Follow the Money

Healthcare systems respond to financial changes and uncertain futures

Posted 9/26/18

Whether it’s erasers, EKGs, surgical staples, or surgical suites, everything in a hospital costs money—including, of course, the personnel that keep the place running and perform needed …

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Follow the Money

Healthcare systems respond to financial changes and uncertain futures


Whether it’s erasers, EKGs, surgical staples, or surgical suites, everything in a hospital costs money—including, of course, the personnel that keep the place running and perform needed duties from delivering mail to delivering babies.

And as those costs rise, so do the prices we pay, whether we pay those prices via our taxes or our insurance premiums. So it makes sense to pay attention to how hospitals are addressing their rising expenditures.

According to a recent article in the healthcare industry newsletter “Becker’s Hospital Review,” cost control has now become the single most important issue for hospitals and health systems, surpassing even the need to increase revenue. Nearly two-thirds of those surveyed in the 2018 annual Health Care CEO Survey of The Advisory Board Company (a best-practices firm helping healthcare organizations to improve performance) identified “preparing the organization for sustainable cost control” as their highest priority—more than for any concern mentioned in the survey in recent years.

“Health system CEOs recognize that any effective growth or financial-sustainability strategy must be built on a competitive cost structure in order to deliver high-quality, cost-effective care to the patients they serve,” said Christopher Kerns, executive director of research at The Advisory Board.

One of the key concerns is lowering the need for emergency care, which is frequently the go-to solution for low-income patients. “Hospitals can save money if we reduce our expenses,” Wayne Memorial CEO David Hoff said recently, “which we can try to do with programs that essentially keep people out of our emergency department, which is costly.” Unfortunately, the present insurance system does not adequately support the needs of patients for preventive care, and conditions that could be avoided entirely, or easily treated if caught early, are sometimes allowed to fester until expensive emergency care becomes the only alternative. That’s one reason why Wayne Memorial is considering joining the Pennsylvania Department of Health’s new Pennsylvania Rural Health Model program, as discussed in JF Shaw’s article on page 24. This would allow the hospital to deploy their funds more strategically, with more for proactive prevention, reducing the need for emergency reaction.

Companies have sprung up to help healthcare systems manage cost-related problems. For example, Intalere, based in Pittsburgh and St. Louis, is a professional supply-chain company offering a comprehensive suite of services to empower healthcare providers to better manage their entire non-labor spending and ultimately deliver superior care.

In June, Crystal Run Healthcare announced it had received Intalere’s Healthcare Achievement Award for Financial and Operational Improvement. The award is presented to organizations that improve operational functions and reduced cost. Crystal Run Healthcare has won this award twice in the past three years.

Kevin Keller, director of materials management, and Theresa Dolson, Pharm. D., RPh, director of pharmacy, led the Crystal Run team with assistance from the Intalere Pharmacy Specialist Team and pharmaceutical supplier AmerisourceBergen. The overall goal of Crystal Run’s project was to provide better control over medications while reducing cost and increasing efficiency. Crystal Run created a central pharmacy to improve the process of supplying pharmaceuticals to its prescribing providers over its multiple locations. As a result, Crystal Run was able to reduce inventory by 10%, decreasing costs by more than $1 million a year.

“In this era of disruptive change within the healthcare industry, it is more important than ever not only to recognize the successful initiatives that providers are implementing to enhance their services, patient outcomes and bottom line, but to also share these best practices with others in order that they too may be successful in their efforts,” said Julius Heil, Intalere president and CEO.

While hospital executives struggle to keep costs down, there is also a quiet revolution brewing on the other side of the ledger. The basic funding model for healthcare over the past few decades—“fee for service”—is slowly being replaced by “value-based” or “evidence-based” healthcare. This is another area where Crystal Run has been forging the way; see “There has to be a better way” in our Healthcare Challenges section last year (river

Under the old model, hospitals and practitioners were compensated based on what services they provided and what procedures they performed, whatever the necessity for those services and procedures might have been, or what outcomes may have resulted. This, along with the propensity for “defensive medicine”—performing extensive tests in an attempt to avoid the possibility of later litigation—drives up costs for providers and prices for consumers.

Under value-based healthcare, providers, including hospitals and physicians, are paid based on patient health outcomes. Providers are rewarded for helping patients improve their health, reduce the effects and incidence of chronic disease and live healthier lives in an evidence-based way.

This change is underway as you read these words. As more and more healthcare systems make the transition to value-based care, we will hopefully see a reduction in overall costs, and more effective and efficient use of our healthcare dollars. And as we get older, we will need to pay more and more attention to these issues.



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