste occurs. Once they see where waste is most likely, they can go after these areas with improvement projects, such as using queuing theory and flow improvements so patients can much more reliably be placed in the right bed the first time or acuity adjustable beds so patients never need to move, even if their condition worsens or improves.
HFMA: Why do you think waste reduction is such a pressing issue at this particular time?
Bisognano: Virtually every hospital is suffering real cost pressures because of changes in the economy and in reimbursement. Hospitals are responding by reducing costs.
In my view, there are two paths a senior management team might take. One is to reduce all budgets across the board by 3 percent or 5 percent. But that asks everyone to work harder and could end up stressing some systems so much that quality declines.
There is a different way, and that is to redesign the process. We’re working with a hospital in England that has a long waiting list of patients as well as financial pressures. What did senior leaders do when they were under pressure to get patients in the beds? They closed 10 percent of the beds but left the staffing level the same and said, ‘We want you to do take three months and work aggressively on improving care and quality by driving down any defects that the patients might experience, including medication errors.’
The senior leaders gave staff a portfolio of improvement work to do to drive down those defects, and as the defects fell, the length of stay fell, and more patients could move into the hospital off the waiting list. The process was so successful that the hospital closed another 10 percent of the beds. So it’s a case of driving down the budget while dramatically improving care.
HFMA: What role should CFOs play in these efforts?
Bisognano: The CFO should be driving the process. Here’s an example: A few years ago, we took a group of senior leaders from healthcare organizations on a learning tour to other industries, including General Electric, Alcoa, Johnson & Johnson, 3M, and NASA. In every meeting at these sites, a common theme was that the CFO was pushing really hard to improve processes faster, because that was the way to drive out waste and keep costs down.
Some healthcare CFOs are pushing very aggressively to understand the connection between clinical quality and cost. The CFOs have financial people on virtually every improvement project, and their job is to take the clinical work and translate it into dollars by improving patient flow, getting patients in the right beds the first time, and improving utilization of services without having to invest capital in building new beds. These hospitals are able to certify the savings from waste reduction because their CFOs are so close to the quality improvement work.
But most often, healthcare CFOs are too far from quality improvement efforts so they cannot make the connection to the business case. That’s part of the reason why hospitals are not achieving the kinds of results they could and why they aren’t pushing for more and more improvement to happen.
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