Operational changes can reign in spiraling healthcare costs

Since 1960, healthcare spending has climbed from roughly 5% of U.S. GDP to nearly 18% as of 2012, and the rising costs show no sign of abating. According to data from America's Health Insurance Plans (AHIP), healthcare is on track to hit 19.9% of GDP in 2021, with $4.8 trillion in spending per year.

These costs are unsustainable and jeopardize America’s fiscal solvency and long-term ability to support programs like Medicare and Medicaid.

While preventative medicine and managed care programs have gained significance in recent years and are important solutions to pursue, I believe that we must address how healthcare organizations manage and spend their resources. As president and CEO of Amerinet, a national healthcare solutions organization, I have seen firsthand how our members are reducing healthcare costs while maintaining quality. It is fascinating to collaborate with healthcare providers, both large and small, in taking a proactive role in managing healthcare reform and the future of their organizations. Three critical areas that facilities can look to in an effort to  bring savings and efficiency to their operations include price accuracy and collaboration, population health and patient engagement and the use of data to promote standardization and purchasing consolidation.

1. Price Accuracy and Collaboration

Although healthcare organizations contract prices for a wide range of medical supplies, often times what they pay and what they negotiated don’t match up. When Northern Arizona Healthcare (NAH), an organization with over 3,000 employees and 300 physicians, confronted this issue last year, the key was to create a task force that included representatives from the healthcare organization, distributor and Amerinet.

This team was tasked with rooting out cost discrepancy and identifying why they existed. The team met regularly to proactively review expiring contract issues. By working together using various reports provided from each company, they identified problem areas and worked with suppliers as needed to prevent inaccurate future price increases. NAH also worked internally to address open purchase orders and invoice issues. Amerinet made adjustments in their contracting and reporting processes in order to facillitate more timely responses, action and communication. Within a couple months, they developed a standardized process for identifying expired contracts and communicating price changes.

In NAH’s case, price matching increased to 98% and days sales outstanding (DSO) rates were reduced by half. The savings are significant. NAH achieved $450,000 in cost avoidance through correct pricing, approximately $25,000 in annual savings from days sales outstanding (DSO) reduction, and $132,000 in savings from price change validation.

The next step is to bring manufacturers and suppliers directly into this process. On a national scale, a transparent pricing process can reduce enormous amounts of waste and inefficiency.

2. Population Health and Patient Engagement Solutions

Enhancing communication with patients and making them an active participant in their own care are important components of the population health management strategies that will dominate healthcare in the future.  A high no-show rate is another common issue that can drain healthcare organizations. Maintaining communication, both pre-and post-treatment will be critical.  For example, a clinic may invest heavily in new diagnostic or imaging technology, but when a high percentage of patients bail on appointments, the missed revenue and administrative headaches can hurt return on investment and eventually drive up prices for other patients while negatively impacting their health, resulting in costly hospital admissions and readmissions down the road.

Using simple communication technologies, no-show rates can be cut be in half. For instance, at Marietta Memorial Hospital (MMH), a 150-bed facility located in Marietta, Ohio, no-show rates were hitting 7-10 percent for imaging appointments. The organization introduced a cloud-based, automated patient reminder system, which was integrated with MMH’s EMR scheduler. The notification system sends customized messages through the patients’ choice of email, SMS text or voice. When the patient responds, the confirmations or reschedule requests are returned to the EMR system in real time. Cancellations can easily be filled before it’s too late.  

This notification system reduced no-shows by more that 50 percent, allowing MMH to see an extra 30-40 patients per month. It’s a demonstration that more efficient communication with patients – whether for confirming appointments or even following up on bills – can increase an organization’s ability to serve more patients and eliminate administrative tasks. Applied widely, this technology could eliminate hundreds of thousands of missed appointments per month, while promoting proactive healthcare involvement.

3. Data and Purchasing Consolidation

In addition to eliminating pricing accuracies and slashing no-shows, healthcare organizations can also reduce costs by analyzing spending data with an eye to consolidate purchasing, especially across multiple facilities.

This is how Stratum Med, Inc., a nationwide physician-owned company with a network of more than 6,000 doctors and 50 healthcare organizations, identified over $500,000 in immediate savings. Their team launched an in-depth purchasing analysis to see what items were commonly bought across all facilities. The key was to break down consumption at each facility and total spending to distinguish between contract and non-contract spending.

Some items that were bought on a non-contract basis at the individual clinic level were prime candidates for contracts because the health organization as a whole was buying at an immense scale. So instead of letting clinics purchase on an individual basis, spending data was used to negotiate with suppliers for standardized pricing across clinics based on aggregated volumes. By analyzing spending, Stratum was also able to identify erroneous pricing, connectivity issues and incorrect markups.

Reducing pricing inaccuracies, enhancing patient engagement and consolidating purchasing will help contain costs on the healthcare provider side. The more efficiently healthcare organizations operate, the more they will be able to provide care at reasonable prices. Ultimately, we have to attack rising costs from multiple angles because healthcare providers, suppliers, distributors, insurers and of course patients all have a stake in addressing this problem.

Although it can be a very difficult process, healthcare facilities must continue to take the lead in finding innovative ways and new best practices to bring down costs. We need better processes, technology and data to make sense of what we find, and we must aim to establish spending practices that are widely applicable. What we discover in one healthcare organization can and should transform how the entire healthcare industry operates.