John JohnstonWith hospitals facing slow revenue growth, health system leaders face mounting pressure to rein in spending. As leaders look to achieve significant—and lasting—savings, many are placing more emphasis on reducing unwarranted care variation. In fact, a recent survey found that CFOs consider such variation the single largest source—roughly 40 percent—of cost savings opportunities. But ask an executive to articulate his or her organization’s care variation strategy and what often comes back is a wide-ranging list of discrete initiatives: length of stay reduction, order sets for sepsis, antibiotic protocols, blood utilization reduction, etc. Although all are worthy endeavors, when we take a closer look, we often find that they were identified somewhat randomly, are consuming quite a lot of staff and physician time, and that there is no formal roll-up of the initiatives into an organized structure. Most alarming, we often find that while there is a strong belief that these initiatives will result in cost savings, there is often very little financial rigor applied to the work underway.  

Recently the chief medical officer of a 350-bed community hospital convened several physician leaders in response to a mandate from the CEO to reduce care variation costs by $20 million. Although there was some anecdotal evidence of success of the various initiatives, no one was able to point to specific financial results that had been realized. Decision support leadership reluctantly pointed out that only randomly was cost accounting data being reviewed by the initiative teams, no work plans had been created to focus the work, and no financial measures were being tracked. Finally one of the physicians stated, “we think we are saving money, but we don’t really know, and I have a feeling we will be disappointed with what we find out.” Now the hospital is stepping back and evaluating the financial performance of service lines, DRGs, and clinical departments against benchmarks to identify the full scope of their cost reduction opportunity and make a data-driven decision as to where they should allocate resources.

An Organized Strategy

To make the leap from mediocre financial results to large-scale impact, most health system leaders need to get much more organized and much more rigorous in developing an overarching strategy for care variation and take a strong hand in guiding and measuring specific initiatives. Moving the needle on financial impact is best achieved through a systemic, centralized approach to care variation in which system-level leadership focuses efforts on the biggest drivers of cost and quality opportunity and tightly manages the initiatives with targeted work plans and timelines. At the highest level, it starts with leadership answering these fundamental questions:

  • Where are our greatest financial opportunities?
  • What are the most important drivers of clinical and financial improvement tied to care variation?
  • How do we ensure our teams get the greatest results?
  • How will we measure and track financial benefit to our bottom line?

Identifying Priorities

Perhaps the greatest challenge with the unorganized approach to care variation is that initiative teams are launched but not given a work plan to guide their focus. When the improvement “agenda” is left to the initiative teams to figure out, they often devote the majority of their attention to important issues, but not necessarily the ones that impact costs. A health system in the Midwest recently identified over $4 million in cost savings tied to care variation in their sepsis population. A team of physicians and clinicians was convened with the charge to reduce costs. The team launched several initiatives but in 12 months, only $30,000 was saved via standardization of the antibiotic selection. A subsequent review of the team’s initiatives revealed they had not focused on any of the top drivers accounting for the majority of the $4 million opportunity. Their experience offers good lessons for all of us as we pursue more ambitious clinical variation cost savings:

Focus teams on the big cost opportunity drivers. When unguided, clinical leaders often focus only on “line item” resources. In this case, the team locked in on antibiotic use, which carries a relatively low unit cost, but ignored their over-utilization of the ICU, which accounted for more than 20 percent of the cost opportunity. Cost accounting data should be used to isolate the areas with greatest cost variation, and that information should be communicated to the team tasked with making improvements.

Quantify the gap to evidence-based best practice. Another big cost and quality opportunity ignored by the sepsis team was their poor success rate of early identification. A comparison of their processes against best practice revealed the clinical protocols that needed to be changed, and that this gap resulted in adding 2 – 3 avoidable days per stay.

Include all stakeholders to ensure full visibility. The sepsis team included hospitalists, nursing, pharmacy, and emergency department physicians, but care management and discharge planning were not involved, limiting the overall view of the entire stay. The team was relaunched and expanded to include all of the main departments involved in the care of sepsis patients. In addition, representatives from two local nursing homes were invited to participate, which helped the team address readmissions and more efficient discharges.

The financial pressures facing hospitals continue to increase, and care variation opportunities must be addressed in order to maintain viability. Now is the time to develop a centralized, system-level approach to care variation that will bring the right discipline and financial rigor to focus improvement teams on the right initiatives and track the resulting savings to the bottom line.


John Johnston, CPA, MHA is senior vice president and national partner at Advisory Board, Washington, D.C.

Publication Date: Friday, September 08, 2017