Research by Donald M.Berwick and Andrew D.Hackbarth in April 2012 estimated that five categories of healthcare cost waste consumed $476 -$992 billion or 18% to 37% of the approximately $2.6 trillion annual total of all health spending in the US in 2011. There are multiple factors that lead to significant healthcare cost wastes. However, potential savings can be accomplished by:
- Preventing medical errors through efficient reporting
- Improving operational efficiency by eliminating sources of waste and promoting cooperation among service lines
- Streamlining administrative costs by adopting smarter ways to operate (processes such as billing, transaction operations, claims, etc.)
- Preventing fraud and abuse by improving capacity to detect and combat fraud
- Decreasing costs of care episodes by leveraging data from reports on costs and outcomes
Given this context to achieve cost savings, hospitals must adopt a set of managerial and analytic processes to define strategic goals, and measure and manage performance against these set goals. The success of a performance management system lies in effectively querying and analyzing the data gathered from various customer touch points to arrive at intelligent insights.
Therefore there is a need for an end-to-end hospital performance management solution that extracts data spread across a number of systems and brings it into a centralized, secure, historical repository, which is organized for business users to slice, dice, sort and sum up efficiently to support situation-based decisions. This can be achieved only when it is backed by a methodical and smart approach to performance management, including identifying stakeholder needs, organizational change agenda, strategic goals and KPIs.
4-step Solution Approach
For developing a holistic performance management system, healthcare providers need to take the following structured approach:
1. Stakeholder analysis. This approach begins with a detailed study of the needs of doctors, patients, management, community, vendors (contractors, suppliers), staff (nurses, technicians, others), payers, pharmaceutical companies, government and regulatory agencies. The analysis can be leveraged to develop a hierarchy of objectives that are fundamental to building organizational goals in the interest of all the stakeholders.
2. The change agenda. Change occurs when an organization evolves through various life-cycles. For organizations to grow, they often must undergo significant change at various stages during their development. Below is a sample change agenda for organizations to adopt the desired “destination” state.
3. Causal influence diagrams. Healthcare providers find themselves caught in the complexity of non-linear relationships between the various influencers of success. These influencers have dynamic, interdependent relationships that are often unstable. This challenge can be addressed by leveraging the shift from traditional statistical analysis to causal analysis of multivariate data. The analysis involves diagrammatic representation of relationships among the numerous influencers.
Below is an influence diagram that shows the non-linear pattern of cause and effect linkages between multiple influencers:
Such pattern analysis helps in identifying the various influencing factors that usually remain hidden. An ideal performance management solution must showcase these hidden linkages, enabling hospitals to identify influencers and ensure holistic solutions. For instance, you might notice an increase in revenue and link it to reduction in the average length of stays in the last two months. However, if improvement of treatment effectiveness and reduction in medication errors is left unattended, it will impact revenue eventually.
Added to that, such non-linear analysis can be leveraged by hospitals to create predictive reports that help the hospital as well as the patients to forecast and make the right decisions. These evidence-based decisions help hospitals to balance quality healthcare with reduced costs.
4. Key performance indicators. Once the stakeholder needs and strategic objectives have been identified, there needs to be Key Performance Indicators (KPIs) in place to measure progress towards the set objectives. These KPIs also help in performance comparisons between hospitals that can enable benchmarking and operational excellence.
Best practices for identifying the KPIs include:
- Compliance regulations by organizations like Joint Commission on the Accreditation of Healthcare Organizations (JCAHO), National Association of Health Data Organizations (NAHDO) and Centers for Medicare and Medicaid Services (CMS), amongst others.
- Alignment to the goals of the organization
- Change agenda of the organization
- Benchmarking data that influence change
Hospital decision makers need to focus their energies on monitoring the KPIs that are aligned with the hospital goals. For example, in order to get a clear picture of each performance area, KPIs could be grouped under four main categories: Financial, Operational, Clinical and Claims. The KPIs can then be consolidated by classifying them based on hierarchy, and calculation of aggregate scores based on the weightage of each. This helps decision makers select the KPIs that are most important to achieve organizational objectives in each category.
This systematic approach will enable providers to focus on quickly achieving results rather than being a complex planning, data management and deployment exercise. Such a system with pre-built and re-usable components has the potential to become fully functional and deliver results in just a few weeks, enabling healthcare payers to build a holistic performance management solution and thereby reduce healthcare spending.