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Access. Insight. Analysis.

JUNE 2016

STRATEGIC COST CONTROL: Beyond Traditional Tactics

W W W . H E A L T H L E A D E R S M E D I A . C O M / I N T E L L I G E N C E

POWERED BY:

WWW.HEALTHLEADERSMEDIA.COM/INTELLIGENCE

JUNE 2016 | Strategic Cost Control: Beyond Traditional Tactics

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FOREWORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

SURVEY RESULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

FIGURE 1: Biggest Barriers to Sustainable Cost Reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

FIGURE 2: Impact of Transition From Fee-for-Service to Value-Based Care. . . . . . . . . . . . . . . . 12

FIGURE 3: Operations/Admin Activities Providing Highest Contributions This Year . . . . . . . . . 13

FIGURE 4: Clinical Activities Providing Highest Contributions This Year . . . . . . . . . . . . . . . . . . . 14

FIGURE 5: Most Financially Impactful Revenue Cycle Activities . . . . . . . . . . . . . . . . . . . . . . . . . . 15

FIGURE 6: IT Activities Delivering Most Cost Reduction Next Three Years . . . . . . . . . . . . . . . . 16

FIGURE 7: Staffing Areas With Greatest Success in Cost Containment. . . . . . . . . . . . . . . . . . . . 17

FIGURE 8: Determining True Cost of Providing Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

FIGURE 9: Breakdown of True Cost of Care for Service Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

FIGURE 10: Price Transparency for Cost of Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

FIGURE 11: Price Transparency for Payers’ Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

FIGURE 12: Year-Over-Year Savings From Cost-Reduction Programs . . . . . . . . . . . . . . . . . . . . .22

FIGURE 13: Goal for Average Percentage Reduction in Operating Cost Next Three Years . . . 23

FIGURE 14: Operating Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

FIGURE 15: Average Annual Operating Margin Goal Next Three Years . . . . . . . . . . . . . . . . . . . .25

METHODOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

RESPONDENT PROFILE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

TABLE OF CONTENTS


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FOREWORD

Reducing costs and improving value have long been critical issues within the healthcare

industry, yet we continue to grapple with determining the most efficient methods. Our

traditional fee-for-service operating model has produced a fragmented system that is unwieldy

and outdated, and doesn’t consistently produce high quality and affordable care. This has led

to a challenging transition as we move from fee-for-service to value-based care. Many in the

industry have been slow to make the transition, citing a lack of infrastructure and fearing a

drop in revenue.

That’s why I was pleased to see in this year’s HealthLeaders Media Strategic Cost Control

Survey that 50% of respondents say switching from fee-for-service to value-based care has

either improved or somewhat improved their organization’s effort in containing costs. Reform

has been beneficial to the industry and patients alike, as it broadens opportunities for wellness

and for making better-informed decisions on care.

The breadth of options weren’t available before. In many cases, our only options to cut

costs were reducing the fee for a procedure. Now, we can ask the vital question: Is the x-ray

necessary; is the hip replacement beneficial? Value-based care gives us the flexibility, which is

vital because we face numerous barriers to achieving sustainable cost reduction.

The biggest hurdle according to the survey is the lack of data on the true cost of care, followed

by insufficient integration with care partners. Tied with two other factors for third place is the

lack of patient engagement in their care. Patients often undervalue their role in maintaining

health—they don’t properly take medication, attend physical therapy or exercise, and will

demand unnecessary services, such as insisting on an antibiotic to treat a virus.

While patient actions are not directly in our control, there are other areas where our

industry can do better. For instance, 70% of respondents indicated that improved clinical

documentation would have a greater financial impact than any other revenue cycle activity.

Documenting patient diagnoses and treatments correctly is essential because it gives us the

means to follow up on continued care in a timely manner. Failure to do so is bad for cost cutting

and even worse for patient wellness.

Achieving greater cost efficiency requires a multi-pronged approach: improved analytics,

investing in infrastructure and training, determining the true cost of care (which 86% of

respondents said they can do for at least some of their care), and more. None of the tactics

by themselves is a panacea. But with the right combination, we can increase wellness while

cutting costs —a win-win for everyone.

Focus on Value and Flexibility Is Improving Care and Controlling Costs

Greg Poulsen Senior Vice President and Chief Strategy OfficerIntermountain Healthcare,Salt Lake City

Lead Advisor for this Intelligence Report


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The strategic imperative of achieving sustainable cost control is one of the healthcare industry’s

important challenges—without a clear and effective strategy, many healthcare organizations

will find their financial viability at risk. Traditional cost-containment and revenue cycle

approaches based on purchasing and supply chain efficiencies and enhanced revenue collection

activities can only achieve so much, particularly in the face of declining reimbursements and

requirements for higher levels of clinical performance.

This is not to say these activities lack value—far from it. Driving down costs through frugal

spending and more efficient operation on one hand, and maximizing revenue collection

through the use of disciplined practices and IT-based capabilities on the other, are a necessity.

