Don't be afraid of the C-word in the age of managed care

Expertise in cost issues imperative to survival

By Gil Kulers

[Editor's note: Of all the trends affecting the readers of Hospital Peer Review in the last 20 years, the biggest has been the growth of managed care, according to what the largest percentage of readers told us on our latest reader survey. And our readers predict that managed care will pose the biggest challenge for the future, closely followed by preserving quality under cost-containment pressures. (See charts, pp. 1, 3.) As a result, we take a look ahead in this special anniversary issue to give you an idea of how managed care will likely change your job and how you can prepare for these changes.]

In an age of managed care, hospital leaders are focused on four things: costs, costs, costs, and how to reduce them. The quality manager who can relate improvement programs to cost reductions will be noticed by hospital CEOs and CFOs. Quality professionals who can focus only on quality initiatives will not play as large a role in the future as they could or should, many quality professionals predict.

"Quality professionals get pigeon-holed into being the Joint Commission [on Accreditation of Healthcare Organizations] person or the person [administrators] really don't want to talk to because their mind is on managed care," says Michelle H. Pelling, MBA, RN, principal of the Propell Group, a health care management consulting company in Portland, OR. "Today, presidents and CEOs are preoccupied with managed care. The voice of the quality professional is not heard. The quality professional needs to be in the middle of the arena."

Polly Willis, RN, MSN, concurs. "Money is what speaks to chief executive officers," says the director of patient care management at St. Joseph's Health System in Atlanta. "They know how to read a balance sheet. Most of them are well-versed in the financial aspects of running a business."

Expand your expertise

While challenging, this intense cost-cutting focus presents an opportunity for quality professionals to create a new and pivotal role for themselves -- one that goes beyond spearheading quality improvement projects to also being a quality educator, a data analyst, and a cost management advisor. Those who take their expertise to a new level of sophistication will become more valuable players in their organizations, especially if they begin by boning up on finances.

Typically, many quality professionals forget that hospitals are a business, and operating a business means addressing costs. "Quality professionals have done themselves a disservice in the past in that they were righteous about -- and I was the same way -- separating [cost and quality] issues," Willis says. "Looking at cost and quality together makes it more imperative and more persuasive when you go to convince a CEO or a physician that we have to implement this program because it will lower costs and improve quality. . . . It makes arguments much more powerful when you can link those two things together."

Quality can't be ignored without negative fallout for a hospital, says Elice Branch, RN, BSN, director of quality management at Western Medical Center/Anaheim (CA). This fact opens an important new role for quality professionals -- that of educator to other staff and hospital leaders, she says. When her facility adopted its first critical pathway, Branch made it her goal to ensure participants kept a balanced focus during planning discussions.

"I can't really say I was uncomfortable talking about [costs]," says Branch about the coronary artery bypass graft pathway. "If at any time [discussion] got off to just the costs, I would bring the group back around toward quality."

Neither quality nor cost should dominate discussions hospitals have as they work under the financial realities managed care places on them. "This is the way to do business with pathways, because it mixes cost and quality," Branch says. "You keep your place in the marketplace, and you are still focused on good outcomes."

One way to balance cost and quality is to think in terms of value, says Pelling. Some quality experts have put this idea in the form of an equation: value = quality/cost. An organization that can focus on quality and cost of health care over time will evolve into a low-cost, high-value health care operation, Pelling says. Likewise, the quality professional who is able to muster the best performance out of his or her organization will become invaluable to that organization, she adds.

DRG by DRG, the quality professional can turn a hospital into a high-value operation, irresistible to budget-minded hospital executives and managed care organizations (MCOs), and appreciated by outcomes-conscious caregivers. By compiling and refining data on a hospital's high-volume, high-cost DRGs, the quality professional puts an organization on a path toward improvements that are important to the hospital's overall performance. As outcomes improve, variations decrease and costs lower, the quality manager then can turn to other DRGs. Methodically, the manager pins down impediments that are keeping the organization from meeting or surpassing national and regional norms. The manager also is making the hospital more competitive on procedures that make a financial difference.

"You are focusing your efforts and you are focusing your efforts on the right things, which is your base business," says Pelling. "If you can improve quality and improve costs -- and by combining the two you are improving value -- then you are positioning [the hospital] very well for the future."

Willis sees a natural progression toward linking topics and interests that were once exclusive. "Twenty years ago, everything was very segmented," she says. "Each department had their own thing that they did and they didn't think they were related to anything else. Now, the outlook is multidisciplinary. Why wouldn't it follow that the outcomes of our processes would be multifocused -- focused on quality, clinical quality, functionality, cost, satisfaction, well-being, so you get good or acceptable outcomes in all those areas?"

Another important role for the quality professional to play is that of the quality educator in managed care contracting. The quality professional, who knows the score on the hospital's performance, can help his or her organization land a managed care contract.

Pelling says if an MCO is looking for a partner to handle its surgical patients in a cost-effective manner, the hospital's reasoning cannot be "Send us your surgical patients because we're good." It must be along the lines of: "We changed our anesthesia regimen nine months ago, and since then we have lowered our postoperative nausea rate by 45% to one of the lowest rates in the state. Patients now leave the recovery room on average 65 minutes earlier and have a lower readmission rate. This has reduced our costs for these procedures by an average of 10%. If you contract with us, your plan members will receive this high level of service and you will save money."

Quality professionals should educate board members and administrators about what the numbers mean and how powerful they can be. In turn, they can present this information to the MCOs. (See column on how quality professionals can be involved in data analysis, p. 25.)

When a plan contracts with a hospital, it contracts primarily based on price, unless the hospital's reputation is utterly horrible, says Pelling. "Quality is just now entering the arena," she says. "But, I don't believe the plans or the employers are really clear on exactly what it is they need. . . . They are still learning about this process."

Bring outcomes to the table

Quality professionals must lead MCOs -- or help hospital administrators lead MCOs -- to see how improving outcomes produces lower costs. "You have to go back and ask yourself, 'What do the [MCOs] need to know about what we are doing relative to quality that will help them?" Pelling says. "In the meantime, we must ask ourselves, 'How can we get better at that so we can always give them a competitive price?'"

As payers become more astute, they will begin to realize that investing money at different parts of the continuum of care can save money in the long run, Pelling says. For example, "there are some organizations that are looking at asthma, and by spending money up front, they can keep [patients] out of the acute care hospital," which would end up costing much more, she says.

"The quality professional has a strong role in [explaining these scenarios], but they need to have a voice, they need to be assertive, and they need to be knowledgeable before they can go back to their organization and say, 'This is what we need to do,'" Pelling says. Quality professionals must be able to explain that MCOs look for hospitals -- regardless of size or network affiliation -- that reduce overall utilization, she notes. For hospitals that don't scale back utilization, their ability to attract managed care business will be in jeopardy. If the quality professional is talking with the CEO of an integrated hospital system, he or she must point out that the hospital's census may be going down, but the hospital system's home care services division is keeping busy, and the patient gets higher quality care. *