• Article
  • July 13, 2014

How Hospitals Can Save 18 Percent in Direct Costs

One hospital applied a proven quality improvement methodology and involved system-wise stakeholders to achieve $12 million in annual savings and new opportunities for long-term growth. 

By Chris Rees, MBA, MHSA

Like many children’s hospitals across the country, Children’s Hospital at the Medical University of South Carolina (MUSC) was facing an uncertain financial future because of state reductions in Medicaid and lower reimbursements. The hospital needed to find an effective way to reduce costs. As part of MUSC Health, a large academic medical center in Charleston, S.C., the hospital has always been committed to quality, service, efficiency and financial performance. Yet despite this commitment, gaining significant ground in efficiency and financial performance was often difficult. In the struggle to develop innovative ways to efficiently deliver care to patients and reduce costs, Children’s Hospital is not alone. For many children’s hospitals across the country, the problem of not being able to effectively make cost-cutting measures stick is tied closely with the historical culture of health care and the struggle to balance margins and missions. 

Today, the balance of quality and cost and the idea of value is becoming the mantra of all health care leaders. Experts in performance improvement will tell you that all solutions should come from those closest to the work, and physician leaders are in the trenches every day. As a medical center, MUSC Health’s strategy for creating change and making it last centers on engaging and holding these leaders accountable to solve their own performance issues. Moving past the old “we vs. them” mindset that sometimes proliferates between administrators and physicians was key to making financial change happen. 

Using the lessons learned from previous quality improvement efforts, the medical center’s financial performance committee created a new process to improve value and accountability. There was a new expectation of all staff members and leaders: spend 80 percent of time on completing your necessary job tasks and the other 20 percent on finding ways to do them safer and more efficiently, and cost savings will follow. As the process took hold at Children's Hospital, a real sense of accountability developed around value. It was the catalyst to engaging hospital employees and medical staff in leading all financial improvement efforts. As a result, many successful projects have been completed over the last three years. These ideas were generated by frontline staff, managers and physicians, and they are indicative of a culture that focuses more time and energy on improving at the department and program levels. 

The primary focus of these projects was improving efficiencies, reducing waste, standardizing practices and reducing avoidable complications. For example, Michelle Hudspeth, M.D., and Dominic Ragguci, pharmacist, created standard order sets and reduced the amount of chemotherapy and supportive care agents wasted. Sonja Muckenfuss, nursing director, along with Kellie Suggs, director of business operations, led a hospital-wide project to reduce overtime, which resulted in annual savings of $150,000. And Rosemarie Battaglia, ambulatory care manager, completed a project that significantly reduced the cost per clinic visit by standardizing scheduling templates, consolidating clinics and changing staffing models. This resulted in an annual savings of more than $250,000. Other cost-saving results included: 

  • 19 percent reduction in overtime costs per pay period 
  • 17 percent reduction in costs per case 
  • 30 percent reduction in pharmaceutical costs per case 
  • 15 percent reduction in lab costs per case 
  • 11 percent reduction in length of stay 
  • 6.5 percent reduction in ventilator days per adjusted discharge 

Examining the past

Previously, MUSC Health’s attempts to address costs were often successful short-term, but the organization was unable to sustain initiatives long-term, prompting leaders to investigate. They wanted to understand what elements of previous strategies were missing and why cost-cutting efforts weren’t working. Then chief medical officer and now CEO of MUSC Health, Patrick Crawley, M.D., assigned a committee with representation from finance, quality, data analytics and strategic planning to answer those questions and design a process that would ensure accountability at all levels of the organization to achieve the goal of reducing costs. Crawley knew that reducing costs in the various units at the medical center required bringing an interdisciplinary group together in order to make change stick. “It was important that we developed rapid-cycle improvement,” he says. “So we chose this group to meet at an increased frequency in order to effect change.” 

To kick off the initiatives, this committee studied why past efforts to reduce costs didn’t work, including taking a few weeks to do a face-to-face debrief with organizational leaders about their experiences. The committee reviewed the summary of responses and uncovered five ways past cost-saving efforts broke down: 

  • Incomplete data and reporting 
  • Lack of a standard approach 
  • Minimal involvement from the medical staff 
  • Inadequate collaboration between patient care units and support areas 
  • Poor accountability to outcomes 

Now, with understanding of why efforts had not been fruitful in the past, the committee examined existing processes they could replicate within MUSC Health that successfully addressed these reasons for failure and might produce sustained financial results. As a model of a successful initiative that sustained long-term results, the committee looked no further than the medical center’s efforts to improve quality. Leadership wanted to examine if the process to improve quality could also be applied to cutting costs and improving financial performance at the children’s hospital. 