But there are other more sustainable avenues to pursue, such as process redesign and care

standardization, to name just two.

The transition from fee-for-service to value-based care encourages healthcare organizations

to embrace a new financial and clinical mission: providing high-quality care at more affordable

costs. One of the fundamental competencies of this new model is being able to determine

the true cost of providing care. Unfortunately, more than half of respondents to the

2016 HealthLeaders Media Strategic Cost Control Survey say the biggest barrier to sustainable

cost reduction is lack of data on the true cost of care (Figure 1), so there is work to be done.

Having a complete knowledge of costs allows organizations to operate in more strategic

and sustainable ways, and this will be critical as healthcare organizations adopt risk-based

reimbursement models.

The good news for both providers and patients is that healthcare reform appears to be having

the desired effect on cost containment: 50% of survey respondents say that the transition from

fee-for-service to value-based care has either improved or somewhat improved their cost-

containment efforts (Figure 2), and only 16% say that this has hindered or somewhat hindered

their efforts. Positive change is coming, although more slowly than many would prefer.

Biggest barriers. Healthcare leaders are clear that the lack of data on the true cost of

providing care is the No. 1 barrier to sustainable cost reductions (Figure 1); it is the only

response cited by a majority (57%) and is nearly 20 points ahead of the next-highest choice.

The second level of responses regarding barriers are tightly clustered, and include insufficient

integration with care partners at 39% and, at 32% each, lack of patient engagement in their

Strategic Cost Control: Embracing Cost Clarity, Transparency, and Process Redesign

ANALYSIS

Jonathan BeesHealthLeaders Media Senior Research Analyst


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care, lack of technology in place to achieve goals, and

unsupportive organizational culture. Responses are fairly

evenly spread across the remaining barriers, which indicates

that achieving sustainable cost reduction is a complex

undertaking that touches on all aspects of the organization.

While most of the challenges are organizational matters,

providers also need to do better engaging patients.

Greg Poulsen is senior vice president and chief strategy

officer at Intermountain Healthcare, an integrated

healthcare network located in Salt Lake City, and the lead

advisor for this Intelligence Report. He says that patient

engagement is critical to meeting clinical and cost-

containment objectives, and it’s one of his organization’s top

challenges.

“I think there is an unrealistic sense on the part of patients

of what the healthcare system can do for them versus what

they can do for themselves. So they undervalue the decisions

that they make in terms of lifestyle, exercise, physical

therapy, doing the exercises assigned after surgery, getting

up and being mobile, and taking medications consistently,

things like that. There are a whole series of things like that

that I think we as patients undervalue, and we overvalue

or have unrealistic expectations about what the healthcare

system ought to be able to do for us.”

True cost of care. Most providers understand that they

must determine the true cost of providing care; however,

actually being able to obtain the data is another matter.

Only 6% of respondents say that they are able to determine

the true cost of providing all care, 29% say they can do this

for most care provided, and 51% say they do this for some

care provided (Figure 8). The response for those who have

no true cost data for any care provided comes in at 15%.

These responses are very similar to the ones in last year’s

survey, with slight improvement, but variation of no more

than three percentage points.

“There is a focus on rewarding quality initiatives and agreement on standardizing to a smaller number of vendors and physician preference items.”

—Chief financial officer at a large health system

“We are integrating utilization improvements in their contracts for employed or other contracted staff. Also, we use clinical comanagement or other management agreements with incen-tives to improve utilization.”

—Chief financial officer at a medium health system

“We are creating a triad structure for key service lines to include a physician leader, and engaging physicians in supply cost initiatives and shared savings programs with strategies to reduce cost.”

—Vice president of administration at a medium hospital

“We reorganized our medical staff and created a clinically integrated PHO.”

—Chief operations officer at a medium health system

“We are engaging them in discussion regarding bundled payments—for example, how can we deliver evidence-based, efficient, compassionate, and excellent care in a timely manner?”

—Director of emergency services at a large health system

“We modify provider agreements and increase at-risk for quality outcomes.”

—Chief operations officer at a large physician organization

“We focus on education and collaboration with clinical documentation support to maximize reimbursement.”

—Chief compliance officer at a small health system

“We have a Physician Advisory Council that meets regularly with the CEO and executive team; we hired a cost-containment director to provide analytics; and we merged all of our various physician practices under a common name to give them a shared identity and common vision.”

—CEO at a small hospital

WHAT HEALTHCARE LEADERS ARE SAYING

Here are selected comments from leaders regarding the steps their organization is taking to increase physician engagement around cost containment as a strategic priority.


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Although more than one-third (35%) of healthcare

organizations have determined the cost of care for either

all care provided or most care provided, it is somewhat

disconcerting that 15% are operating in the dark in terms of

costs. On a positive note, 51% are at least able to determine

the cost of providing some care, meaning that—with some

work—these organizations should be able to increase their

knowledge of costs over time.

