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  • EstablishingASuccessfulCostImprovementProgram

    January22,2015

  • Helphealthcareprovidersdrivemargintofueltheirmission

    StrataDecisionTechnology

    Founded:1996

    Headquarters:Chicago,IL

    Employees:120+

    ClientBase:~175HealthSystems1000+Hospitals

    StrataDecisionTechnology

    providestheleading

    cloudbasedSaaS

    financialanalyticsand

    performanceplatform

    inhealthcare

    MISSION

    Bendthecostcurve

    TRANSLATION

  • $700B~30%isWaste

    AnOverallPerspective

    2013StrataDecisionTechnology

    80%$542Biswithinthe

    scopeofcareproviders

    AnnualCostofWasteintheUSHealthcareSystemaccordingtoa2012CBOreport(notincludingfraud&abuse)

    60%$320Bofwasteis

    generatedinhospitals

  • SourcesofWaste

    4

    FailureofCareDelivery$150.0

    21%

    FailureofCareCoordination

    $36.85%

    Overtreatment$232.433%

    AdministrativeComplexity$157.4B23%

    PricingFailures$123.5B18%

    60%$420Binwaste

    from

    overutilization

  • ItsNoSurprise...

    5

    PayersDontWanttoPayforServicesthatDontPromoteHealthOutcomes

    LowValueVolumeWillDecline

    ReimbursementwillFollow

    WithoutSeriousCostImprovement

    MarginwillDecline

  • Asrevenueshrinks

    andmarginstighten,

    providershave

    identifiedcost

    reductionas

    theirnumberone

    priority

    ACHE2014CEOSurveyMostChallengingIssuesFacingtheirOrganization

    1.Financialchallenges2.Healthcarereformimplementation3.Governmentalmandates4.Patientsafetyandquality5.Carefortheuninsured/underinsured6.Patientsatisfaction7.Physicianhospitalrelations8.Populationhealthmanagement9.Technology10.Personnelshortages

    69% 67% 63% 57% 55%

    MedicaidReimbursement

    BadDebt DecreasingInptVolume

    MedicareReimbursement

    Competition

    TopFinancialChallenges

  • 88%ofprovidershavecostsavings

    initiativesunderway(Range:$50$400M)

    Only

    17%arehittingthetarget!

    SurveySays100FinanceLeadersfromHospitals&HealthSystems

  • WhyCostSavingsInitiativesUnderDeliver

    55%

    44% 44%

    27% 26%

    DifficulttoQuantify&TrackSavings

    DifficulttoKeepTrackofProjects

    LackofAccountability

    ProjectsDon'tProduceREAL

    savings

    NoStafftoLeadProjects

  • HowThisTypicallyPlaysOut

    NeededSavingsTargetNeededSavingsTarget

    CostSavings

    Time

    IDENTIFY SAVINGSOPPORTUNITIES

    Consultants PITeams OperationalDepts ClinicalDepts SupportDepts GPOs FocusedTools Benchmarking

