A Targeted Approach To Improving Cost Structure

This article was written by Lisa Miller.

Escalating costs are contributing to record levels of hospital closures but a targeted approach to improving your cost structure can radically transform your healthcare system’s ability to achieve sustainable cost savings and improve your patient care.

Research suggests that the US spends significantly more on healthcare than other developed countries due to higher prices for healthcare expenses and overheads, rather than greater healthcare consumption. Per capita healthcare spending in the US is 145 percent higher than the median across the Organization for Economic Co-operation and Development (OECD).

This financial burden cannot continue; US hospitals are closing at the rate of an estimated 30 per year.

In my work as the founder of VIE Healthcare® Consulting, I know opportunities exist to drive margin improvement and realize significant cost savings.

Every hospital is unique with its own utilization data for surgery cases and testing. Analyzing your own specific specialities and structure will keep you focused on your cost reduction efforts and enable you to identify areas for cost savings with a targeted approach.

In our experience, hospitals often incur new utilization they haven’t accounted for.

Focusing on the following specific areas can help create a targeted approach to improve your cost structure:

Focus One: Top 5 Surgeries 

Analyzing your top five surgeries will highlight areas to identify specific cost reduction opportunities. Some of the most common surgeries in the US include heart bypass surgery, hip and knee replacement, or the more common cancer surgeries.

The most successful OR environments use data analytics on a daily basis to track OR performance and focus on long-term solutions.

Typical examples of cost savings in key areas may include:

Reviewing your medical gas cylinder utilization: A healthcare system with multiple locations could easily lose track of usage and order new supplies unnecessarily. The effective monitoring of cylinder usage across your top five surgeries can lead to significant cost savings and ensure supplies are always available when needed – and in the right location.

Physician Preference Items (PPIs): PPIs are defined as devices used in medical procedures which are used at the discretion of the physician. These items contribute between 40-60% of a hospital’s total supply costs. Initiating discussions and educating physicians early and often about issues of high volume spend allows for successful margin improvement initiatives in this key area. Working with VIE Healthcare®, our clients typically save between 10-30% in their pricing spend, waste minimization, inventory and consignment utilization.

Knee replacement : Revision components used in knee replacements are more expensive and only necessary about 10% of the time but 30-40% of the more expensive revision components are being used in primary knee implants. This non-essential use presents a potential opportunity to retrieve lost savings from this common surgery.

Pre-packed Kits in the OR: Many hospitals order prepackaged kits for their operating rooms. While convenient, it leads to increased waste if surgeons use only a portion of its prepackaged contents. By assembling your own surgery kits that can be sterilized and reused and tailored to your top five surgeries, cost savings can be achieved in volume.

Focus Two: Top Lab Testing 

Secondly, I recommend identifying the areas where the highest frequency of laboratory tests occur to achieve the highest potential cost savingsThese will most likely include routine wellness or ongoing management of chronic diseases like high blood pressure or diabetes. It may also include areas such as sleep studies.

Sleep study: For example, an IDN client with 1,032 beds asked us to look at their outsourced sleep management agreement with a regional sleep lab vendor. We were able to benchmark and provide best in class pricing. At the same time we carried out a review of previous invoices against contract, which revealed errors and also significant opportunities for improvement. Our team at VIE Healthcare® reduced our client’s costs by 14.2%, while securing a credit of in excess of $90,000.

At VIE Healthcare®, we realize potential cost savings in laboratory testing through these five steps. When applied to your high volume items, additional cost-reductions can be achieved:

  • Verify that prescribing physicians have adequately documented the order in the patient chart, that order is recognized and appropriate, and that the ICD-10 procedure code is applied.
  • Review your managed care contracts in-depth of top payers for specific clauses relating to high-cost pharmaceuticals and high-cost lab testing. If these clauses exist, identify the payer’s coding requirements.
  • Capture and code and all charges associated with high-cost pharmaceuticals and lab tests. Ensure that all the appropriate codes are identified and entered into the Chargemaster with the correct pricing.
  • Develop a managed care contract strategy. Negotiate special provisions in your managed care contracts for high-cost pharmaceuticals, orphan drugs and lab testing. Four types of contract-provisional clauses that apply to most high-cost drugs and lab tests include: trailer claims, carve-outs, cost outliers, and stop-loss thresholds.
  • Map your managed care reimbursements to actual payments. To ensure manage care contracted reimbursement, compare your actual payments to specified agreement terms.