Poulsen says that Intermountain has been collecting cost

data since 1983, and has a standard cost database that

allows the organization to analyze clinical costs in a granular

way across the continuum of care. Part of Intermountain’s

need to track costs this closely relates to its payer role of

insuring more than 750,000 covered lives.

“We know what procedures cost us at the most fundamental

level. And we know what it would cost us to do two different

modalities of care. So, for instance, it may be that there

are certain patients for whom you could legitimately and

medically say it would be equivalent to do a stent versus

a bypass surgery. We know what the actual costs are for

each, and not just the cost of the in-hospital component,

but the follow-on component: the home health, if there are

readmissions, and what the cost of those readmissions are.

In our data warehouse, we have a longitudinal perspective

on basically all the people that we’ve cared for over the

years, so we can bundle them into different categories at a

very finite level,” he says.

“Ultimately, we think about costs from the perspective

of taking care of a whole group of people, and trying to

keep them healthy. We may have four different alternative

mechanisms for treating people, and knowing each of those

costs is very important, and it helps us to rationalize early

interventions,” Poulsen says. “So if we can do something

that costs a few hundred dollars today in order to prevent

something that not only costs a lot of money in three or four

years, but may also prevent them from having to miss work,

to be away from their family, to become less active, and,

therefore, potentially the subject of further health problems,

we think all of those are great investments.”

Value-based care. One of the goals of healthcare reform is

to drive improvements in both quality outcomes and more

affordable costs. Therefore, it is encouraging that 50% of

respondents say that the transition from fee-for-service

to value-based care has either improved or somewhat

improved their cost-containment efforts, and that only

16% say that this has hindered or somewhat hindered

their efforts (Figure 2). Twenty-four percent say that the

transition has had no impact.

According to respondents, it appears that greater

percentages of large organizations are deriving cost-

containment benefits from value-based care than medium

and small ones. For example, based on net patient revenue,

a greater share of large organizations (71%) than small

(44%) and medium organizations (45%) say this has either

improved or somewhat improved their cost-containment

efforts. Likewise, a greater share of small (20%) and

medium (17%) organizations than large organizations

(4%) say that this has hindered or somewhat hindered

their efforts. Further, a higher percentage of small (25%)

and medium (32%) organizations than large organizations

(16%) say that this has had no impact.

“I think there is an unrealistic sense on the part of patients of what the healthcare system can do for them versus what they can do for themselves.”


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Poulsen says that value-based care has a positive effect on

cost containment. “We have been thinking about it from a

value-based approach for a very long time because we’ve

been paid for a big portion of our patients on a prepaid

basis. It increases hugely the opportunity for wellness. It

increases hugely the opportunity for informed decision-

making about utilization decisions. Those were tools that

were not available to hospitals in the past, by and large. The

only thing they could do is to reduce the cost of an x-ray or

reduce the cost of a hip replacement. We think the vastly

more important question is, is the x-ray necessary? Is a hip

replacement, in fact, beneficial?”

Price transparency. There has been a lot of industry

discussion about the relative merits and drawbacks of price

transparency and its ultimate impact on cost containment.

Can price transparency have value without quality

transparency as well? Does price transparency matter when

most of the cost is typically paid by insurance, or is the trend

toward high-deductible plans changing the equation?

Nonetheless, survey results show that most respondents

have embraced price transparency. Forty-three percent of

respondents say that they provide price transparency to

patients for all or most care provided, 42% say they can do

this for some care provided, and 15% are unable to do this

for any of the care they provide (Figure 10).

Results are mixed when analyzing the data by setting.

Although a greater share of physician organizations (23%)

and hospitals (20%) than health systems (10%) say that

they provide price transparency to patients for all care

provided, a greater share of physician organizations (20%)

and health systems (19%) than hospitals (9%) also say they

are unable to do this for any of the care they provide.

Results for being able to provide transparency to patients

regarding payers’ share of the cost of care reveal that

this task is slightly more challenging, likely because the

source of the information comes from outside respondents’

organizations and also the difficulty of knowing whether a

given patient has met out-of-pocket deductibles. Forty-six

percent of respondents say that they provide transparency

to patients regarding payers’ share for all or most payers,

25% say they can do this for some payers, and 28% are

unable to do this for any of the payers (Figure 11).

Operations activities. Operations or administrative

activities that drive the highest-dollar value in cost-

containment contributions have typically been led by

purchasing and supply chain efficiencies, and it tops the

list again in this year’s survey at 64% (Figure 3). The next

highest response is for process redesign (58%). These

results are identical to last year’s report, which shows the

value of both tried-and-true efficiencies as well as new

processes.