    VALIDATESAVINGS

    SoftSavings NotOperationable PoorCostData ChallengingAnalytics

    IMPLEMENT SAVINGSOPPORTUNITIES

    TRACK &MAINTAINSAVINGS

    Lackofaccountability Lackofstakeholderengagement

    Losefocustoomanyprojects

    Laborintensivetotrack

    Ontothenextthing

    LACK OF DEPTH &BREADTH

    SAVINGS IS NOTREAL,NORACTIONABLE

    IMPLEMENTATIONNOT WELLEXECUTED

    ACTUAL SAVINGSARE LOW

  • AllwasOKwhenvolume&revenuewashere

    ACaseStudy900BedAcademicMedicalCenter

    $8,000

    $8,500

    $9,000

    $9,500

    $10,000

    $10,500

    $11,000

    $11,500

    $12,000

    FY11 FY12 FY13 FY14 FY15 FY16 FY17

    EstimatedCPIInflation

    NetExpensePerCMIAdjustedEquivalentDischarge

    FiscalYear

  • $9,760$9,563

    $9,366$9,169

    $8,972 FY17Goal$8,775

    $8,000

    $8,500

    $9,000

    $9,500

    $10,000

    $10,500

    $11,000

    $11,500

    $12,000

    FY11 FY12 FY13 FY14 FY15 FY16 FY17

    EstimatedCPIInflation

    Butnotwhenitshere

    NetExpensePerCMIAdjustedEquivalentDischarge

    ACaseStudy900BedAcademicMedicalCenter

    Goal:ReduceCMIAdjustedCostperCaseby

    25%in5years

    FiscalYear

  • WeTookAction

  • Teams

    ExecutiveCommittee

    8Teams

    Targetsof$10$45M

    Leadership

    EachTeam:

    12VicePresidents

    12FullTimeStaffers

    CrossFunctionalDirectors

    Process

    Ideas

    ValidatedOpportunities

    OperatingModel

    BudgetSavings

    Tracking

    VariancesReported

    RootCauseAnalysis

    CorrectiveActionPlans

  • 100 people

    9 months

    $5M

    $500K (tracking)Then,doitagainnextyear

    $11Mover2 years

    TheCostofTakingOutCost

  • But,ItWorked!

    15

    FromQ32011 Q2FY13,reducedcostby$220M Movedfrom67th percentiletonearthe25th percentileamongAMCs

  • SOWHATSDIFFERENTHERE?

    16

  • LETSLOOKATSOMETHINGTHATISWORKINGWELL

    17

  • 18

    IndividualClinicians

    QualityCommittees

    DedicatedQualityLeaders

    20101990 2000

    1999IOMReportonMedicalErrors

    NoResources NoSponsorshipNoData

    DEFINED METRICS & BENCHMARKS

    DEFINED METRICS & BENCHMARKS

    DEFINED METRICS & BENCHMARKS

    DASHBOARDS, ANALYTICS STAFF

    DASHBOARDS, ANALYTICS STAFF

    DASHBOARDS, ANALYTICS STAFF

    QUALITYCOMMITTEES

    QUALITYCOMMITTEES

    QUALITYCOMMITTEES

    PHYSICIANLEADERS

    PHYSICIANLEADERS

    PHYSICIANLEADERS

    QUALITYLEADERSQUALITYLEADERSQUALITYLEADERS

    CMO & VP QUALITY

    CMO & VP QUALITY

    CMO & VP QUALITY

  • 19

    AHRQNationalHealthcareQualityReport,2013

    CentralLineInfectionsRateper1000centrallinedays

    0

    0.5

    1

    1.5

    2

    2.5

    3

    20062008 2009 2010 2011

    MedAMC SurgAMC Med Surg

    Adults65+ReceivingIncorrectMedications

    Byhealthstatus

    0

    5

    10

    15

    20

    25

    30

    2002 2003 2004 2005 2006 2007 2008 2009 2010

    GoodGreat PoorFair

    percen

    t

  • 20

    MINDSET

    MINDSET

    SKILLSET

    SKILLSET

    TOOLSET

    TOOLSET

    TransparentFullParticipationAccountabilityThesafestthingtodoistheeasiestthingtodo

    DedicatedLeadershipDedicatedQualityLeadersWellDefinedCommitteeStructureAnnualgoals&MetricDriven

    EHR,POE,ADEAlertsWellDefinedMetricsNationalBenchmarkingEDW/Reporting

  • 21

    FinanceLeads OperationsLeadsValue

    Committees

    LackFocus

    LackResources

    DifficultBuyIn

    DedicatedCostLeaders

    60%

  • 22

    MINDSET

    MINDSET

    SKILLSET

    SKILLSET

    TOOLSET

    TOOLSET

    CostisadirtywordNottransparentOptoutmentalityDiffuseownership,littleaccountability

    CostimprovementisoneofmanyprioritiesLimitedconsultingskills&analyticalstrengthFewinnovatorsandconventionchallengersOutsourcedtoconsultingfirms

