What Impacts Balance Between Health Care Costs, Quality, And Access To Services
U.S. health care costs currently exceed 17% of GDP and proceed to rising. Other countries spend less of their Gross domestic product on health care but have the same increasing trend. Explanations are non difficult to observe. The aging of populations and the development of new treatments are behind some of the increase. Perverse incentives likewise contribute: Third-party payors (insurance companies and governments) reimburse for procedures performed rather than outcomes achieved, and patients conduct little responsibility for the cost of the health care services they demand.
But few acknowledge a more fundamental source of escalating costs: the organization by which those costs are measured. To put information technology frankly, there is an almost complete lack of understanding of how much it costs to deliver patient care, much less how those costs compare with the outcomes achieved. Instead of focusing on the costs of treating individual patients with specific medical weather condition over their total bicycle of care, providers aggregate and analyze costs at the specialty or service department level.
Making matters worse, participants in the health care arrangement do not fifty-fifty agree on what they hateful by costs. When politicians and policy makers talk virtually cost reduction and "bending the cost curve," they are typically referring to how much the government or insurers pay to providers—not to the costs incurred by providers to deliver wellness care services. Cutting payor reimbursement does reduce the bill paid by insurers and lowers providers' revenues, but it does nothing to reduce the actual costs of delivering care. Providers share in this defoliation. They frequently allocate their costs to procedures, departments, and services based not on the bodily resources used to evangelize care but on how much they are reimbursed. But reimbursement itself is based on arbitrary and inaccurate assumptions almost the intensity of care.
Poor costing systems have disastrous consequences. Information technology is a well-known management axiom that what is not measured cannot be managed or improved. Since providers misunderstand their costs, they are unable to link cost to process improvements or outcomes, preventing them from making systemic and sustainable cost reductions. Instead, providers (and payors) turn to simplistic actions such as all-embracing cuts in expensive services, staff compensation, and head count. But imposing arbitrary spending limits on discrete components of care, or on specific line-detail expense categories, achieves only marginal savings that often atomic number 82 to higher total systems costs and poorer outcomes. For instance, as payors introduce high copayments to limit the use of expensive drugs, costs may balloon elsewhere in the organization should patients' overall health deteriorate and they subsequently require more services.
Poor cost measurement has too led to huge cross-subsidies across services. Providers are generously reimbursed for some services and incur losses on others. These cross-subsidies introduce major distortions in the supply and efficiency of care. The inability to properly measure out cost and compare price with outcomes is at the root of the incentive problem in health care and has severely retarded the shift to more effective reimbursement approaches.
Finally, poor measurement of cost and outcomes too means that effective and efficient providers go unrewarded, while inefficient ones have little incentive to improve. Indeed, institutions may be penalized when the improvements they make in treatments and processes reduce the demand for highly reimbursed services. Without proper measurement, the healthy dynamic of competition—in which the highest-value providers aggrandize and prosper—breaks down. Instead we have cypher-sum competition in which health intendance providers destroy value by focusing on highly reimbursed services, shifting costs to other entities, or pursuing piecemeal and ineffective line-item cost reductions. Current health care reform initiatives will exacerbate the situation by increasing admission to an inefficient system without addressing the fundamental value trouble: how to deliver improved outcomes at a lower full price.
The remedy to the cost crisis does non require medical scientific discipline breakthroughs or new governmental regulation. It only requires a new fashion to accurately mensurate costs and compare them with outcomes.
Fortunately, nosotros tin can change this situation. And the remedy does not require medical science breakthroughs or top-down governmental regulation. It only requires a new fashion to accurately measure costs and compare them with outcomes. Our approach makes patients and their conditions—not departmental units, procedures, or services—the fundamental unit of analysis for measuring costs and outcomes. The experiences of several major institutions currently implementing the new approach—the Head and Neck Eye at Dr. Anderson Cancer Center in Houston, the Scissure Lip and Palate Program at Children's Hospital in Boston, and units performing knee replacements at Schön Klinik in Frg and Brigham & Women'south Hospital in Boston—ostend our belief that bringing accurate cost and value measurement practices into health care delivery tin have a transformative impact.
Agreement the Value of Wellness Care
The proper goal for any health care delivery organisation is to improve the value delivered to patients. Value in health care is measured in terms of the patient outcomes achieved per dollar expended. It is not the number of different services provided or the volume of services delivered that matters simply the value. More care and more expensive care is not necessarily better care.
