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John Elliott

Health Care

Moving From Volume to Value

Important questions for healthcare professionals to ask

Published: Thursday, August 4, 2016 - 11:52

In 1978, REO Speedwagon released the single “Roll with the Changes,” a song that never fails to give me an adrenaline rush, especially as I run or bike. I think it’s pertinent to what healthcare professionals are experiencing since health reform became law in 2010 and the Centers for Medicare & Medicaid Services (CMS) began its reimbursement initiatives to transition from volume to value.

As we move from volume to value, the traditional ways of doing things are rapidly changing, and many of us are challenged with guiding our organizations into a new world. To top it off, we’re asked to adopt vastly different industry revenue models without losing a dollar. I’d like to discuss some of the realities we’re facing and offer some of the questions I think you should be asking to guide your transformation.

Forecasting fluctuations in reimbursement

It’s official: CMS is paring down reimbursements through the end of the decade. The Medicare Access & CHIP Reauthorization Act of 2015 (MACRA) has been passed and will now shift risk from payers to medical professionals and organizations. Although there are bonuses to be won, Medicare reimbursements can potentially decrease by 8 percent during the next five years and up to 9 percent into the next decade. Any percentage of financial improvement you make by cutting costs could be diluted by the same percentage during that time frame.

When measuring improvements by your margins, build the 8-percent marginal hit into your current baseline. Strategically transition how you measure your financial performance by the projected transition within your own organization.

Volume to value

In 2010, you were measuring the growth of your operations by how many cases in surgery were performed, how many radiological procedures or tests were performed, how many patient days on your unit, how many admissions on your unit, how many patient visits in your clinic, etc. Growth in volume translated into growth in revenues.

By 2018, it is projected that 50 percent of CMS reimbursements will be paid solely on financial risk of creating value for the patient. The key equation is: Value = Quality of Care/Cost to deliver that care.

Keys to measuring and reducing costs

With the assumption that by 2030, all organizations will be operating under some type of population health or maximum risk model, hospitals and health systems will first need to ensure the resources they use in this model are efficient. Then they must optimize their resources to effectively meet care and financial goals.

With that in mind, here are a sampling of some questions you should ask of your organization about your current costs and efficiencies:
• Are you licensed for 775 beds, but only staffing 575 beds? How are you covering the space and capital for the excess 200 beds? Are you really maximizing utilization of that capacity?
• How can you make your physician clinics more efficient? Have you applied lean principles to these clinics?
• Are your RNs changing beds?
• Does your OR staff spend time looking for surgical instruments or flash sterilizing instruments?
• Is your ED boarding patients unnecessarily when there are open beds on the appropriate units?
• How much does a percentage increase in average length of stay cost your organization? Or how much does a percentage decrease enhance revenue margins?

Four “Must Do” actions as you assess your system

1. Make sure your data is accurate and you have a professional analyzing and interpreting what the data is capable of telling you

Once your information is correct and in a format that can be interpreted to help decision-makers make appropriate decisions, you can begin “moving the needle” in making improvements and enhancements.

2. Understand your costs at the patient (episodic) level and even the “per-unit” level

This level of understanding will give you the capability to be able to communicate to the physicians the exact cost of each of their procedures, which will be crucial to positive margins with a CMS-bundled patient, or pricing your bundle with commercial payers. A surgical patient will typically go through clinic visits, diagnostic evaluation, scheduling, pre-admission, pre-admit testing, prep for surgery, the surgical procedure, recovery, possible rehabilitation, post-surgery care, the discharge process, and finally post-surgical follow-up. How much will one patient cost the physician, the clinic, and the facility? How long was the patient in the hospital? What was the skill mix of the staff caring for the patient and their labor rates? Length of time in surgery? This level of understanding is detailed, but a comprehensive cost accounting system flexible enough to allow for this level of complexity is helpful.

3. Understand the cost and quality variation

This is done by:
• Internally comparing empirical data within your own organization, practice group, or service line
• Comparing empirical information against evidence-based information through literature providing best practices in clinical pathways and the true costs to achieve that best practice
• Comparing against peers in your line of service by procedure
• Comparing against known benchmarks in the marketplace or preferably within your profession association.

Benchmarking will significantly help you optimize all your resources because the information you get from the comparisons will give you a gauge of the utilization of resources, whether it’s labor (productivity metrics), supplies, or space.

4. Standardize to optimize your resources

The goal of optimizing your resources is to gain the maximum benefit from them. I would suggest that standardizing across departments or service lines could help you in this effort.

Here are some key questions (and suggestions) to help you determine your level of efficiency:
• Do you fully understand how your physicians utilize your resources?
• Do your staff members all understand their workloads, as well as financial and care delivery goals?
• Get away from averages in your metrics; instead, look at your range of metrics in areas of opportunities.
• Are you aware of which cases, tests, and procedures are most cost effective? Work on variance reduction and outliers.
• Do you know which physicians are more cost effective than other physicians, especially as you measure them against their quality metrics?

Most often, these questions are addressed on the departmental level, sometimes on the service-line level and, generally monthly, on the organizational level—research that is conducted in silos. As the industry moves to a more risk-oriented model financially, however, these questions need to be answered at the per-unit level—whether that’s per patient, per case, or per visit. You should continue questioning down to the resource level.

To improve, you must understand. To understand, however, you must measure and measure with true—not projected or estimated—metrics and costs.

First published July 21, 2016, on Horne’s Healthcare Blog.

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About The Author

John Elliott’s picture

John Elliott

John Elliott is a manager in healthcare at HORNE LLP. He specializes in business development and implementation, focusing on healthcare engineering through labor management, performance improvement, and process improvement, with both health systems and physicians.