To ensure that our clients are able to master and leverage the CJR (care for joint replacement) bundled payments for maximum profit, we also employ a wide range of expertise and patient tracking.

Focus Three: Diagnostic Testing 

The third area in which to adopt a targeted approach for cost structure improvement is in diagnostic testing.

Many times, misinterpretation of test results can lead to diagnostic errors and inaccurate billing. For instance, outpatient coding guidelines may be different from inpatient guidelines. The challenge is in knowing when to use the proper codes. If the wrong code is entered into the medical records system, an incorrect price will be billed to the insurance provider, affecting your overall financial margin.

Furthermore, additional costs outside the Medicare fixed rate cuts directly into a hospital’s revenue, which means hospitals need to be cautious about submitting inaccurate claims to Medicare.

Inaccurate reporting could also initiate retesting of the entire procedure, which sometimes happens as a result of wrong tests being ordered initially. This has become a problem lately because the cost of tests has risen significantly.

Additional costs of retesting may also be passed on to your patient, affecting patient satisfaction and leading to a lower Medicare reimbursement.

We recommend the following steps to address these issues:

  • Trends in utilization will reveal these discrepancies, as would reconciliation of the line item details in your invoices to your contract pricing and terms. VIE Healthcare® offers this through its automated Invoice ROI™ process.
  • Check for bundled programs where the hospital is granted discounts on certain tests. Your healthcare system may be eligible for carrying out high volumes of these tests.
  • Additionally, review your vendor contracts for opportunities to negotiate special provisions for high volume and high cost tests if the discount is not already in place. Compare vendor pricing and terms in the agreements to make sure proper payments and reimbursements were made.

At VIE Healthcare®, we analyze contracts thoroughly to check what discounts or credits our clients are entitled to and ensure the utilization of that service is charged correctly.

Focus Four: High Cost Drugs and Drug Treatments 

The fourth and final area to achieve a targeted cost improvement is in the area of high cost drugs and treatments. Costs were routinely raised on over 250 prescription drugs by an average of 6.3% at the beginning of 2019, yet in many cases hospitals are not securing the discounts they are eligible for in these areas.

For example, 340B qualification is a government program that allows discounted rates, depending on the status of your patient (inpatient or outpatient). Your hospital can then apply to the manufacturer for 340B allotment. In one case, we achieved cost savings of $80,000 with just one call to a manufacturer for a client.

Furthermore, despite pharmaceuticals being heavily audited, most drug doses are unnecessarily disposed of. It’s our experience that line-by-line audits of utilization are not common practice.

Hospitals often incur new utilization they didn’t anticipate or plan. An in-depth analysis of your hospital’s utilization costs can achieve major cost savings. However, this requires a deep dive into 12-18 months of invoice data against your contracts. Despite the significant and achievable cost savings it adds to your margins, hospitals are often unwilling or unable to take that step and analyze the detail.

VIE Healthcare® offers its unique Invoice ROI™ technology for real-time invoice reconciliation, contract optimization and business intelligence to realize the cost savings hiding in the line-item details of your outsourced purchased services invoices on a monthly basis.

Apply these practices to the drugs and treatments your hospital uses the most to achieve significant cost savings.

By looking at the high volumes in your patient care, you can maximize the potential cost savings based on that volume.

For a complimentary consultation, call our office today at 1-888-484-3332, Ext 501 or email Lisa Miller at lmiller@viehealthcare.com.

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