Length of stay cuts are just the tip of the iceberg

Although length of stay (LOS) is a highly visible area of cutbacks, hospitals across the country are taking managed care’s push for cost reduction to heart. Seven hospital executives we interviewed from a variety of markets (see related story, p. 25, for a list of executives’ titles and organization affiliations) say they’re focusing on everything from supplies to outcomes measurements to make sure cost cutting isn’t taking place at the expense of medical care.

Here is what the hospital executives, interviewed individually by phone, have to say about the following topics:

1. Cutting LOS.

Robert A. Minkin "That has been something that has been an area of continuous improvement since DRGs came out in 1983. I think you’d find that all hospitals became fundamentally aware of the fact they received a fixed payment from Medicare and that excessive length of stay meant the hospital would lose money on any individual type of case that stayed longer than the average for the DRG."

Ira Meiselman, MBA: "We cut our own revenue source in our per diem contracts every time we cut lengths of stay in today’s world, where we’re not being paid by case rates except for managed care [contracts] or global capitation."

Faye L. Deich, RN, MS: "Our length of stay has come down, but the intensity of what we’re trying to do, in the short time we’re here, is incredible. We haven’t added any staff in that time; our costs are down, but the intensity is there in a significant way, too."

Wayne Selden: "We have been responding to decreases in compensation by lowering our costs. Admittedly, we’re getting sicker patients with shorter lengths of stay as a result of managed care’s influence on outpatient surgeries. And we are directing patients to other health care facilities. The result is we are servicing sicker patients."

Craig Goscha, MBA: "I don’t know if [we have] so much of a desire to lower length of stay as to implement more aggressive utilization patterns. As a result, we’ve seen a reduction in LOS."

2. Cutting costs of supplies.

Henry Anderson, MD, FAAFP: "We have been working with a consultant who has been able to bring in data so we can benchmark for ourselves what we pay for products and supplies we need, such as our total hip prosthesis. The consultant showed us what some of the more efficient benchmark hospitals are paying for a prosthesis, and we’re taking that to our providers and saying, ‘Let’s look at the costs here.’"

Selden: "We are looking at revenues and expenses for each product line, and one of many things [we are doing] is reducing the variety of equipment. We are looking at sources of outside vendors and are trying to standardize the purchasing of the equipment where applicable."

Chris Fallon, CPA: "[Previously], materials managers would approach vendors who sold us all kinds of stuff and press for price reductions. But the more current method is toward product standardization. Instead of putting pressure on six different widget companies, why don’t we get the number of widgets from six down to three, and from those three try to get [lower] pricing?"

Goscha: "We’re looking at standardizing supplies. We had over 300 different pens that were stocked by a distribution company just for our health system. We reduced that to 75 pens, which resulted in cost savings of well over $100,000 a year. So it’s those kinds of little things that are unbelievable.

"[Another example] is pacemakers. We used to use a variety. Then we met with doctors and now use two different types. That saved $250,000 a year. So there are big dollars in the whole supply side."

3. Other cost-cutting measures.

Minkin: "We’re more into the re-engineering of how care is provided here by looking at contracting out services. We had the clinical lab already outsourced, but there is a plan to outsource all clinical labs and make core labs out of two or three of them in the next few years. That will save huge amounts of costs because of the economy of scale."

Selden: "One example: We have multiple facilities on the same campus, and we have centralized administrative and support services under one operation."

Fallon: "You have to help people understand that cost is very important. If they understand how important it is, then they’ll make the right decisions. If they don’t understand — and if it’s something forced down on them from on high — I don’t think it will be well received or executed."

Goscha: "A year and a half ago, we entered an innovative joint venture with Service Master [in Chicago], a national for-profit company, to reduce costs in our support areas: housekeeping, dietary, security, for example. There are 27 departments in total. We have a five year partnership to reduce costs by $11 million within those support areas. The first year [the joint venture] reduced $2.8 million in costs. We don’t outsource; it’s a shared risk reward arrangement, and Service Master receives a portion of the cost savings."

Selden: "[Another example] is that we are now operating with greater integration of support services like housekeeping, administration, central supply, purchasing, and personnel. We’re looking at outsourcing certain services but have not evolved to that. We used to be very vertically integrated. Each facility had its own administrator and services, and now we’re under one central management. We cut staff and made major changes, and it’s reduced overall costs and streamlined our system."

4. Using clinical pathways or protocols.

Anderson: "Clinical pathways are just one of the measures you can use to attempt to reduce costs. The other one is to get clinicians involved in improving processes and reducing costs of products and things they need to complete whatever they’re doing."

Deich: "We’re sort of ticking off our top 10 diagnoses for high cost and high volume and trying to get pathways for those. We’re not looking to have every diagnosis under a pathway."

Anderson: "I think there have been several reasons why we’ve gone to clinical pathways. We have 18 or 19 now that are reasonably functional [in order] to reduce the length of stay, improve efficiency, and improve variation of patient care. We have started [receiving inquiries from payers] as to whether or not we are using clinical pathways."

Minkin: "We asked physicians to work collaboratively to develop protocols. We provide data and provide clinical performance on a physician-by-physician basis. They look at that quarterly to see where improvements are needed. In those areas where we use clinical protocols, we match data on how long the patient stayed and what services the patient used."

Selden: "Some [clinical pathways] that Tenet developed are shared with other facilities. In other cases, it’s done on a local basis through team meetings with physicians."

Deich: "We sat down with one or two physicians and got input at a meeting with other disciplines to draft a pathway. Then we mailed the pathways to a group of internists and said, ‘Here’s what we’re looking at as a draft; do you have any feedback?’ Then we incorporated their feedback and showed it to the other disciplines."

5. Obtaining physician buy-in for pathways.

Anderson: "This has been a real struggle. We still have nay-sayers out there, saying ‘This is cookbook medicine; They’re telling me how to practice,’ and so forth. But a pathway is not a mandatory thing in any respect. You have the ability to variate from that pathway. Showing clinical judgment is still No. 1. And pathways are also a way [for a physician] to get support from all the ancillary services.

Fallon: "Some people want to participate, and some participate after an experiment in which an initiative is proven. You do not get immediate and uniform adoption of these criteria and methods."

Anderson: "The trick is to see if you can get a buy-in from one or two physicians, and then they can take it to a departmental meeting and explain it much better than I can explain it. They can say, ‘Hey guys, what do you think about it?’"

6. Future of hospitals under managed care.

Meiselman: "I think it will be a never-ending battle — when you have the federal government reducing rates, and every direction you turn it’s a reduction in rates. There used to be a time when you had good-paying indemnity insurance, which is 10% or 15% of business today and shrinking.

Anderson: "We have been trying to be very aggressive in reducing our costs and LOS. We’re doing this in anticipation of what we expect to see, which is more managed care coming down the pike."

Selden: "There probably are always opportunities for greater efficiency, and typically that’s achieved by a team approach in delivery of health care with the physicians."

Anderson: "Sooner or later if you are really successful at reducing costs, then you get to a certain point where you can’t go down any further, and then quality becomes even more important."

Deich: "Our ultimate goal: We’re not going to get anywhere if all we talk about is cost. We have to talk about outcomes. How are we doing in terms of outcomes? Are more people being discharged home instead of to a nursing home? Do people return to the same level of function they came in here with?"