To properly manage value, both outcomes and cost must exist measured at the patient level. Measured outcomes and cost must encompass the entire cycle of intendance for the patient's particular medical condition, which often involves a team with multiple specialties performing multiple interventions from diagnosis to handling to ongoing management. A medical condition is an interrelated ready of patient circumstances that are best addressed in a coordinated fashion and should be broadly defined to include mutual complications and comorbidities. The toll of treating a patient with diabetes, for example, must include not only the costs associated with endocrinological care simply also the costs of managing and treating associated conditions such as vascular disease, retinal illness, and renal disease. For primary and preventive intendance, the unit of value measurement is a detail patient population—that is, a group with like chief care needs, such as good for you children or the frail and elderly with multiple chronic conditions.
Let'due south explore the starting time component of the wellness care value equation: wellness outcomes. Outcomes for whatsoever medical condition or patient population should be measured along multiple dimensions, including survival, power to part, duration of intendance, discomfort and complications, and the sustainability of recovery. Better measurement of outcomes volition, past itself, lead to significant improvements in the value of wellness intendance delivered, as providers' incentives shift away from performing highly reimbursed services and toward improving the health status of patients. Approaches for measuring health care outcomes accept been described previously, notably in Michael Porter's 2010 New England Journal of Medicine article, "What Is Value in Wellness Care?"
While measuring medical outcomes has received growing attention, measuring the costs required to evangelize those outcomes, the 2d component of the value equation, has received far less attention. In the value framework, the relevant cost is the total cost of all resource—clinical and administrative personnel, drugs and other supplies, devices, space, and equipment—used during a patient'due south total cycle of intendance for a specific medical condition, including the handling of associated complications and common comorbidities. We increment the value of health care delivered to patients by improving outcomes at similar costs or by reducing the total costs involved in patients' care while maintaining the quality of outcomes.
A powerful driver of value in health intendance is that improve outcomes often go hand in hand with lower total care bicycle costs. Spending more on early on detection and meliorate diagnosis of disease, for case, spares patients suffering and often leads to less complex and less expensive care subsequently. Reducing diagnostic and treatment delays limits deterioration of health and also lowers costs by reducing the resources required for care. Indeed, the potential to improve outcomes while driving down costs is greater in health care than in whatsoever other field we accept encountered. The central to unlocking this potential is combining an accurate cost measurement system with the systematic measurement of outcomes. With these powerful tools in identify, health care providers tin can utilise medical staff, equipment, facilities, and authoritative resources far more efficiently, streamline the path of patients through the organization, and select treatment approaches that improve outcomes while eliminating services that do not.
The Challenges of Wellness Care Costing
Accurate price measurement in health care is challenging, outset because of the complication of health intendance delivery itself. A patient's handling involves many unlike types of resources—personnel, equipment, space, and supplies—each with unlike capabilities and costs. These resources are used in processes that commencement with a patient's first contact with the organization and continue through a set of clinical consultations, treatments, and administrative processes until the patient's care is completed. The path that the patient takes through the system depends on his or her medical condition.
The already complex path of care is farther complicated by the highly fragmented way in which health care is delivered today. Numerous distinct and largely contained organizational units are involved in treating a patient'due south condition. Intendance is also idiosyncratic; patients with the aforementioned condition often accept dissimilar paths through the system. The lack of standardization stems to some extent from the artisanal nature of medical do—physicians in the same organizational unit performing the same medical process (for example, full knee replacement) often utilize different procedures, drugs, devices, tests, and equipment. In operational terms, you might draw health care today every bit a highly customized job shop.
Existing costing systems, which measure the costs of private departments, services, or support activities, often encourage the shifting of costs from one blazon of service or provider to another, or to the payor or consumer. The micromanagement of costs at the private organizational unit of measurement level does fiddling to reduce total toll or amend value—and may in fact destroy value by reducing the effectiveness of care and driving up administrative costs. (For more than on the problems with current costing systems, see the three Myth sidebars.)
Whatever authentic costing system must, at a central level, account for the total costs of all the resource used by a patient as she or he traverses the system. That means tracking the sequence and duration of clinical and authoritative processes used by individual patients—something that near infirmary data systems today are unable to do. This deficiency can exist addressed; applied science advances will soon greatly improve providers' ability to track the type and amount of resources used past individual patients. In the meantime, information technology is possible to determine the predominant paths followed past patients with a particular medical condition, equally our pilot sites take done.
