Cost Reduction

Analysis: Yes Virginia (and Tennessee), controlling healthcare costs requires hard choicesc

September 26, 2019 1:03 pm
  • Ballad Health has rolled out changes to consolidate high-level services into one of its Johnson City hospitals a half-hour south, according to Modern Healthcare.
  • As a result of efforts to reduce under-utilized capacity and repurpose the savings to address SDOH, the health system is facing backlash from the community due to concerns about loss of access.
  • Critics of the consolidation say fewer hospital employees are creating long wait times and unsafe conditions, but Ballad officials deny these claims, according to Modern Healthcare.

Modern Healthcare is reporting on the community backlash faced by Ballad Health as it tries to rationalize services in the wake of the merger that created it. The article reports, Ballad was formed “through a rare, controversial maneuver (Certificate of Public Advantage – COPA) that — with green lights from regulators and lawmakers in Tennessee and Virginia — provided antitrust immunity from a federal lawsuit.

“Ballad’s leaders say the alternative to a merger would likely have been selling to a for-profit chain that would have had free rein to shutter rural hospitals. Ballad’s contract with Tennessee and Virginia precludes it from closing hospitals for five years, although it can repurpose them if the same services are provided at another hospital in the county. The COPA directs Ballad to invest $308 million of its savings into such programs in its first decade. Ballad leaders already plan to turn one rural Tennessee hospital into a residential substance-use treatment facility and envision potentially going a similar route with another in Virginia.”

“Since the merger to form Ballad became official in February 2018, the health system, which has $2 billion in annual revenue, has swiftly rolled out changes to consolidate high-level services into Ballad’s Johnson City hospital a half-hour south,” according to the Modern Healthcare article. “That’s meant stripping the Kingsport hospital of its neonatal intensive care unit and downgrading its trauma center. Ballad’s CEO, Alan Levine, said competition between the two legacy systems led to an irrational, inappropriate duplication of services in the region that were expensive to run. He also said patient care will be safer once it’s centralized in Johnson City.”

“Critics say Ballad is bleeding employees, leading to long waits and unsafe conditions,” according to Modern Healthcare. “Ballad officials fervently deny those claims. Hundreds have packed public meetings and taken to social media to air grievances. The organizer behind a petition to get Ballad to halt service- line changes, including the controversial NICU closure and trauma downgrade, claims to have 27,000 paper signatures. Modern Healthcare could not independently verify the purported signature count.”


There’s an elephant in the room. Like it or not, the provision of healthcare requires the consumption of economic resources just like the production of food, clothing or cars. Therefore, there are some inherent trade-offs that have to be made if we want lower healthcare costs.

Healthcare is a high fixed and step fixed cost business . . . reducing the cost of care per unit means increasing the utilization of these fixed assets in a clinically appropriate manner. So, in the instance of the Ballad merger, the combined entity owns three hospitals in Wise County, Virginia. Two of those three hospitals had an average daily census of less than five patients per day.

More efficient use of facilities

So, it probably makes sense to close the inpatient units at two of the hospitals when they can and provide some level of outpatient care on the sites of those facilities (and maybe even consolidate those outpatient services into one location).

Also, the combined entity had two Level I trauma centers, less than 25 miles apart, that had the combined capacity to provide care to over four million people. Probably a quarter of that many people live in the system’s catchment area. It probably makes sense to downgrade one of them to a Level Ill trauma center, reduce the facility’s capacity/ancillary services and move the truly complex care to the hospital that will remain a level I trauma center. The system also will retain a Level II trauma center in the same region.

More efficient use of labor

And the capital is the lesser of the cost in providing healthcare services. Typically, labor constitutes 60% or more of a hospital’s expenses. So, if we’re going to reduce the cost of care, we need to make more efficient use of labor, which means:

  • Reducing unnecessary positions.
  • Providing care in lower-cost sites of service (community hospitals as opposed to Level I trauma centers).
  • Using lower-skilled labor mixes where it is clinically safe/appropriate. One example is making sure that we’re not using nurses on care units to do clerical tasks that could be done by someone without an RN.


googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text1' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text2' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text3' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text4' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text5' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text6' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text7' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-leaderboard' ); } );