5 Cost Reduction Priorities for CEOs
Rene Letourneau, for HealthLeaders Media , November 11, 2013
Three out of four hospital and health systems CEOs cite overall cost reduction and efficiency as one of their top two financial priorities, so it was no surprise to hear a robust conversation on this hot topic at HealthLeaders Media’s annual CEO Exchange.
Last week, I attended HealthLeaders Media’s annual CEO Exchange, where nearly 40 top executives from hospitals and health systems discussed their largest concerns around reducing costs, as they work to redesign the way their organizations deliver healthcare.
In the pre-event survey, 75% of the CEOs cited overall cost reduction and efficiency as one of their top two financial priorities for the next three years, so I wasn’t surprised to hear a robust conversation on this hot topic.
These top leaders are looking beyond tactics for shaving a few percentage points off costs; instead, they talked about the need to restructure healthcare delivery in order to lower costs significantly.
Tackling Physician Utilization
One of the biggest areas of concern for hospital and health system CEOs is the need to rein in physician utilization of tests, imaging, procedures, and expensive medications, particularly in instances when the use of these resources does not result in better patient outcomes.
Troy Thibodeaux, executive vice president and CEO at Covenant Health System in Lubbock, TX, says that although his organization is always looking at labor and supply chain costs for ways to reduce expenses, he knows they must also tackle physician utilization in order to make more substantial gains.
“We realize there is only so far we can go [with labor and supplies] so we are looking at other areas that might be big picture areas as far as utilization, evidence-based medicine, blood utilization, and we’re really trying to work with the medical staff to get that alignment around those cost reduction areas,” Thibodeaux says.
J. Thomas Jones, president and CEO at West Virginia United Health System in Fairmont, says he and his executive team are looking to their best clinical performers for ways to trim utilization throughout the system.
“What we are concentrating on now is really finding in each of our system’s hospitals what produces the best outcomes at a lower cost and how we get buy-in across the system to do it the same way in every system hospital,” Jones says.
Michael Rowan, executive vice president and chief operating officer at Englewood, CO-basedCatholic Health Initiatives, agrees that physician utilization should be a key area of focus, especially because his organization is moving to risk-based payer contracts in which high utilization of expensive resources could result in financial penalties.
“We’re big on trying to get focused on the clinical side… to manage utilization and clinical variability,” Rowan says. “We also need to address and prepare ourselves so we don’t get into short-term thinking. If we look at a typical patient and how much outpatient diagnostic testing they get, we haven’t evolved from thinking of it as revenue to thinking that it is an expense. We’ve got enough markets and enough contracts out there where those things really are expenses now, and so we have to look at how we make that mindset shift.”
Reducing Cost Variations
Several CEOs noted that identifying and rectifying variations in costs among clinicians treating similar patient populations is also important to reducing the overall cost of the care their organizations are delivering.
“One of the things that we’ve done is take a look at all of our hospitals and look at variation around certain DRG clusters,” says Steve Newton, west region president at Baylor Scott & White Health in Grapevine, TX.
Like West Virginia United, Baylor Scott & White is using its best performers to set the standards for other clinicians, Newton says, noting that the system’s administration will work with low performers on finding ways to improve.
“Literally, we are rolling out an expectation that all of our hospital leadership teams are going to set up a group to look at the analytics and to find exactly where the low performers are and what the levers are,” Newton says. “I personally feel like this is one of the biggest untapped reservoirs in terms of cost reduction opportunities.”
Preparing for New Reimbursement Structures
The CEOs at the Exchange all agree that one of the largest challenges for their organizations is the looming transition from a fee-for-service payment structure to one based on value. While the senior leaders acknowledge that they are moving toward a capitated reimbursement environment, they say it is difficult to know how quickly to make changes when they are still mainly being paid on a fee-for-service basis.
“The hardest part is [that] you still probably have both feet in the fee-for-service canoe, and you are lifting one foot out knowing you are going to put it in a capitated situation, but you can’t put it down yet. You just can’t put it down yet,” West Virginia United’s Jones says.
This creates a challenge for system leadership, he says. “You are trying to get people ready, but you can’t really, fully implement because it doesn’t work right now with payers.”
Britt Berrett, president at Texas Health Presbyterian Hospital Dallas, says preparing to move to a value-based reimbursement structure without knowing where the tipping point is presents a major dilemma.
“I think I spend all my time preparing my team to be ready to change… The change management is going to have to be extraordinarily fast when the current reimbursement structures collapse,” Berrett says.
Achieving Staff Buy-In
Reducing price variation and cutting the overall cost of care requires buy-in and a willingness on the part of clinicians and staff to change processes and procedures—something that is not always easy to achieve, says Patrick Cawley, MD, CEO at Medical University of South Carolina Medical Center in Charleston.
“The thing we are struggling with at its core is the constant culture change of cost reduction. We’ve been very successful in some ways with cutting costs in the last several years, but I have people coming to me saying ‘I did my share.’ Other industries don’t do that because they see the value in constantly picking away at cost. Vendors maintain their 20% margin because they are constantly looking at ways to reduce cost… We have to get to where people value cost reduction as part of what they do every day, whether it is on the doc side or the administrative side,” Cawley says.
“There is no easy fix here,” agrees John Popovich, Jr. MD, president and CEO at Henry Ford Hospital in Detroit. “It’s a process. It starts with giving them the data and showing them the variability and working through it. … It’s more about the process and the relationships and the data, all of that stuff has to go together. It’s a secret sauce.”
Developing Trustworthy Data
As Popovich notes, data is crucial to demonstrating the best areas for opportunities to reduce costs, and most CEOs echo the sentiment.
“It’s going to require a deep investment in analytics,” Cawley says of achieving ongoing cost reductions.
CEOs know physicians can be moved to change their behaviors when presented with data, but only if it is data they trust.
Doug Luckett, interim CEO at CaroMont Regional Medical Center and CaroMont Health inGastonia, NC, says having accurate, trustworthy data to share with clinicians in conversations around cutting costs is his “top priority.”
“I want to make sure we have a single version of the truth in terms of data integrity when we talk to our physicians about cost reduction,” he says.