With adept estimates of the typical path an individual patient takes for a medical condition, providers can use the fourth dimension-driven activity-based costing (TDABC) system to assign costs accurately and relatively hands to each process step along the path. This improved version of activity-based costing requires that providers estimate only two parameters at each procedure pace: the price of each of the resources used in the process and the quantity of fourth dimension the patient spends with each resource. (Run across Robert S. Kaplan and Steven R. Anderson's "Time-Driven Action-Based Costing," HBR 2004.)
In its initial implementation, such a costing organization may appear complex. Just the complexity arises not from the methodology merely from today'southward idiosyncratic delivery arrangement, with its poorly documented processes for treating patients with detail weather condition and its disability to map asset and expense categories to patient processes. Equally health care providers brainstorm to reorganize into units focused on conditions, standardize their protocols and treatment processes, and improve their information systems, using the TDABC system will become much simpler.
To see how TDABC works in the health care context, we first explore a simplified case.
Costing the Patient: A Simple Example
Consider Patient Jones, who makes an outpatient visit to a clinic. To estimate the total cost of Jones'due south intendance, we showtime place the processes he undergoes and the resource used in each procedure. Let'south assume that Jones uses an administrative procedure for check-in, registration, and obtaining documentation for third-party reimbursement; and a clinical process for treatment. Just 3 clinical resources are required: an administrator (Allen), a nurse (White), and a doc (Greenish).
Nosotros brainstorm by estimating the first of the two parameters: the quantity of fourth dimension (capacity) the patient uses of each resources at each process. From data supplied by the three staffers, we learn that Jones spent 18 minutes (0.3 hours) with Administrator Allen, 24 minutes (0.4 hours) with Nurse White for a preliminary examination, and ix minutes (0.15 hours) with Doc Greenish for the directly exam and consultation.
Next, we summate the capacity toll rate for each resource—that is, how much it costs, per hour or per minute, for a resource to exist available for patient-related work—using the following equation:
The numerator aggregates all the costs associated with supplying a health care resource, such every bit Allen, White, or Green. Information technology starts with the total compensation of each person, including salary, payroll taxes, and fringe benefits such equally health insurance and pensions. To that we add the costs of all other associated resources that enable Allen, White, and Dark-green to be available for patient care. These typically include a pro rata share of costs related to employee supervision, space (the offices each staffer uses), and the equipment, data technology, and telecommunications each uses in the normal course of work. In this manner, the price of many of the system'due south shared or back up resources can be assigned to the resource that directly interact with the patient.
Supervision price, for instance, tin can exist calculated on the footing of how many people a managing director supervises. Space costs are a function of occupancy area and rental rates; IT costs are based on an private'south use of computers and communications products and services. Assume that we detect Nurse White's total cost to be as follows:
We next calculate Nurse White'southward availability for patient care—the denominator of our capacity toll charge per unit equation. This calculation starts with 365 days per year and subtracts all the time that the employee is non available for piece of work. The calculation for Nurse White is every bit follows:
Nurse White is therefore available for patient work 112 hours per month (6 hours a day for 18.7 days). Dividing the monthly cost of the resource ($vii,280) by monthly capacity (112 hours) gives united states Nurse White'southward capacity price charge per unit: $65 per 60 minutes.
Let's assume that similar calculations yield capacity cost rates for Administrator Allen and Physician Greenish of $45 per hour and $300 per hour, respectively.
We summate the total toll of Jones's visit to the facility past only multiplying the chapters cost charge per unit of each resource by the time (in hours) Jones spent using the resources, and then adding up the components:
Equally this example demonstrates, accurately calculating the cost of delivering health intendance is quite straightforward nether the TDABC system. Although the example is admittedly simplified, it captures almost all the fundamental concepts whatsoever wellness intendance provider needs to use to gauge the cost of treating patients over their full cycles of care.
Past capturing all the costs over the complete bike of intendance for an private patient's medical condition, we let providers and payors to address about whatsoever costing question. Providers tin amass and clarify patients' cost of care by age, gender, and comorbidity, or by treatment facility, physician, employer, and payor. They can summate total and average costs for any category or subcategory of patients while nonetheless capturing the detailed data on individual patients needed to understand the sources of toll variation inside each category.
