In the past, hospitals had one role: deliver care. But in recent years, some of the largest hospitals and health systems have assumed the financial risk of delivering care.
One organization serving in this dual role of care provider and insurer is Denver Health. The health system has contracts with the state of Colorado to manage the care of 52,000 Medicaid beneficiaries and operates its own health plan that serves Denver Health employees, Denver city workers, Medicare patients and children in the CHIP program.
“That means we need to think more in terms of care for our covered lives while also providing fee for service care,” said chief financial officer Peg Burnette. “That makes us more of hybrid model because we’re doing a lot of both.” In this hybrid model of payment, operating at peak efficiency is the key to success and doing so involves following the principles of lean, she added.
Since 2005, Denver Health has saved more than $200 million as a result of using lean to fine-tune operations and clinical processes. The largest health system in Colorado includes the 525-bed Denver Health Medical Center, the Rocky Mountain Regional Trauma Center and an ambulance service. It also manages more than 365,000 outpatient visits annually in eight community health centers and runs 16 health centers in Denver’s public schools.
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In a system of this size, lean is useful for improving processes in almost every department, said CEO Art Gonzalez. “Essentially, we use lean to apply the scientific method to the practice of process improvement. That means we do a little bit here and there and it all adds up to significant improvements.”
What Denver Health has learned is instructive for hospitals of any size, said Rick Morrow, a hospital consultant and vice president with Healthcare Performance Partners in San Antonio. CFOs in hospitals nationwide are working with nurses and doctors to implement lean strategies to improve a variety of clinical processes and eliminate costly inefficiencies, he added.
Burnette offers an example, saying any hospital can use lean to improve revenue cycle management. She recommends collecting data on each of the most costly high-cost diagnosis-related groups, and comparing the revenue Denver Health gets from Medicare to what it spends to deliver each DRG. “If Medicare pays X and our cost is above X, then we want to close that gap. Our costs should to be within or equal to what Medicare pays for the service,” she explained.
Closely this gap is important not only because it brings costs in line with revenue, but also because it helps to align what Denver Health is spending with what commercial plans may pay in the future, she said. “That’s where healthcare is going in general and this gives us a way to prepare for that day,” Burnette added.
Identifying cost discrepancies
Elizabeth Fingado, the director of lean systems improvement at Denver Health, agrees, saying she has asked clinical departments to identify where costs might be higher than what the hospital gets paid for those services.
“We’re teaching every individual unit how to approach their biggest opportunities for improvement,” she said. “So, if we have a priority this year to decrease costs by 2 percent, we will allow each unit to do it in their own way. We give them the tools to do it and teach them ways of thinking about how to do it in a way that makes sense in their area. Then they can deploy lean locally. If we do that throughout the hospital, we can find savings across every unit.”
This strategy has two advantages. First, it empowers staff in individual units to improve processes, and second it avoids the problems inherent in asking each department simply to cut spending across-the-board, said Burnette.
[See also: Disruptive Innovators: Shifting to lean.]
Lean also is useful for improving processes that need to change to accommodate new rules under the Affordable Care Act. In the past, for example, Denver Health could not bill for a medical visit when a patient came in for behavioral healthcare. That rule created inefficiencies but when it was eliminated, the old billing processes remained in place, making it difficult for Denver Health to get paid for both mental health and medical care during the same visit, Burnette said
“Using lean process-improvement, the finance staff identified the steps necessary to register and treat a patient for both mental and physical issues at the same time, bill the payer for that treatment, and collect on those accounts,” she noted.