Process into action

Although it may be easier to garner support among staff members and clinicians for improving quality than improving the hospital’s bottom line, the Affordable Care Act and reductions in Medicaid reimbursements generated the burning platform needed to create a sense of urgency. At the children’s hospital, the process to reduce costs started with senior leadership, including John Sanders, hospital administrator, and Rita Ryan, M.D. Ryan came to MUSC in 2011, and in addition to serving as the medical director for Children’s Hospital, she is the chair of the academic Department of Pediatrics. She immediately created a culture of alignment with the hospital. “We knew that for the department to be successful, the hospital had to be successful, and vice versa,” she says. “We conveyed to our physician faculty members that engagement with administrators—to do what we could on the financial side—was critical for our long-term success.” 

Ryan and Sanders set out to understand cost data and the different systems and tools available that could help identify and analyze gaps in performance. Suggs led this effort, and it required working hand-in-hand with the finance and data analytics departments to prioritize the key financial performance measures the children’s hospital leadership team wanted to review monthly. These measures included all direct costs broken out by labor and supplies, total overtime costs and full-time equivalents (FTEs), and total costs per discharge (adjusted for outpatient volume and case mix index). Limiting the number of metrics allowed the team to drill down to the unit, physician and diagnosis level, which ultimately pinpointed opportunities for reducing costs. A work group reviewed this list each month and identified gaps in performance. These gaps were used to generate a list of projects, and each was assigned to a process owner—someone who was either a children’s hospital or medical staff leader. 

Like quality improvement projects, each of these financial savings projects was required to follow a standard process improvement (PI) methodology: identify, measure, problem analysis, remedy, operationalize, validate and evaluate (IMPROVE) and have a projected, validated financial benefit. Although facilitators from the PI department were available for support, it was the leader’s responsibility to ensure the project progressed. Process owners were required to report out to senior leadership on a monthly basis in a formal, fact-driven format called value and accountability presentations, which ensured the clinical leaders at the department and program levels were engaged and motivated to demonstrate success. 

All service lines, departments and programs were divided into three tiers based on their performance against a series of key performance indicators (KPIs). Those in the top-level tiers submitted their KPIs electronically to the chief operating officer. The mid-level tiers reported quarterly in person to a panel of the CEO, chief operating officer, chief financial officer, chief quality officer, accountability director, and several other strategic staff members. The bottom tiers were required to report monthly to the group to demonstrate improvement in KPIs and provide detailed plans for improving metrics that remained unacceptable. 

Here’s an example of how the process worked: The pharmacy team identified that high-cost chemotherapy and supportive care agents were potentially wasted because of current administration practice and dosage form availability. So the team set out to quantify vials of agents and analyzed frequency and duration of administration. Within two months, the group revised preprinted order sets, submitted changes for group review, obtained committee approvals and educated the staff. While the evaluation of effectiveness is ongoing, the group has saved more than $15,000 to date. While this may seem like a small amount, there is potential for several small initiatives to snowball into big savings. 

A closer look at quality

As the model for cost-savings initiatives, MUSC Health’s methodology for improving quality started eight years ago, and through Crawley’s leadership, the system developed the MUSC Medical Center Quality Network. This network is the structure that drives and coordinates performance improvement activities in quality at the medical center, including Children’s Hospital. A systematic, organization-wide approach to planning for and achieving quality improvements, the network focuses on the patient and organizational functions that promote positive patient outcomes by standardizing care across the medical center. Using the committees and communication channels of the network, teams led by clinical leaders identify, prioritize and quantify improvement efforts specific to their service lines. 

The quality network represents a system-wide transition— from a previous approach where performance improvement was a distinct set of activities—to a new way of doing things. Performance improvement is now integrated into the operational structure of each service line and across the medical center. This cross-organizational method to quality improvement ensures that monitoring and evaluation of important functions occur at the local level with oversight at the institutional level. This holds leaders accountable for solving their own problems using methods that are standard across the institution. 

As part of the quality network, there are two types of performance improvement projects. There are large-scale, organization-wide projects that senior management initiates. The second type are smaller-scale service projects. Any unit, department or program can initiate these. When teams launch projects, the Quality Operations Committee, which includes service line employees and senior leadership team members, approves project milestones. Teams are responsible for monitoring and reporting their progress to the IMPROVE Committee. 