The Cost Measurement Procedure
Moving across the simplified example, let's now wait at the seven steps our pilot sites are using to judge the total costs of treating their patient populations.
1. Select the medical condition.
We begin by specifying the medical condition (or patient population) to be costed, including the associated complications and comorbidities that touch processes and resources used during the patient's care. For each condition, we ascertain the beginning and stop of the patient intendance cycle. For chronic weather, we choose a intendance cycle for a period of time, such as a year.
2. Ascertain the care commitment value chain.
Adjacent, we specify the care commitment value chain (CDVC), which charts the principal activities involved in a patient's intendance for a medical condition along with their locations. The CDVC focuses providers on the total care cycle rather than on private processes, the typical unit of analysis for virtually procedure improvements and lean initiatives in health care. (The exhibit "The Intendance Delivery Value Chain" shows the CDVC adult with the Brigham & Women's airplane pilot site for patients with severe genu osteoarthritis.) This overall view of the patient care wheel helps to identify the relevant dimensions along which to mensurate outcomes and is as well the starting point for mapping the processes that make upward each action.
3. Develop process maps of each action in patient care delivery.
Next nosotros set detailed process maps for each activeness in the intendance delivery value chain. Procedure maps encompass the paths patients may follow as they move through their intendance cycle. They include all the chapters-supplying resource (personnel, facilities, and equipment) involved at each process forth the path, both those straight used past the patient and those required to make the primary resources available. (The exhibit "New-Patient Process Map" shows a procedure map for one segment of the patient care bike at the Doctor Anderson Head and Neck Center.) In addition to identifying the chapters-supplying resources used in each process, we identify the consumable supplies (such equally medications, syringes, catheters, and bandages) used directly in the process. These do not have to be shown on the process maps.
Our pilot sites used several approaches for creating process maps. Some project teams interviewed clinicians individually to learn almost patient catamenia, while others organized "power meetings" in which people from multiple disciplines and levels of management discussed the process together. Even at this early stage in the project, the sessions occasionally identified immediate opportunities for process and cost comeback.
four. Obtain fourth dimension estimates for each process.
We also estimate how much time each provider or other resource spends with a patient at each stride in the process. When a process requires multiple resources, we gauge the time required by each 1.
For brusque-duration, inexpensive processes that vary petty beyond patients, nosotros recommend using standard times (rather than investing resources to record actual ones). Actual duration should be calculated for time-consuming, less anticipated processes, especially those that involve multiple physicians and nurses performing complex care activities such as major surgery or examination of patients with complicated medical circumstances.
TDABC is also well suited to capture the result of procedure variation on price. For instance, a patient who needs a laryngoscopy equally role of her clinical visit requires an additional process step. The time estimate and associated incremental resource required can be easily added to the overall time equation for that patient. (Encounter again the process map exhibit.)
To gauge standard times and fourth dimension equations, our pilot sites have found it useful to bring together all the people involved in a fix of processes for focused word. In the future, we wait providers will use electronic handheld, bar-lawmaking, and RFID devices to capture actual times, especially if TDABC becomes the by and large accepted standard for measuring the toll of patient intendance.
5. Estimate the cost of supplying patient care resources.
In this footstep, we estimate the direct costs of each resource involved in caring for patients. The directly costs include compensation for employees, depreciation or leasing of equipment, supplies, or other operating expenses. These data, gathered from the general ledger, the budgeting arrangement, and other It systems, become the numerator for calculating each resource's capacity cost charge per unit.
We must also account for the time that many physicians, specially in academic medical centers, spend teaching and doing research in addition to their clinical responsibilities. Nosotros recommend estimating the percentage of time that a physician spends on clinical activities and then multiplying the dr.'due south bounty past this pct to obtain the amount of pay deemed for by the doctor's clinical work. The remaining compensation should be assigned to teaching and research activities.
Side by side, we identify the support resources necessary to supply the primary resources providing patient intendance. For personnel resources, as illustrated in the Patient Jones instance, these include supervising employees, space and effects (office and patient treatment areas), and corporate functions that support patient-facing employees. When calculating the cost of supplies, we include the cost of the resource used to larn them and make them bachelor for patient use during the treatment process (for example, purchasing, receiving, storage, sterilization, and commitment).
