Faced with truly alarming projections of revenue and margin declines over the next decade, healthcare chief physicians, nurses, and finance officers are coming together and collectively rolling up their sleeves to address the unprecedented challenges of improving the quality and outcomes of care while also reducing healthcare costs and improving efficiency. There is clear opportunity for improvement: a 2011 NEHI study estimated $700 billion in waste and care process inefficiency in healthcare costs on an annual U.S. spend of $3.4 trillion.1

Healthcare leaders know well that traditional cost reduction strategies fall far short of achieving and sustaining the transformational goals of healthcare reform. To achieve the substantial clinical and cost improvements required to succeed in an increasingly competitive environment, leaders need Enterprise Intelligence (EI) systems that provide decision makers a holistic perspective of the cost and quality of care across the complex care continuum. In addition, these systems must provide progressively granular volume, cost, and profitability details at every level of the care network and operation - hospital, service line, physician practice, and individual physicians - as well as consistent attribution of the revenue generated by ancillary services and procedures. Creating the broad population, full continuum accounting needed to bring costs under control is a major paradigm shift for healthcare cost accountants who've grown accustomed to episode management, but the significant rewards are available to those who are dedicated to claiming them.

Stagnant and declining reimbursement, increasing regulatory mandates, expanding competition and technology expenses are increasing healthcare costs and motivating many physicians to accept employed positions and leave private practice.2 While the advent of the ACOs has encouraged cost savings and resulted in health systems buying up physician practices in significant quantities, consolidation doesn't guarantee profit. A recent study by the American College of Physician Executives survey of 459 hospitals showed that 32% of health care systems that bought medical groups or physician practices lost money.3

Under enormous cost and profit pressures, healthcare providers are becoming much more sophisticated consumers of information technology, including enterprise intelligence systems. Healthcare leaders require sound, holistic cost of care information to establish baseline performance, to set aggressive but rational targets, and to monitor the impact of improvement initiatives and care consolidation. Costing tools efficiently provide actionable information in a meaningful context to motivate and demonstrate performance improvement efforts and alert users to trends that need early corrective action.

The first priority for the healthcare leaders accountable for transforming their organization's cost structure is creating a trustworthy data source and the accompanying governance system required to leverage it. While tackling variations in physician utilization, cost, and outcomes can be sufficiently daunting, it is impossible without trustworthy data—and creating it is no small job. Outside expert guidance may be warranted to help you define enterprise truth.

Once that priority is addressed, three key areas of focus can help you achieve costing improvements.

  • Physician change must be led by physicians. The physician leader must be a highly respected clinician with widely recognized integrity who prioritizes concern for patients above all else. Healthcare leaders may need to innovate to find ways to adequately compensate these physician change agents for the time and energy of their contributions while also maintaining the leader's credibility as a physician, rather than as a hospital administrator.

  • The physician leader needs talented assistance to accelerate outcomes improvement. Identifying, investigating, and demonstrating practice and cost variation in a way that motivates engagement and behavior change requires time and talent that may not be readily available in the organization's analytics department. Start with the end in mind by discussing the assistance your physician change leader needs to s be effective, and provide it.

  • Always remember–what got us where we are today may be insufficient for tomorrow's challenges. New, innovative mindsets and skills are needed to move your organization onward to costing transparency and efficiency.

Learn how to become a change agent and analytics leader at your organization when you download our white paper, Optimizing Healthcare Analytics.

1"Bend the Curve A Health Care Leader's Guide High Value Healthcare. " NEHI, 2011. Accessed December 16, 2014. http://www.nehi.net/publications/31-bend-the-curve-health-care-leaders-guide-to-high-value-health-care/view
2"Will Private Practice Survive Current Healthcare Model Changes?" MEDCity News, 2014. Accessed December 17, 2014. http://medcitynews.com/2014/02/will-private-practice-survive-current-healthcare-model-changes/
3"The downside to buying up physician practices." FierceHealthcare, 2013. Accessed December 17, 2014. http://www.fiercehealthcare.com/story/negative-financial-consequences-of-hospital-physician-practice-acquisition/2013-07-12

Jody McDonald

About the author

Jody McDonald, RN, MBA is an advisor with the McKesson Business Advisor Consultants team. She has over twenty-five years of experience in patient care, Operating Room management, and performance improvement at large academic medical centers. Jody’s prior experience has allowed her to develop a comprehensive skill set in planning, operations management, and nursing leadership. Jody specializes in the application of performance metrics and analytics to achieve strategic alignment, process improvement, and transformational change. She has led many successful initiatives focused on improving organizational performance and bottom line results. She is skilled in project management, team leading and facilitation.