While some in the industry believe that purchasing and

supply chain activities are starting to reach the point of

diminishing returns and that process redesign will eventually

take its spot at the top of the list, for now, both traditional

and innovative efforts represent relatively equal parts of

most cost-containment strategies.

Poulsen says that, while process redesign has been

Intermountain’s top cost-containment contributor for many

years, purchasing and supply chain efficiencies still play an

important role. “I think there’s still value there, and it would

“Ultimately, we think about costs from the perspective of taking care of a whole group of people, and trying to keep them healthy.”


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be unwise to discount how important that kind of work

is. We break costs into three categories, and that would

fall into the first one, which is efficiency. We’ve got to be

effective and efficient at what we do, and to me the whole

supply chain—because there’s so much money in supplies—

there’s more mining to be done and there’s more value to be

extracted there.”

Digging into the data, we see that responses for purchasing

and supply chain efficiencies are highest among respondents

who say they can determine the true cost of care for some

care provided (72%), followed by all or most care provided

(63%), and only 45% among those who have no data on the

true cost for any care provided. In a similar vein, responses

for process redesign are highest among respondents who

say they can determine the true cost of care for some care

provided (62%), followed by all or most care provided


true cost for any care provided.

Organizations that are able to determine the true cost of

care are in a better position to reduce costs. Note that it’s

not simply having an understanding of the cost data that

confers a cost-containment benefit—the cost data increases

the effectiveness of an organization’s cost-containment

initiatives. In Figure 3, for example, determining the true

cost of care receives a response of 17%, placing it second

lowest on the chart. The data alone confers limited benefit;

it’s what you do with it that provides the value.

Clinical activities. According to respondents, the top three

contributors to clinical cost containment (Figure 4) are

care standardization (55%), improved utilization of clinical

resources (52%), and efficient use of clinical labor (46%).

The survey results are consistent with last year’s report

(efficient use of clinical labor at 55%, care standardization

at 54%, and improved utilization of clinical resources

at 54%).

As with operations or administrative cost-containment

activities, understanding costs provides a benefit

to the initiatives. As an example, responses for care

standardization are highest among respondents who say

they can determine the true cost of care for some care

provided (59%), followed by all or most care provided


true cost for any care provided.

Revenue cycle activities. Improving clinical

documentation (70%) was cited by respondents as

the most financially impactful activity by a large margin

(Figure 5). Minimizing denials (47%) and improving pre-

service collection from patients (44%) round out the top

three responses.

“I think the reason improving clinical documentation is such

a big deal to providers is, clearly, it’s part revenue cycle but,

equally important, it’s part of providing high quality,” says

Poulsen. “If we don’t adequately document and correlate

things, it deprives us of the opportunity to do appropriate

follow-up. So much of our system is predicated around

the idea of identifying people with clinical needs and if we

don’t document them correctly, our computers can’t give us

prompts to follow up. If we don’t document correctly that

this person has high blood pressure, we may not remind

them to take their high blood pressure meds and get in for a

follow-up exam. So it’s really important.”

“I think the reason improving clinical documentation is such a big deal to providers is, clearly, it’s part revenue cycle but, equally important, it’s part of providing high quality.”


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IT activities. Survey respondents say that over the next

three years integrating clinical and financial data (51%),

analytics support for expense and cost monitoring (51%),

and identifying clinical process variation (45%) are

the top three IT-enabled activities driving cost reduction

(Figure 6). These results are comparable to last year’s

report, each within three or four points.

Interestingly, responses for identifying clinical process

variation are highest among respondents who say the

transition from fee-for-service to value-based care has either

improved or somewhat improved their cost-containment

efforts (56%), compared with respondents who say that

this has had no impact on their efforts (34%) or hindered or

somewhat hindered their efforts (31%).

Cost-reduction programs. Survey respondents say that

they are continuing to have success in reducing costs in their

organizations. Forty-nine percent of respondents indicate

that cost-reduction efforts yielded year-over-year savings

of 5% or more for the most recent fiscal year (Figure 12).

At the upper end of the range, 9% of respondents had

reductions of 11% or more.

As mentioned earlier, organizations that are able to

determine their true cost of care tend to have more effective

cost-reduction initiatives. For example, there is a correlation

between the level of savings respondents say they receive

from cost-reduction programs and their organizations’

abilities to determine the true cost of care. Fifty-one percent

of those who are able to determine the true cost of care

for most or all of their care report year-over-year savings

of 5% or more, while just 38% of those who are unable to

determine the true cost for any of their care are achieving

such deep savings.

There is also a relationship between the level of savings

respondents say they receive from cost-reduction programs

and their views on the cost-saving benefits of the transition

from fee-for-service to value-based care. A greater share

of respondents who say the transition from fee-for-service

to value-based care has either improved or somewhat

improved their cost-containment efforts (54%) than

respondents who say this has had no impact on their efforts

(40%), or who say this hindered or somewhat hindered their

efforts (40%), report that cost-reduction efforts yielded

savings of 5% or more.