Finally, we need to allocate the costs of departments and activities that back up the patient-facing work. We map those processes every bit nosotros did in step three and then summate and assign costs to patient-facing resources on the basis of their demands for the services of these departments, using the process that will be described in step 6.
This arroyo to allocating support costs represents a major shift from electric current practice. To illustrate, allow's compare the allotment of the resources required in a centralized department to sterilize 2 kinds of surgical tool kits, those used for total human knee replacement and those used for cardiac featherbed. Existing price systems tend to classify higher sterilization costs to cardiac featherbed cases than to knee replacement cases because the charges (or direct costs) are higher for a cardiac bypass than for a knee replacement. Under TDABC, all the same, we take learned that more time and expense are required to sterilize the typically more complex knee joint surgery tools, so relatively college sterilization costs should be assigned to knee joint replacements.
When costing back up departments, a good guideline is the "dominion of 1." Support functions that have only one employee can be treated as a stock-still cost; they tin can be either non allocated at all or allocated using a simplistic method, as is currently done. Simply departments that have more than i person or more i unit of measurement of whatsoever resources represent variable costs. The workload of these departments has expanded because of increased demand for the services and outputs they provide. Their costs should and tin be assigned on the basis of the patient processes that create need for their services.
Project teams tasked with estimating the cost to supply resources—the numerator of the chapters price rate—should take expertise in finance, homo resources, and data systems. They can do this work in parallel with the process mapping and time estimation (steps three and 4) performed past clinicians and team members with expertise in quality management and process improvement.
6. Estimate the capacity of each resource, and calculate the chapters cost rate.
Determining the practical capacity for employees—the denominator in the capacity toll charge per unit equation—requires three time estimates, which are gathered from Hr records and other sources:
a. The total number of days that each employee actually works each twelvemonth.
b. The total number of hours per twenty-four hour period that the employee is available for work.
c. The average number of hours per workday used for nonpatient-related work, such as breaks, training, instruction, and administrative meetings.
For physicians who dissever their time amongst clinical, research, and education activities, we subtract time spent on enquiry and education activities to obtain the number of hours per month that they are bachelor for clinical work.
For equipment resources, we measure capacity past estimating the number of days per month and the number of hours per twenty-four hours that each piece of equipment tin can be used. This represents the upper limit on the capacity of the equipment. The actual capacity utilization of much health care equipment is sometimes lower because equipment capacity is supplied in large lumps. For example, suppose a slice of equipment tin do 10,000 blood tests a calendar month. A hospital decides to buy the equipment knowing that it needs to process only 6,000 tests per month. In this case, nosotros make an adjustment: The costing organization should use the fourth dimension required to perform vi,000 tests every bit the capacity of the resource. Otherwise, the tests actually performed on the equipment volition, at all-time, cover only sixty% of its cost. If the provider after ends up using the equipment for a college number of tests, it can conform the capacity rate accordingly.
This treatment of capacity follows the rule of 1 and should be applied when the organization has just one unit of the equipment. At present suppose a provider has 12 facilities that each apply equipment capable of performing 10,000 blood tests per month—but each facility performs just half-dozen,000 tests per month. In that case, the capacity of each resource unit should be set up at the full 10,000 tests per calendar month, not its expected number. Nosotros want the system to signal the toll of unused capacity when a provider chooses to supply capacity at multiple locations or facilities rather than consolidating its use of expensive equipment.
In addition to the lumpiness with which capacity gets acquired, factors such as peak load demands, surge chapters, and chapters acquired for hereafter growth should be accounted for. This applies to both equipment and personnel. (Those factors can be incorporated, only the handling is beyond the telescopic of this article.)
In practice, we have found that underutilization of expensive equipment capacity is ofttimes not a conscious decision but a failure of the costing organisation to provide visibility into resource utilization. That problem is corrected by the TDABC approach. We depict opportunities to improve resource capacity utilization later in the article.
To calculate the resource capacity cost rate, we just divide the resources'due south full cost (step 5) by its practical capacity (pace vi) to obtain a rate, measured in dollars or euros per unit of time, typically an hour or a infinitesimal.
vii. Calculate the total cost of patient care.
