Cost Reduction

7 Focus Areas for Reducing Healthcare Expenses

December 12, 2018 11:48 am

Six categories of waste account for more than 20 percent of total U.S. healthcare expenditures, according to JAMA research.

In the transition from volume to value, expense reduction is the primary lever providers have to counter financial uncertainty. Continued emphasis on advanced technology and revenue cycle process improvement is essential as healthcare organizations bring greater efficiency to care delivery. Many organizations are now focused on enhancements to their electronic health record (EHR) and other technology platforms to better support the infrastructure required to deliver and demonstrate quality at reduced costs.

Here are seven areas providers can focus on to control costs and maximize savings while continuing to deliver high-quality patient care.

Reduce waste in care delivery. Reducing waste is a core element in improving value in healthcare.
JAMA research suggests that, even at low-end estimates, six categories of waste account for more than 20 percent of total U.S. healthcare expenditures:

  • Overtreatment
  • Failures of care coordination
  • Failures in execution of care processes
  • Administrative complexity
  • Pricing failures
  • Fraud and abuse

Efforts to eliminate excessive and unnecessary testing and procedures with no demonstrable impact on outcomes is an initial step leadership teams can take to better control costs. Providers should focus on closing care gaps among high-cost, high-risk patients and ensuring proper care coordination protocols are established and adhered to.

Increasingly complex administrative processes warrant new approaches to organizational management that move beyond siloed structures. In addition, collectively understanding payer-negotiated pricing versus actual care delivery costs is vital to avoiding pricing failures. Reviewing the reasons for denials within the organization is one way providers can target improvement initiatives in this area.

Establish an accurate view of costs at the case level. To enhance organizations’ ability to accurately predict care delivery costs, episodic performance data, or aggregated data that is shared effectively between care providers to avoid duplication and variability of data and care, can be used to quantify total cost of care for each patient. Leadership teams should analyze historical cost data to establish a baseline for projecting expenses for like-patients. Health-defining attributes along with social determinants of health should be included in data analysis to accurately predict the risk each patient presents.

It is rare that an EHR is capable of supporting both fee-for-service and fee-for-value claims processing. Manual processes and secondary systems like chargemaster and other financial systems, such as enterprise resource planning (ERP)systems, will likely be required to aid data analysis efforts.

Maintain quality outcomes. Clinical outcomes are inextricably linked to payment under quality-based and risk-based payment models. Healthcare organizations need to understand their patient populations and the outcomes of the care and services provided. Pragmatic clinical quality programs and population health management strategies must take organizational characteristics into account, including the following:

  • Geographical location, including urban versus rural status
  • Ownership structure and ability to collaborate with other organizations
  • Patient population predisposition to risk
  • Ability to reach quality targets with the current care team operations and infrastructure

Clinical and financial leadership should ensure that support services at the organization provide the most cost-effective treatment paths to the right patients at the right time. Leadership teams should identify new solutions (e.g., telehealth) and care partners for collaboration to reinforce areas that may not be strengths for an organization.

Conduct a revenue cycle operations assessment. Can current systems, people, and processes support and sustain the payment focus shift from volume to value? Look at every step from first referral to final discharge and post-acute care. Review questions internally and externally with key stakeholders in the care process. Be sure to include assessment of and improvements related to the following:

  • Patient access/referrals
  • Charge capture and billing
  • Clinical documentation
  • Denial management and prevention

Identify innovative opportunities to support at-risk and rising-risk populations. Assess community care communication, collaboration, and partnerships to enhance abilities to meet patient needs. Understand how at-risk patient populations will be best managed and allocate resources accordingly. Build an optimal provider network for each patient population. Ensure responsibility alignment that delivers care in the most cost-effective manner. Implement one unique program and move on to the next. Monitor cost, quality, and payment changes for each initiative as justification for continued expansion.

Conduct data-driven contracting with payers. It is important for organizations to understand the positive and negative consequences before entering into at-risk payer models, including those developed by the Centers for Medicare & Medicaid Services. Organizations should consider bringing on analytics expertise, be it in-house or outsourced, to understand costs of care and clinical trends across the organization. This will allow the organization to weigh potential costs against earning potential during contract negotiations.

Make improved patient experience a priority. In today’s healthcare environment, patient engagement is paramount. Every individual in the healthcare organization could potentially influence patient satisfaction, which impacts payment as well as market perception of the facility.

More effective means of communication and engagement are among the top priorities for healthcare organizations. Make it easy for patients to do business with the organization via offerings like online scheduling and bill pay and patient portals that are accessible by computer, smart phone, and kiosk. Explore opportunities for multimodal communication to better engage patients throughout their healthcare journeys.

By focusing on these areas of cost management, healthcare organizations can implement an expense reduction strategy that also supports clinical outcome improvements. Start small, don’t boil the ocean, and understand what goals are realistic and what will be difficult to change.

As the industry finds its footing together, healthcare leadership teams who proactively work to control costs and improve efficiency in care delivery will convey greater value to both patients and healthcare partners alike.

Jon Melling, FHIMSS, is partner at Pivot Point Consulting and a member of HFMA’s Arizona Chapter.


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