After years of cost-cutting, the outlook for further

reductions remains consistent with current savings levels.

Forty-nine percent of respondents expect average annual

cost reductions of 5% or more over the next three years,

and at the upper end of the range, 12% of respondents are

expecting reductions of 11% or more (Figure 13).

Operating margin results. For the most recent fiscal year,

17% of respondents report negative margin, while 5% broke

even and 78% had positive margin (Figure 14). These results

are comparable to last year’s survey in which 21% reported

negative margin and 77% positive margin.

A greater share of physician organizations (54%) than

health systems (42%) and hospitals (32%) say they have

positive margins in the 4% or more range, and a greater

share of for-profits (60%) than nonprofits (33%) also report

“We’ve got to be effective and efficient at what we do, and to me the whole supply chain—because there’s so much money in supplies—there’s more mining to be done and there’s more value to be extracted there.”


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this. However, similar percentages of for-profits (15%) and

nonprofits (18%) report negative margins.

It is of some concern that 43% of respondents report

operating margin in the 0%–3% range, which is up from

35% last year. Clearly, achieving a healthy margin in the face

of a complex and evolving industry landscape is challenging,

and the road ahead gets no easier without adequate

resources.

Prospects for the next three years show some improvement,

with only 7% of respondents saying that they expect, on

average, to post negative operating margin for each of

the next three years, and 87% expect positive margin

(Figure 15). These results are comparable to last year’s

survey in which 9% expected negative operating margin

and 85% positive margin.

While these expectations are ambitious, they are certainly

achievable—nearly half (47%) of respondents expect

average annual operating margin over the next three years

to be in the 0%–3% range, up from 43% in the most recent

fiscal year. However, the 4%–5% range is forecast to go

from 14% in the most recent fiscal year to a three-year

share of 25%, suggesting an outlook that may be a bit

optimistic.

Ultimately, organizations that have a deep understanding

of their cost of providing care are better prepared to drive

down costs in a variety of areas, while those lacking cost

data have more difficulty executing on this mission. Clearly,

the first step for most organizations is to determine their

true costs, if not for reasons of transparency, then for

reasons of financial viability.

Jonathan Bees is senior research analyst for HealthLeaders Media. He may be contacted at [email protected].

“In our data warehouse, we have a longitudinal perspective on basically all the people that we’ve cared for over the years, so we can bundle them into different categories at a very finite level.”


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Q

FIGURE 1: Biggest Barriers to Sustainable Cost Reduction

What are your organization’s three biggest barriers to achieving sustainable cost reductions?

24%

26%

28%

32%

32%

32%

39%

57%

Poor physician-hospital relationships

Concerns about quality or safety trade-offs

Regulatory compliance

Unsupportive organizational culture

Lack of technology in place to achieve goals

Lack of patient engagement in their care

Insufficient integration with care partners

Lack of data on the true cost of care

Base = 225, Multi-Response

The factor identified as the biggest barrier to sustainable cost reduction is lack of data on the true cost of care (57%).

The next tier of responses are tightly grouped, and includes a variety of disparate areas: insufficient integration with care partners (39%), lack of patient engagement in their care (32%), lack of technology in place to achieve goals (32%), and unsupportive organizational culture (32%).

SURVEY RESULTS


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Q

FIGURE 2: Impact of Transition From Fee-for-Service to Value-Based Care

How has the transition from fee-for-service to value-based care impacted your organization’s cost-containment efforts?

13%

37%

24%

12%

4%

10%

Improved our efforts Somewhat improved our efforts

No impact on our efforts

Somewhat hindered our efforts

Hindered our efforts Don't know

Base = 225

Despite concerns about the ability to adapt to fundamental changes taking place through the industry, 50% of respondents say that the transition from fee-for-service to value-based care has either improved or somewhat improved their cost-containment efforts, and only 16% say that this has hindered or somewhat hindered their efforts. Twenty-four percent say that the transition has had no impact.

SURVEY RESULTS

Among those expecting positive financial impact


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Q

FIGURE 3: Operations/Admin Activities Providing Highest Contributions This Year

Of the following operations or administrative activities, which three provided the highest dollar value in cost-containment contributions during this fiscal year?

9%

17%

19%

33%

33%

40%

58%

64%

Across-the-board budget reductions

Determining the true cost of care

Efficient use of nonclinical labor

Reducing incomplete or inaccurate coding

Consolidating/centralizing business functions

Targeted budget reductions

Process redesign

Purchasing and supply chain efficiencies


Purchasing and supply chain efficiencies (64%) and process redesign (58%) are the two most productive operations/administrative cost-containment activities—the results are identical to last year’s survey. Responses for purchasing and supply chain efficiencies are highest among respondents who say they can determine the true cost of care for some care provided (72%), followed by all or most care provided (63%), and only 45% among those who have no data on the true cost for any care provided. Similarly, responses for process redesign are highest among respondents who say they can determine the true cost of care for some care provided (62%), followed by all or most care provided (58%), and only 48% among those who have no data on the true cost for any care provided.