Steps 3 through 6 establish the construction and information components of the TDABC system. In the final step, the project team estimates the total toll of treating a patient by simply multiplying the chapters cost rates (including associated support costs) for each resources used in each patient process by the amounts of fourth dimension the patient spent with the resource (step 4). Sum up all the costs beyond all the processes used during the patient's consummate cycle of intendance to produce the total cost of care for the patient.
Opportunities to Improve Value
Our new approach actively engages physicians, clinical teams, administrative staff, and finance professionals in creating the process maps and estimating the resource costs involved in treating patients over their care cycle. This bridges the historical split between managers and clinical teams that has often led to tensions and stalemates over toll-cutting steps. TDABC builds a common information platform that will unleash innovation based on a shared understanding of the actual processes of care. Even at our airplane pilot site Schön Klinik, which already had an splendid departmental price-control organisation, introducing TDABC revealed powerful new ways to ameliorate its processes and restructure care delivery. Capitalizing on these value-creating opportunities—previously subconscious by inadequate and siloed costing systems—is the primal to solving the health care cost problem. Permit's examine some of the most promising opportunities that proper costing reveals.
Eliminate unnecessary procedure variations and processes that don't add together value.
In our pilots, nosotros have documented meaning variation in the processes, tools, equipment, and materials used by physicians performing the same service within the same unit in the same facility. For example, in total genu replacement, surgeons use unlike implants, surgical kits, surgeons' hoods, and supplies, thereby introducing substantial price variation in treating patients with the same status at the same site. The surgical unit of measurement at present measures the costs and outcomes that each surgeon produces. As a event, clinical practise leaders are able to have more constructive and better informed discussions well-nigh how best to standardize care and treatment processes to reduce the costs of variability and limit the use of expensive approaches and materials that practice not demonstrably lead to improved outcomes.
In addition to reducing procedure variations, our airplane pilot sites accept eliminated steps or entire processes that did not amend outcomes. Schön Klinik, for example, lowered costs by reducing the breadth of tests included in its mutual laboratory console subsequently learning that many of the tests did non provide new information that would lead to improvement in outcomes.
Comparing practices beyond different countries for the aforementioned condition also reveals major opportunities for comeback. The reimbursement for a full articulation replacement care cycle in Deutschland and Sweden is approximately $8,500, including all md and technical services and excluding merely outpatient rehabilitation. The comparable figure in U.S. medical centers is $30,000 or more. Since providers in all three countries report, in aggregate, like margins on joint replacement care, U.Due south. providers' costs are likely two to three times as high every bit those of their European counterparts. Past comparing procedure maps and resource costs for the aforementioned medical condition across multiple sites, we can decide how much of the cost difference is attributable to variations in processes, protocols, and productivity and how much is attributable to differences in resource or supply costs such as wages and implant prices. Our initial research suggests that although inputs are more than expensive in the United States, the higher cost in U.South. facilities is mainly due to lower resource productivity.
Improve resource capacity utilization.
The TDABC arroyo identifies how much of each resources'southward capacity is actually used to perform processes and treat patients versus how much is unused and idle. Managers can clearly encounter the quantity and cost of unused resource chapters at the level of individual physicians, nurses, technicians, pieces of equipment, administrators, or organizational units. Resource utilization data also reveal where increasing the supply of certain resources to ease bottlenecked processes would enable more timely intendance and serve more patients with but modestly higher expenditures.
When managers have greater visibility into areas where substantial and expensive unused capacity exists, they tin can identify the root causes. For example, some underutilization of expensive space, equipment, and personnel is caused past poor coordination and delays when a patient is handed off from one specialty or service to the next. Another cause of low resource utilization is having specialized equipment available just in instance the demand arises. Some facilities that serve patients with unpredictable and rare medical needs brand a deliberate decision to deport extra capacity. In such cases, an agreement of the actual cost of excess chapters should trigger a discussion on how best to consolidate the handling of such patients. Much excess resource capacity, notwithstanding, is due not to rare conditions or poor handoffs but to the prevailing tendency of many hospitals and clinics to provide care for almost every type of medical trouble. Such fragmentation of service lines introduces costly redundancy throughout the health care organisation. It can also pb to inferior outcomes when providers handle a low volume of cases of each type. Accurate costing gives managers a valuable tool for consolidating patient intendance for low-volume procedures in fewer institutions, which would both reduce the loftier costs of unused capacity and amend outcomes.
