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Alexandra Brown

Health Care

Three Reasons Hospitals Resist Investing in Quality

Learning that less waste pays more reliably than increased volume

Published: Thursday, April 16, 2015 - 10:25

Why is it easier for many hospitals to justify investing in capital equipment, new buildings, and service lines rather than in quality improvement? There are three major reasons.

Many hospital systems don’t know their real costs

It’s been said that the first step in fixing a problem is realizing you have one. The fact that many hospitals don’t truly understand their costs makes it nearly impossible for them to see the tremendous amount of waste in their systems. Most have an idea that it’s there somewhere, but they can’t pinpoint the greatest areas for improvement. As a result, they focus on low-yield areas or, even worse, become paralyzed with indecision.

This lack of focus on cost is fairly unique to healthcare and is the result of a long history of volume-based payment. Now is the time for healthcare organizations to refine their often outdated cost-accounting systems (if they have one at all). Hospitals that continue to function without a firm grasp on their costs could end up billing themselves into debt. For instance, if a service line brings in a million dollars of “revenue” per year, but costs $1.2 million to operate, there’s a problem.

Hospitals that understand their costs understand the opportunity to reduce those costs. This is done best through clinical process improvement, which requires an investment in time and resources.

Fee-for-service doesn’t encourage it

When hospitals attempt to drive up revenue through volume, the incentive is to spend on expansion of services. In a fee-for-service world, this is the ultimate goal because hospitals are rewarded for the number of billing codes they generate.

Although fee-for-service is being replaced more and more with some form of capitation (e.g., DRGs, bundles, ACOs), it is still difficult for many managers to abandon the deep-rooted strategy of growth. The problem is, when rewarded for value instead of volume, an increase in workload put through an inefficient system results in more cost rather than revenue.

Hospitals that will survive and thrive in payment reform are driving up value by reducing waste and cost within their own walls before they look to expand. This shift in strategy will be a game-changer for many.

It’s a different way of looking at return on investment

In health care, analyzing return on investment (ROI) is often weighted more toward identifying billable charges potentially generated by a service line, physician, or facility. Cost, the other side of the coin, is often estimated broadly. Thinking of quality improvement as an investment flips that model. It captures return as money saved from decreasing cost rather than bringing in volume.

If you think about it, there is tremendous opportunity with far less risk when hospitals invest in quality improvement as a way to increase their bottom lines. Every hospital, clinic, and surgery center has waste. Investing time and resources in reducing that waste pays practically every time, if done correctly. Capital expenditure, on the other hand, can result in losses, especially in today’s resource-poor health care environment.


About The Author

Alexandra Brown’s picture

Alexandra Brown

Alexandra Brown, M.D., is the associate director of the Healthcare Delivery Institute at HORNE LLP where she focuses on the development and instruction of the Advanced Training Program. She also advocates for the improvement in quality of healthcare delivery through data-driven quality improvement practices, culture change, and physician engagement.