SURVEY RESULTS


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Q

FIGURE 4: Clinical Activities Providing Highest Contributions This Year

Of the following clinical activities, which three provided the highest dollar value in cost-containment contributions during this fiscal year?

6%

18%

20%

32%

40%

46%

52%

55%

Across-the-board budget reductions

Consolidating/centralizing clinical functions

Targeted budget reductions

Shifting care to ambulatory/outpatient settings

Care redesign

Efficient use of clinical labor

Improved utilization of clinical resources

Care standardization


Care standardization (55%), improved utilization of clinical resources (52%), and efficient use of clinical labor (46%) are the top three contributors to clinical cost containment. These results are similar to last year’s report (efficient use of clinical labor at 55%, care standardization at 54%, and improved utilization of clinical resources at 54%).

Responses for care standardization are highest among respondents who say they can determine the true cost of care for some care provided (59%), followed by all or most care provided (55%), and only 39% among those who have no data on the true cost for any care provided.

SURVEY RESULTS


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Q

FIGURE 5: Most Financially Impactful Revenue Cycle Activities

Of the following revenue cycle activities, which three do you expect to have the most positive financial impact during this fiscal year?

15%

23%

24%

27%

33%

44%

47%

70%

Using payer specialists in revenue cycle staff

Using IT to target inappropriate claim denials

Predetermining payment amounts and information

Improving post-service collection from patients

Using IT to automate revenue cycle functions

Improving pre-service collection from patients

Minimizing denials

Improving clinical documentation


Improving clinical documentation (70%) is the revenue cycle activity expected to have the most positive financial impact by a wide margin. It is followed by minimizing denials (47%) and improving pre-service collection from patients (44%). Such up-front patient-focused efforts have been among the top three efforts for several years, and continue to be an important approach as organizations develop financial engagement strategies for patients.

SURVEY RESULTS

Among those expecting positive financial impact


PAGE 16

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Q

FIGURE 6: IT Activities Delivering Most Cost Reduction Next Three Years

Of the following IT-enabled activities, which three will deliver the most cost reduction (or financial benefit) for your organization over the next three years?

5%

10%

22%

28%

32%

33%

45%

51%

51%

Don't know

Confirming data/necessity for RAC audit success

Predictive modeling to flex staff levels

Streamlining care delivery

Supporting efforts to maximize reimbursements

Analytics support for productivity monitoring

Identifying clinical process variation

Analytics support for expense and cost monitoring

Integrating clinical and financial data


The top three IT-enabled activities driving cost reduction are integrating clinical and financial data (51%), analytics support for expense and cost monitoring (51%), and identifying clinical process variation (45%). These results are comparable to last year’s report.

Responses for identifying clinical process variation are higher among respondents who say the transition from fee-for-service to value-based care has either improved or somewhat improved their cost-containment efforts (56%), compared with respondents who say that this has had no impact on their efforts (34%) or hindered or somewhat hindered their efforts (31%).

SURVEY RESULTS


PAGE 17

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Q

FIGURE 7: Staffing Areas With Greatest Success in Cost Containment

Please indicate the three staffing areas in which you have had the greatest success in achieving cost-containment goals.

8%

10%

15%

30%

36%

48%

50%

52%

Postacute care nonstaff partners

Affiliated physicians

Postacute care staff

Executives

Employed physicians

Nursing staff

Managers

Administrative support staff


Administrative support staff (52%), managers (50%), and nursing staff (48%) are the top staffing areas in which respondents say they have had the greatest success in achieving cost-containment goals. Thirty-six percent of respondents put success with employed physicians in the top three, well above the 10% response regarding affiliated physicians.

SURVEY RESULTS


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Q

FIGURE 8: Determining True Cost of Providing Care

Is your organization able to determine the true cost of providing care?

6%

29%

51%

15%

Yes, for all care provided Yes, for most care provided Yes, for some care provided No, not for any care provided

Base = 211

Slightly more than one-third (35%) of respondents say that they can determine the true cost of care for all or most care provided, 51% say they can do this for some care provided, and 15% are unable to determine the true cost for any of the care they provide. These results are comparable to last year’s survey, but improvement will be needed if providers expect to control costs while delivering high-quality care.

SURVEY RESULTS


PAGE 19

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Respondents indicate that they know the true cost of care for 43% of their service lines. For 28% of service lines, a cost evaluation is underway, but for 21%, no evaluation has been started, and no evaluation is planned for 8% of their service lines. These results are comparable to last year’s survey and will need to improve as value-based care and at-risk reimbursement models continue to develop in the industry.

SURVEY RESULTS

Q

FIGURE 9: Breakdown of True Cost of Care for Service Lines

Please provide a breakdown of your organization’s efforts to determine the true cost of providing care for your organization’s set of service lines.

