• Low Costs Pivot Hospitals to the Top of Community Value Index

    Jul 21, 2010

    Top-performing hospitals in the 2010 Community Value Index® achieve their rankings primarily on the basis of their low cost structures.

    Now in its seventh year, the Community Value Index® provides a snapshot of the overall value that U.S. hospitals provide to their communities-with "value" encompassing four dimensions: financial strength and reinvestment, cost of care, pricing, and quality of care.

    Most acute care hospitals are automatically included in the national study, which uses publicly available data. Every year, the 100 top-performing hospitals receive the Community Value Leadership Award.

    Leadership talked with James O. Cleverley, consultant, Cleverley & Associates, Inc., to learn more about hospital performance on the cost and quality dimensions of the index.

    How did top performers on the 2010 Community Value Index achieve this ranking? What are they doing right?  

    Cleverley: The top-performing hospitals tend to have higher margins, lower debt, and greater levels of reinvestment. So they are very strong financial performers.

    On the pricing side, these top performers tend to have lower inpatient and outpatient charge structures. Even top-performing hospitals with less favorable payer mixes (i.e., a higher number of Medicaid patients) are able to maintain reasonable charges, which I think is remarkable.

    They achieve this primarily by keeping costs low. These organizations are so efficient on cost side that they are able to maintain lower charges and still generate a reasonable margin.

    Have you dug deeper into the cost data to see where these top performers are saving dollars? For instance, are they keeping labor costs low?  

    Cleverley: We essentially look at the total cost per patient encounter. We use two measures to assess cost structure: Medicare cost per discharge (adjusted for case mix and wage index) and Medicare cost per visit (adjusted for relative weight and wage index).

    However, if you drill into any top performing hospital's detailed cost data, you will likely find variation. For instance, one hospital may have higher nursing salaries, which contributes to a high cost per nursing day. But that same hospital might be very good at managing patients, which contributes to a low length of stay and a low overall cost structure.

    So there are variances. Hospitals can achieve lower costs in different ways, whether it's a lower cost per unit, a lower utilization, or both.

    What about quality scores? Your 2010 study found no meaningful differences in quality scores among hospitals. Why do you think that is?  

    Cleverley: Yes, there was a very tight distribution in terms of quality scoring, which was interesting.

    To assess quality, we use Medicare's Hospital Compare quality data, which has two pieces. One piece looks at outcomes of care, and the other focuses on processes of care.

    For outcomes of care, hospitals are being evaluated on their risk-adjusted mortality rates and their readmission rates. The Centers for Medicare & Medicaid Services calculates these rates based on data (e.g., claims data) that it already has in house. Hospitals do not have to report anything "extra" to Medicare for these measures.

    However, hospitals are self-reporting the process of care measures as part of Medicare's value-based payment arrangement. These measures assess whether hospitals are giving recommended treatments, such as giving heart attack patients aspirin on arrival.

    We see less variance in these self-reported process scores than the outcomes scores. Hospitals probably recognize that they are being evaluated in these areas, that payment is tied to these measures, and that patients can go online to see how well they score on these measures. So most hospitals have put some tight quality control mechanisms in place to ensure they do well on these process measures.

    I think this is encouraging because it suggests that hospitals are really focused on providing high quality of care in those process metrics. This doesn't mean there are not quality differences among hospitals. There are high-quality performers and low-quality performers. But overall, I think this is good news for the healthcare industry. It means that hospitals are really looking at quality and trying to do their very best.

    But there is still room for improvement in terms of quality?  

    Cleverley: Yes, there are outliers. In many cases, hospitals are not necessarily performing poorly, but their scores are lower than the U.S. average for many of these metrics. Some hospital leaders are surprised to learn this. They'll look at the data and say, "We didn't realize we were below the national average. We thought we were in a good place. But now we know we need to do better."

    So examining how you compare on these quality metrics can give you some tangible areas for improvement. (The quality data, including U.S. averages, is publicly available on the Hospital Compare web site.)

    Yet, you did find greater variation on the cost and price metrics in the Community Value Index.  

    Cleverley: Yes, we saw much wider variation in hospital cost and charge structures. Everyone is driving at very consistent quality scores. But some hospitals are able to provide that care much more efficiently. At the end of the day, a hospital may have the same quality scores as another hospital. But that hospital will be better positioned for success if it can provide that level of care more efficiently. 

    Jamie O. Cleverley is a consultant with Cleverley & Associates, Inc., Worthington, Ohio, and a member of HFMA's Central Ohio Chapter (JCleverley@cleverleyassociates.com).

    More on this Topic:

    Subscribers to HFMA's Strategic Financial Planning newsletter can also access these related articles:

    Assessing Community Value. An indepth data analysis of the 2010 Community Value Index results by William and James Cleverley. 

    Demonstrating and Improving Your Hospital's Value. How hospitals can improve their standing on the Community Value Index-and how the index can be used to defend tax exempt status and demonstrate value to communities, payers, and others.