Deliver the right processes at the right locations.
Many services today are delivered in over-resourced facilities or facilities designed for the most complex patient rather than the typical patient. By accurately measuring the cost of delivering the aforementioned services at dissimilar facilities, rather than using figures based on averaged straight costs and inaccurate overhead allocations, providers are able to come across opportunities to perform particular services at properly resourced and lower-cost locations. Such realignment of intendance delivery, already under way at Children's Hospital Boston, improves the value and convenience of more routine services for both patients and caregivers while allowing tertiary facilities to concentrate their specialized resources on truly complex care.
Lucifer clinical skills to the procedure.
Resources utilization can also be improved by examining whether all the processes currently performed by physicians and other skilled staff members require their level of expertise and training. The process maps adult for TDABC often reveal opportunities for appropriately skilled but lower-cost health care professionals to perform some of the processes currently performed past physicians without adversely affecting outcomes. Such substitutions would gratis up physicians and nurses to focus on their highest-value-added roles. (For an case from ane of our pilot sites, run into the sidebar "A Cancer Center Puts the New Arroyo to Work.")
Speed up cycle time.
Health intendance providers have multiple opportunities to reduce bike times for treating patients, which in turn will reduce demand for resource capacity. For instance, reducing the fourth dimension that patients have to expect will reduce demand for patient supervision and space. Speeding up wheel time also improves outcomes, both past minimizing the duration of patient incertitude and discomfort and by reducing the adventure of complications and minimizing affliction progression. Equally providers improve their procedure flows and reduce redundancy, their patients will no longer have to be so "patient" equally they receive a complete bicycle of care.
Optimize over the full bike of care.
Health care providers today are typically organized around specialties and services, which complicates coordination, interrupts the seamless, integrated menstruum of patients from one procedure to the side by side, and leads to the duplication of many processes. In the typical intendance delivery process, for example, patients see multiple providers in multiple locations and undergo a separate scheduling interaction, check-in, medical consultation, and diagnostic workup for each one. This wastes resources and creates delays. The TDABC model makes visible the loftier costs of these redundant administrative and clinical processes, motivating professionals from different departments to work together to integrate care across departments and specialties. Eliminating unnecessary administrative and clinical processes represents i of the biggest opportunities for lowering costs.
With a complete picture of the time and resources involved, providers can optimize across the entire care bike, not just the parts. Physicians and staff may shift more of their time and resource to the front cease of the care bike—to activities such as patient education and clinical team consultations—to reduce the likelihood of patients experiencing far more costly complications and readmissions later on in the bicycle.
Additionally, this resource- and process-based arroyo gives providers visibility into valuable nonbilled events in the cycle of care. These activities—such as nurse counseling time, medico phone calls to patients, and multidisciplinary care team meetings—can oftentimes brand major contributions to efficiency and favorable outcomes. Because existing systems hibernate these costs in overhead (see Myth #1), such important elements of intendance are decumbent to be minimized or left unmanaged.
Capturing the Payoffs
"Calculating the return on investment of performance improvement has been missing from most of the quality improvement discussions in health care," Dr. Thomas Feeley at MD Anderson told the states. "When measurement does occur, the assumptions are commonly gross, inaccurate, and sometimes overstated," he added. "TDABC gave us a powerful tool to actually model the consequence an comeback will have on costs." Accurate costing allows the impact of process improvements to exist readily calculated, validated, and compared.
The large payoff occurs when providers apply authentic costing to translate the diverse value-creating opportunities into actual spending reductions. A cruel fact of life is that total costs will not actually fall unless providers result fewer and smaller paychecks, consume less (and less expensive) space, buy fewer supplies, and retire or dispose of excess equipment. Facing revenue force per unit area due to lower reimbursements—particularly from government programs such equally Medicare and Medicaid—providers today use a hatchet arroyo to cost reduction past mandating arbitrary cuts across departments. That arroyo jeopardizes both the quality and the supply of intendance. With accurate costing, providers can target their price reductions in areas where real improvements in resource utilization and process efficiencies enable providers to spend less without having to ration intendance or compromise its quality.
Health intendance organizations today, similar all other firms, bear arduous and time-consuming budgeting and capacity planning processes, often accompanied past heated arguments, power negotiations, and frustration. Such difficulties are symptomatic of inadequate costing systems and can be avoided.