Average percentage

Service lines with known cost of care 43%

Service lines with evaluation underway 28%

Service lines not yet being evaluated 21%

Service lines with no plans to evaluate 8%

Base = 115


PAGE 20

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Q

FIGURE 10: Price Transparency for Cost of Care

Does your organization provide price transparency to patients for care provided?

Forty-three percent of respondents say that they provide price transparency to patients for all or most care provided, 42% say they can do this for some care provided, and 15% are unable to do this for any of the care they provide. As patients become more involved as healthcare consumers, such information will become necessary.

SURVEY RESULTS

17%

26%

42%

15%

Yes, for all care provided Yes, for most care provided Yes, for some care provided No, not for any care provided

Base = 210


PAGE 21

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Q

FIGURE 11: Price Transparency for Payers’ Share

Does your organization provide transparency to patients regarding payers’ share of the cost of care?

17%

29%

25%

28%

Yes, for all payers Yes, for most payers Yes, for some payers No, not for any payers

Base = 198

Forty-six percent of respondents say that they provide transparency to patients regarding payers’ share for all or most payers, 25% say they can do this for some payers, and 28% are unable to do this for any of the payers.

A greater share of for-profit (56%) than nonprofit (42%) organizations say that they provide transparency to patients regarding most or all payers. To create a useful financial engagement program for patients, providers will need to take the lead and work with payers so that greater transparency is available for healthcare consumers.

SURVEY RESULTS


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Q

FIGURE 12: Year-Over-Year Savings From Cost-Reduction Programs

For the most recent fiscal year, what is your best estimate of your organization’s year-over-year savings from cost-reduction programs?

1%

4%

14%

18%

10%

21%

19%

6%

3%

6%

0% 1% 2% 3% 4% 5% 6%–10% 11%–15% More than 15%

No cost- reduction programs Base = 177

Forty-nine percent of respondents indicate that cost-reduction efforts yielded year-over-year savings of 5% or more. At the upper end of the scale, 9% of respondents had reductions of 11% or more.

There is a correlation between the level of savings respondents say they receive from cost-reduction programs and their organizations’ abilities to determine the true cost of care. Fifty-one percent of those who are able to determine the true cost of care for most or all of their care report year-over-year savings of 5% or more, while just 38% of those who are unable to determine the true cost for any of their care are achieving such deep savings.

There is also a relationship of note: Among those who report that cost-reduction efforts yielded savings of 5% or more, a greater share of respondents (54%) say the transition from fee-for-service to value-based care has either improved or somewhat improved their cost-containment efforts than respondents who say this has had no impact on their efforts (40%), or who say this hindered or somewhat hindered their efforts (40%).

SURVEY RESULTS


PAGE 23

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Q

FIGURE 13: Goal for Average Percentage Reduction in Operating Cost Next Three Years

What is your organization’s goal for average annual percentage reduction of overall operating costs in each of the next three years?

1%

4%

10%

23%

6%

19% 18%

6% 6% 6%

0% 1% 2% 3% 4% 5% 6%–10% 11%–15% More than 15%

No cost- reduction programs Base = 186

Forty-nine percent of respondents expect average annual cost reductions of 5% or more over the next three years. At the upper end of the scale, 12% of respondents are expecting reductions of 11% or more. Observers have long cited an inefficient healthcare system and a need to bend the cost curve, and the prospect that so many providers expect to reduce operating cost consistently over many years suggests real movement—or at least an earnest attempt—to do so.

SURVEY RESULTS


PAGE 24

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Q

FIGURE 14: Operating Margin

For the most recent fiscal year, what is your best estimate of your organization’s operating margin, in negative or positive percentages?

6%

11%

5%

38%

14%

26%

-6% or less -1% to -5% 0% 1% to 3% 4% to 5% 6% or more

Base = 202

Seventeen percent of respondents reported negative operating margin for the most recent fiscal year, and 78% posted positive margin. These results are comparable to last year’s survey in which 21% reported negative operating margin and 77% positive margin.

For-profit (15%) and nonprofit organizations (18%) have similar percentages reporting negative margin. But the for-profits do better in the high end of the positive range, with 43% reporting 6% or more margin, while just 20% of nonprofits are in that range.

SURVEY RESULTS


PAGE 25

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Q

FIGURE 15: Average Annual Operating Margin Goal Next Three Years

What is your organization’s average annual operating margin goal for each of the next three years, in negative or positive percentages?

2%

5% 6%

41%

25%

21%

-6% or less -1% to -5% 0% 1% to 3% 4% to 5% 6% or more

Base = 198

Seven percent of respondents say that they expect, on average, to post negative operating margin for each of the next three years, and 87% expect positive margin. These results are comparable to last year’s survey in which 9% expected negative operating margin and 85% positive margin.

