As hospitals and health systems face constant revenue stream pressures, financial managers are leveraging cost containment strategies that lean on population health, supply chain management and salary adjustments as a way trim costs.
When it comes to population health, the concept is simple: Keep people healthy, prevent them from over-utilizing the system, and they won't come back for unnecessary follow-up care.
But there's a catch. Hospitals have to first spend money to get the system in place.
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"We've invested millions of dollars in case management, care gap management, health coaches, transition coaches," said Jim Budzinski, chief financial officer for the Wellstar Health System in Georgia. "We invest millions to help people stay healthy -- to help them manage their chronic diseases."
But according to Budzinski, there's a certain degree of segmentation that comes with a population health strategy since not all patients, and their health issues, are equal.
"Eighty percent of costs are consumed by 20 percent of the population in any given year, so you have to focus on those areas," he said. "We've set up programs to help people stay healthy and stay out of the framework that often happens with chronic disease: They come to the ER, we get them healthy, and for whatever reason -- maybe they have no support system -- their health will decline. They will come back to the ER in very difficult shape, we get them shaped up, and then we send them home."
In stark contrast to acute care in a hospital setting, population health programs are designed to intercede before they have to go to the hospital, he said. "They're in their home environment, and we keep them on medications and monitor their health to avoid the crash and burn cycle."
Investing in population health management, however, is far from the only means a hospital system has to exercise control over its cash flow. Savings can also be found in the supply chain, where purchasing can be made cheaper by latching onto a group purchasing organization and essentially buying in bulk.
"We know that there are opportunities through aggregation of committed purchasing power to save supply dollars, and we exercise that through our partnerships," said Budzinski. "We know, for example, our supply chain costs for similar organizations in this country ranks eighth in a national database as far as the lowest supply chain cost possible, out of hundreds of organizations of our size across the country. … You have to be in that space, working it, working it, working it."
The Affordable Care Act also has has differing levels of impact on a system's costs depending on whether a state has decided to expand Medicaid. In Georgia, a non-Medicaid expansion state, Budzinski said that about one in 10 people who walk through the system's hospital doors are still uninsured.
For Bob Lux, chief financial officer of the Temple University Health System in Pennsylvania, Obamacare is seen as one of the drivers of the population health movement.
"We're moving from volume to value, overlaid with growing consumerism, because now the consumer is more engaged in the economics of care than they've ever been," said Lux. "What does that mean if you're a hospital? It means you have to continue to find ways to lower your unit cost. The consumers are demanding a lot when you bring them economically into the conversation."
In Lux's corner of Pennsylvania, an important consideration in terms of penny-pinching is payer mix -- the percentages of patients who are privately insured, covered through Medicare or Medicaid, or are uninsured entirely. An organization's view of cost containment can vary widely depending on that mix.
Temple is in one of the more poverty-stricken areas of the country, Lux said, with the share of privately insured patients hovering at about 15 percent. That makes the system's budget especially tight considering Temple uses its private insurance mix to earn enough money to fund the losses incurred from the uninsured.
Doctors and physicians, as a result, are not as well paid at Temple as they are in other markets.
"For 50 percent of the patients that those doctors see, Medicare will collect whatever the rates are," said Lux. "And the number of private patients are going to pay them a little above what Medicare pays. So the physicians in this market are not well paid, comparatively speaking. At Temple, virtually every physician here is employed and needs support from the hospital in order to earn even a reasonable wage."
Cost containment efforts have been pretty intense in the system over the past several years, but has been helped along by a collective bargaining program that Lux claims has saved a lot of money.
"Many of the team members of the hospital are covered by bargaining units, so your pay scale is bargained and your rate of increases is bargained," said Lux. "We've developed a program called 'Cost to Treat.' Physicians in clinical services are organized, they are provided with information relative to the cost of care for their patients as well as their peers, and there is a process they can embark on where they look at what they can charge without all altering the cost of care, while maintaining quality.
"That has been in existence for about 10 years now."
Those savings, he said, are counted not by the doctors or by the finance department, but by a partnering corporate group -- thereby lending consistency and objectivity as to whether the 'Cost to Treat' goals have been met. If they haven't, there's an independent analysis conducted to find out why it missed, whether it has to do with length of stay, medical equipment costs or other factors.
David Ertel, chief financial officer at the Philadelphia-based Einstein Healthcare Network, said that salaries and benefits are its biggest expenses, representing about 50 percent of all expenditures, followed by supplies, pharmaceuticals and medical devices.
Einstein has utilized a labor productivity management system to make sure its personnel spending makes sense. Through it, the system can adjust its staffing sizes and levels to match what the patient demand is, and to do it on a shift-by-shift basis.
But keeping that staff healthy doesn't hurt, either.
"Benefits have become a big cost, primarily driven by health benefits," said Ertel. "They're increasing in cost at greater than inflation. (If) we can promote healthy lifestyles and drive activity levels inside the organization, we can provide (care) essentially at cost instead of having them go outside the healthcare system."
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Through it all, though, the standard cost containment measures still apply, whether it's acquiring medical supplies through group purchasing organizations or growing the top line to make it easier to keep spending within reasonable limits.
As for healthcare reform, Ertel said it hasn't had much of an effect so far to date, but it may in the future.
"As more people are covered, you'll need to deliver care in a different way," he said. "Everyone will be focused on cutting costs. I expect that to happen over the next few years as more and more individuals are insured."