When providers understand the total costs of treating patients over their complete bike of intendance, they can contemplate innovative reimbursement approaches without fear of sacrificing their financial sustainability.
A TDABC budgeting process starts by predicting the volume and types of patients the provider expects. Using these forecasts combined with the process maps for treating each patient condition, providers can predict the quantity of resource hours required. This can and so be divided past the applied capacity of each resource type to obtain accurate estimates of the quantity of each resource needed to meet the forecasted demand. Estimated monthly expense budgets for time to come periods tin be easily obtained past multiplying the quantity of each resource category required by the monthly cost of each resource.
In this way, managers tin make near all their costs "variable." They tin can readily run across how efficiency improvements and process innovations lead to reduced spending on resource that are no longer needed. Managers also have the data they need to redeploy resources freed upwardly as a effect of procedure improvements. Leaders gain a tool they never had before: a way to link decisions nigh patient needs and treatment processes directly to resources spending.
Reinventing Reimbursement
If nosotros are to cease the escalation of total health care costs, the level of reimbursement must be reduced. Simply how this is done will take profound implications for the quality and supply of health care. Across-the-board cuts in reimbursement will jeopardize the quality of care and likely pb to severe rationing. Reductions that enable the quality of care to exist maintained or improved need to be informed by accurate noesis of the total costs required to achieve the desired outcomes when treating private patients with a given medical condition.
The current system of reimbursement is asunder from bodily costs and outcomes and discourages providers and payors from introducing more price-effective processes for treating patients. With today'due south inadequate costing systems, reimbursement rates accept often been based on historical charges. That arroyo has introduced massive cantankerous subsidies that reimburse some services generously and pay far below costs for others, leading to excess supply for well-reimbursed services and inadequate delivery and innovation for poorly reimbursed ones.
Authentic costing allows the impact of process improvements to be readily calculated, validated, and compared.
Adjusting simply the level of reimbursement, however, will not be plenty. Any true health care reform will require abandoning the electric current circuitous fee-for-service payment schedule altogether. Instead, payors should innovate value-based reimbursement, such every bit bundled payments, that covers the full care bicycle and includes care for complications and common comorbidities. Value-based reimbursement rewards providers who deliver the all-time overall care at the lowest cost and who minimize complications rather than create them. The lack of accurate cost data covering the full bike of treat a patient has been the major barrier to adopting culling reimbursement approaches, such every bit arranged reimbursement, that are more aligned with value.
We believe that our proposed improvements in cost measurement, coupled with better outcome measurement, will requite tertiary-political party payors the confidence to introduce reimbursement methods that better reward value, reduce perverse incentives, and encourage provider innovation. As providers start to sympathise the total costs of treating patients over their complete cycle of care, they volition too be able to contemplate innovative reimbursement approaches without fearfulness of sacrificing their fiscal sustainability. Those that deliver desired wellness outcomes faster and more than efficiently, without unnecessary services, and with proven, simpler treatment models will non be penalized by lower revenues.•••
Accurately measuring costs and outcomes is the single about powerful lever we have today for transforming the economics of health intendance. As health care leaders obtain more accurate and appropriate costing numbers, they can make assuming and politically hard decisions to lower costs while sustaining or improving outcomes. Dr. Jens Deerberg-Wittram, a senior executive at Schön Klinik, told united states of america, "A expert costing organization tells you which areas are worth addressing and gives you confidence to have the difficult discussions with medical professionals." As providers and payors amend sympathise costs, they will see numerous opportunities to achieve a true "bending of the cost bend" from inside the system, not in response to pinnacle-down mandates. Accurate costing also unlocks a whole cascade of opportunities, such as process improvement, better organization of care, and new reimbursement approaches that will accelerate the stride of innovation and value creation. Nosotros are struck by the sheer size of the opportunity to reduce the price of health care delivery with no sacrifice in outcomes. Accurate measurement of costs and outcomes is the previously hidden cloak-and-dagger for solving the health care cost crisis.
The authors would similar to admit the all-encompassing and invaluable assistance of Mary Witkowski, Dr. Caleb Stowell, and Craig Szela in the training of this commodity.
A version of this article appeared in the September 2011 consequence of Harvard Business Review.
Source: https://hbr.org/2011/09/how-to-solve-the-cost-crisis-in-health-care
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