    ExcelRepurposedtoolsBenchmarkingorganizations

  • TodaysFocusBuildinganEffectiveCostImprovementStructure

    23

    NATIONALCOMPARISONS

    NATIONALCOMPARISONS

    DASHBOARDS, ANALYTICS

    STAFF & TOOLS

    DASHBOARDS, ANALYTICS

    STAFF & TOOLS

    QUALITYCOMMITTEES

    QUALITYCOMMITTEES

    PHYSICIANLEADERSPHYSICIANLEADERS

    QUALITYLEADERSQUALITYLEADERS

    CMO & VP QUALITY

    CMO & VP QUALITY

    NATIONALCOMPARISONS

    DASHBOARDS, ANALYTICS

    STAFF & TOOLS

    QUALITYCOMMITTEES

    PHYSICIANLEADERS

    QUALITYLEADERS

    CMO & VP QUALITY

    WELL DEFINED COSTMETRICS

    WELL DEFINED COSTMETRICS

    DASHBOARDS & ANALYTICAL

    HORSEPOWER

    DASHBOARDS & ANALYTICAL

    HORSEPOWER

    COSTCOMMITTEES

    COSTCOMMITTEES

    CLINICAL & OPERATIONAL

    LEADERS

    CLINICAL & OPERATIONAL

    LEADERS

    COSTLEADERS

    COSTLEADERS

    SR LEADER OFCOST

    IMPROVEMENT

    SR LEADER OFCOST

    IMPROVEMENT

    WELL DEFINED COSTMETRICS

    DASHBOARDS & ANALYTICAL

    HORSEPOWER

    COSTCOMMITTEES

    CLINICAL & OPERATIONAL

    LEADERS

    COSTLEADERS

    SR LEADER OFCOST

    IMPROVEMENT

    QualityImprovementStructures CostImprovementStructures

  • BuildinganEffectiveCostImprovementStructure

    WellDefinedMetrics

    24

    WELLDEFINED

    COSTMETRICS

    WELLDEFINED

    COSTMETRICS

    WELLDEFINED

    COSTMETRICS

    AnEffectiveCostImprovementProgramhasWellDefined,BroadlyUnderstoodCost

    MetricsandGoals

    Movingthemetricwillresultinsavingsontheincomestatement

    Shouldaccountforchangesinvolumeandacuity MUST alignwithorganizationalpriorityandpayermix

    Shouldbeusedtoselectprojects

    ExamplesCostperCMIAdjustedAdmission

    CostperCMIAdjustedEquivalentAdmissionCostperpatient

  • ExampleMetric

    TotalCost

    CMIAdjustedEquivalentAdmissionTotalCMI*IPAdmissions*(TotalGrossRevenue)/(IPGrossRevenue)

    LengthofStay

    ServiceUtilization

    ServiceIntensity

    Supplies/DrugCost&Use

    FlexedStaffLaborProductivity

    Benefits&Compensation

    OtherOperatingRevenue

    FixedStaff&Costs

    Equipment&IT

    Seemorecomplexpatients

    IncreasedIPVolume IncreaseOPvolume

    IncreasePatientThroughput

    Facilities&Maintenance

    CostperCMIAdjustedEquivalentAdmission

  • ExampleMetric

    MedicareReimbursement

    CostperCase Losson

    Medicare$250025%

    CommercialPayerReimbursement,40%

    GOAL:BreakevenonMedicare

  • SoftDollarSavings HardDollarSavingsReducethecostperunitofservicefortheorganization

    Maynot reducethecostincurredforanindividualpatient

    Savingsshowupontheincomestatement

    Haveapositiveimpactonmargin

    Increaseefficiency

    Maydecreasethecostforanindividualpatient,butnotfortheorganization

    Savingsaretheoreticalnodirectimpactonfinancialstatements

  • Cost ItComesinTwoFlavorsAreyouworkingontheonethatisrightforyourorganization?

    CosttoProvideCare

    CostofCareProvided

    Providethesamecareinthesamelocation,butatalowercost

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