For-profit (9%) and nonprofit organizations (5%) have similar expectations for negative operating margin for each of the next three years. However, the for-profits expect to do better in the high end of the positive range, with 43% indicating 6% or more margin, while just 13% of nonprofits are projecting that range. Further, a greater share of nonprofit organizations (48%) than for-profits (24%) are forecasting a modest 1%–3% range.

SURVEY RESULTS


PAGE 26

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The 2016 Strategic Cost Control Survey was conducted by the HealthLeaders Media Intelligence Unit, powered by the HealthLeaders Media Council. It is part of a series of monthly Thought Leadership Studies. In March 2016, an online survey was sent to the HealthLeaders Media Council and select members of the HealthLeaders Media audience. A total of 225 completed surveys are included in the analysis. Base size varies between 115 and 225 depending on whether respondents had the knowledge to provide an answer to a given question. The margin of error for a base of 225 is +/-6.5% at the 95% confidence interval.

UPCOMING INTELLIGENCE REPORT TOPICS

JULY Value-Based Readiness

AUGUST Patient Experience

SEPTEMBERPhysician-Hospital Alignment

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ABOUT THE HEALTHLEADERS MEDIA INTELLIGENCE UNIT

The HealthLeaders Media Intelligence Unit, a division of HealthLeaders Media, is the premier source for executive healthcare business research. It provides analysis and forecasts through digital platforms, print publications, custom reports, white papers, conferences, roundtables, peer networking opportunities, and presentations for senior management.

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PAGE 27

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53% Senior

leaders

9% Financial leaders

21% Operations

leaders

TITLE

Respondents represent titles from hospitals, health systems, and physician organizations.

SENIOR LEADERSCEO, Administrator, Chief Operations Officer, Chief Medical Officer, Chief Financial Officer, Executive Dir., Partner, Board Member, Principal Owner, President, Chief of Staff, Chief Information Officer, Chief Nursing Officer, Chief Medical Information Officer

CLINICAL LEADERSChief of Cardiology, Chief of Neurology, Chief of Oncology, Chief of Orthopedics, Chief of Radiology, Dir. of Ambulatory Services, Dir. of Clinical Services, Dir. of Emergency Services, Dir. of Inpatient Services, Dir. of Intensive Care Services, Dir. of Nursing, Dir. of Rehabilitation Services, Service Line Director, Dir. of Surgical/Perioperative Services, Medical Director, VP Clinical Informatics, VP Clinical Quality, VP Clinical Services, VP Medical Affairs (Physician Mgmt/MD), VP Nursing

OPERATIONS LEADERSChief Compliance Officer, Chief Purchasing Officer, Asst. Administrator, Chief Counsel, Dir. of Patient Safety, Dir. of Purchasing, Dir. of Quality, Dir. of Safety, VP/Dir. Compliance, VP/Dir. Human Resources, VP/Dir. Operations/Administration, Other VP

FINANCIAL LEADERSVP/Dir. Finance, HIM Director, Director of Case Management, Director of Patient Financial Services, Director of RAC, Director of Reimbursement, Director of Revenue Cycle

MARKETING LEADERSVP/Dir. Marketing/Sales, VP/Dir. Media Relations

INFORMATION LEADERSChief Technology Officer, VP/Dir. Technology/MIS/IT

Base = 101 (Hospitals)

TYPE OF ORGANIZATION

NUMBER OF BEDS

1–199 (small) 54%

200–499 (medium) 32%

500+ (large) 14%

REGION

WEST: Washington, Oregon,

California, Alaska, Hawaii,

Arizona, Colorado, Idaho,

Montana, Nevada, New Mexico,

Utah, Wyoming

MIDWEST: North Dakota,

South Dakota, Nebraska,

Kansas, Missouri, Iowa,

Minnesota, Illinois, Indiana,

Michigan, Ohio, Wisconsin

SOUTH: Texas, Oklahoma,

Arkansas, Louisiana,

Mississippi, Alabama,

Tennessee, Kentucky, Florida,

Georgia, South Carolina,

North Carolina, Virginia,

West Virginia, D.C., Maryland,

Delaware

NORTHEAST: Pennsylvania, New York, New

Jersey, Connecticut, Vermont,

Rhode Island, Massachusetts,

New Hampshire, Maine

Base = 225

14%Clinical leaders

2% Marketing

leaders

0

10

20

30

40

50

60

34%

28%

19%

19%

NUMBER OF SITES

Base = 83 (Health systems)

1–5 (small) 19%

6–20 (medium) 28%

21+ (large) 53%

Base = 225

Hospital 45%

Health system (IDN/IDS) 37%

Physician org (MSO, IPA, PHO, clinic) 18%

RESPONDENT PROFILE

1% Information

leaders

NUMBER OF PHYSICIANS

Base = 41 (Physician org)

1–199 34%

200–499 29%

500+ 37%

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