Putting power in the numbers game

Software can be a powerful tool

By Richard B. Siegrist Jr.

President and CEO

HealthShare Technology

Acton, MA

We've all heard the phrase "knowledge is power." This has never been more true in health care than at the present time. With all the recent mergers and consolidations of payers and hospitals and the rapid formation of physician group practices and integrated delivery networks, the power of information is an increasingly essential part of an organization's future success.

One of the most effective business tools for health care facilities is comparative information on internal performance as well as competitive operations. Many decision support systems are adding ways to compare a facility's own performance to other institutions - whether they are key competitors or providers with desirable standards of performance.

Comparing strategies through benchmarking

"Benchmarking" is one current trend of bringing standards from other hospitals into a decision support system and comparing statistics. To leverage the most from the analysis and achieve greatest benefits, you must address certain questions:

· What kinds of comparative analyses will be most important and revealing?

· With whom should we be comparing ourselves?

· How can we be sure that the data are really comparable?

Comparative analysis can help a facility gain perspective on its business. Where comparisons reveal significant differences, health information professionals can begin to ask questions internally to determine the causes. Comparative information can stimulate managers and clinicians to work as a team, digging deeper into internal systems to further identify problems and take action.

For valid comparisons, facilities should be using the same definitions for data elements and applying similar coding standards. Where this is not possible, a decision-support system must have ways to adjust data to ensure valid comparisons.

Since internal costing systems may use widely different methodologies, standard procedures should be applied to all institutions in order to calculate costs for comparative analysis.

Most important for comparative analysis is adjustment of the clinical case mix. Average length of stay per case is not comparable, for example, if one institution includes heart transplants in the patient mix, while another does not.

Even where the patients being examined have the same clinical diagnosis, or fall into the same DRG, there can be differences in severity of illness which can have significant impact on treatment costs and outcomes. For legitimate comparisons, lengths of stay, charges, and costs must be severity-adjusted.

A critical aspect of comparative analysis is making sure that comparisons are "apples-to-apples." Standards from teaching hospitals cannot be applied to community hospitals without adjusting for medical education costs, for example.

Typically, comparisons will examine hospitals competing in the same primary service area or geographic region. However, it can also be helpful to look at a "standard" from outside the immediate market area, such as a prestigious, best-practice hospital or community hospital averages in a state such as California.

The power of comparative analysis

Comparative information is a powerful catalyst for management initiatives, and is the foundation of win-win negotiations with payers, employees, physicians, administrators, and government.

The following are examples of two hospitals and a managed care organization that applied comparative analysis to improve their performances.

Oxford Health Plans is a managed care organization with over 1.2 million members located in Norwalk, CT. Each year, Oxford must negotiate reimbursement rates with affiliated hospitals. To establish a more productive, data-based dialogue with the hospitals, Oxford used comparative analysis software to produce reports comparing each hospital to several of its peer organizations, adjusted for severity of case mix.

Analysis was done for the hospital as a whole, as well as for the five or six major diagnostic categories of most interest to Oxford and the hospital. The analysis compared charges, costs, and length of stay information, as well as analyzed demographic differences in patient populations (e.g., sex, age, area of residence, admit source, discharge disposition, payer, etc.).

In addition to opening dialogue on reimbursement questions, the comparative analysis also enabled Oxford to manage relationships with hospitals on an ongoing basis. Initially, hospitals were amazed by the information Oxford knew about them and their competitors, and questioned where they got it.

But after comparing the reports to information from their own internal systems, the hospitals soon realized the information was valid and useful to them as well and looked forward to updated information from the reports.

Reducing costs

A 300-bed acute care hospital in the Boston area was looking for a way to reduce costs strategically rather than by simply cutting all department budgets by 10%.

Using analysis software with comparative hospital data from the previous year, the hospital began to look at average length of stay, charges and costs for high volume DRGs, compared to a selection of peer hospitals and competitors. The data, adjusted for severity, helped the hospital identify best practice peer organizations.

Looking at these "best practice" hospitals more closely, the hospital noted the use of routine vs. ICU days and costs in each ancillary department. Recommendations from the decision support system allowed the hospital to focus on more targeted areas.

In each of these targeted areas, the hospital requested detailed reports from the hospital's internal cost accounting system, looking at the intermediate product detail and labor, supplies, and other costs.

Through the analysis, the hospital was able to identify $6 million in potential cost savings and built this into the budgets for the upcoming year.

But potential cost savings are not real cost savings, and the hospital knew there was more work to do. Thus, task forces including department managers and physicians are now being formed to discuss the findings in detail and to formulate immediate plans for achieving the savings.

Market share analysis

Faulkner Hospital, a 144-bed community hospital in Jamaica Plain, MA, knew that market share information could be very helpful for developing a broader networking and marketing strategy.

First, the vice president of managed care and network development used comparative analysis software to examine their annual discharges by zip code to determine the towns that composed their primary service area (PSA). Then, within the defined PSA, the manager ran a market share report to show total and percent of discharges by hospital and by town.

Looking at this report, Faulkner could see its own market share compared to the other hospitals competing for patients in the same service area. Faulkner ran the same report for each major hospital specialty: obstetrics, pediatrics, surgery, medicine, psychiatry, and addiction recovery. The reports showed some surprising facts.

Faulkner learned, for example, that its biggest competitor in the medical/surgical specialties was a major teaching hospital, rather than any of the neighboring community hospitals that seemed more likely competitors. The hospital also noted with surprise its low market share in an adjacent town, indicating a potentially underserved population.

In direct response to this information, the board of directors approved an initiative to open a primary care practice in the town, staffed by three full-time physicians who would offer primary care and referrals.

Looking at market share by payer also revealed which payers were big players in Faulkner's PSA and helped the vice president of managed care to decide which payers were bringing in enough business to justify larger discounts.

Examples such as these show that while comparative analysis can't explain why one institution is different from another, it can point decision makers in directions that may be most fruitful for improving their own operations. Analysis that goes beyond simply providing rows and columns of numbers, to offering interpretation of information and quantification of savings, can be especially helpful for decision support.

There are literally thousands of possible areas for cost savings and quality improvement. Managers need decision support systems to target those areas that are most worthwhile to investigate. And comparative analysis is a proven method for zeroing in on decisions that can make the most difference.

(Editor's note: Rick Siegrist is an adjunct lecturer at the Harvard School of Public Health and president and CEO of HealthShare Technology in Acton, MA.)