To establish priorities and to identify areas with the greatest gaps in performance, teams must use data. At MUSC Health, the task of gathering data falls to the Measurement Committee. This group first developed dashboards and reports that provided leaders and staff members with regular feedback on their quality and safety performance. In order to set this up, the measurement committee examined hundreds of possible quality and safety metrics and prioritized the ones that were most important to achieving strategic objectives. Prioritization allowed MUSC Health to develop consistent data definitions and reliable measurement systems. Limiting the number of metrics made it easier to create rules around attribution for both hospital and medical staff. This step was not easy, but it was necessary to hold the right people accountable for the performance of any measure. When an employee from a unit or from the senior leadership team identified an opportunity within one of these metrics, the team launched a formal improvement project. The medical center’s CEO mandates all projects follow the IMPROVE methodology. Teams use this approach to: 

  • Problem solve the current state 
  • Identify the new process or potential improvement (future state) 
  • Assess or test the strategy for change 
  • Analyze data from the test to determine if the change produced the desired result 
  • Implement the strategy system-wide, when applicable 

Quality efforts resulted in significant improvements, including: 

  • 40 percent reduction in mortality index 
  • 14 percent reduction in rate of central-line associated blood stream infections 
  • 4 percent reduction in rate of ventilator-associated pneumonias 
  • 60 percent reduction in rate of catheter-associated urinary tract infections 

Enlisting help

MUSC Health’s vision for performance improvement is to adopt a culture that focuses on continuous improvement in all processes within the clinical enterprise. While the medical center has a central PI department, all leaders learn to effectively run IMPROVE projects. This ensures accountability and allows the organization to run more projects with fewer dedicated resources. The model incorporates Lean and Six Sigma tools and methods into the model as appropriate without making it overly complex for mid-level managers to run their own projects. Jennifer Hooks, manager of performance improvement, oversees the Performance Improvement Department. She has a wealth of experience gleaned from a long career in the U.S. Air Force, and she has developed an internal team of experts that support and train organizational leaders. 

These internal experts facilitate, but do not take over the projects for the teams. “Most teams benefit from having an impartial PI facilitator who is not part of the team,” Hooks says. Facilitators are assigned to multiple projects in varying areas and move from project to project within specific timelines. Their role is to lead and guide teams toward ownership of project outcomes. Facilitators clearly communicate at the beginning of each project that the team members have the responsibility to accomplish the project task or action items, and the champion and process owners are accountable for these activities and the success of the project. Holding the right people accountable for improvement efforts requires discipline and senior leadership support, Hooks says. 

Not only are MUSC Health administrators and managers asked to lead projects, medical staff members are required to lead and champion many of these improvement efforts, too. This level of engagement from medical staff was unprecedented, and it was one of the keys to success when the medical center introduced the new process for quality and safety. To ensure leaders are armed with the tools they need, the Performance Improvement Department provides a one-day class that prepares them to run a project from beginning to end. The department also provides access to an IMPROVE facilitator who consults with teams and ensures projects follow the model. PI projects must consist of an inter-professional team, so all stakeholders are part of providing the solution to whatever problem a given project is tackling. Finally, the organization drives accountability by adding specific quality goals to the annual performance evaluations of all appropriate staff and leaders, including medical directors. 

Patience pays off

The cost savings did not happen overnight, and it was not easy. It took more than six months to see any movement, and it took two years to achieve the targeted reduction in costs. But once the success of these initiatives resulted in positive recognition for project leaders, there was positive peer pressure to improve. This has helped develop a sense of collaboration across MUSC Health. It has also helped Children’s Hospital move forward confidently. The hospital is now pursuing plans to build a $350 million replacement facility—the MUSC Children’s Hospital and Women’s Pavilion—expected to open in 2020. The bottom line of these efforts is a robust system of accountability that has cascaded to all levels within the hospital: leaders, frontline employees, medical staff (faculty and house staff), nurses, business staff and all other support areas. In this ever-changing health care environment, it is critical for organizations to establish goals, ensure employees fully understand what is expected of them, and hold them accountable for the results. 

Using the IMPROVE process, clinical and non-clinical staff members have demonstrated it’s possible to improve quality and, at the same time, drive down costs. While that is good news to regulators and payers, the real beneficiaries are the patients and families that the medical center and its children’s hospital serve. 

Chris Rees, MBA, MHSA, is director of system quality and accountability at the Medical University of South Carolina. 

Send questions or comments to magazine@childrenshospitals.org.