lowering cost, increasing value: starting points and...

12/1/2013

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Lowering Cost, Increasing Value: Starting Points and Approaches for Success

Lisa Schilling, RN, MPH, Kaiser Permanente

Michael Lui, MD, MBA, FACP, Kaiser Permanente

Derek Haas, Harvard Business School

Katharine Luther, Vice President IHI, Facilitator

D3/E3Presenters have nothing to disclose

Wednesday, December 11, 2013

International Forum

Session Objectives

Develop a framework for an organization to successfully reduce cost and improve value

Describe uses for value stream mapping in understanding patient flow and related costs• Planning to Learn at Scale: Selecting a Site and Approach

• Case study Orange County: Physician as Leader in Quality &Value

Explain the principles of TDABC (Time Driven Activity Based Costing)

• Learn how to measure costs using Time-Driven Activity-Based Costing (TDBAC)

• Learn how TDABC differs from typical cost accounting in health care

• Learn how TDABC can be applied to help manage costs and inform pricing

P2

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Mistakes of Cost Reduction in Healthcare

1. Assuming that many costs are “fixed.”

2. Analyzing costs at the line item level.

3. Not knowing the actual costs of clinical and administrative personnel.

4. Letting cost accountants do all the cost accounting

P3

From blog “Four Mistakes of Cost Reduction in Healthcare” Robert S. Kaplan, PhD, Marvin Bower Professor of Leadership

Development, Emeritus, Harvard Business School (HBS); Kathy Luther, RN, MPM, Vice President, IHI ; Derek Haas, MBA,

Senior Project Leader, HBS ; Sam Wertheimer, MPH, Project Leader, HBS.

Full blog available here

© Kaiser Permanente 2013 reproduce by permission only

Lowering Costs, Increasing Value:Getting Started in a Large System

Addressing Quality, Care Experience and Affordability

Lisa Schilling RN MPHVP Healthcare Performance ImprovementCenter for Health System PerformanceCare Management Institute

Michael Liu MD, MBA, FACPPhysician Lead for QualityHospitalist

IHI Annual ForumOrlando FloridaDecember 11, 2013

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© Kaiser Permanente 2013 reproduce by permission only© Kaiser Permanente 2013 reproduce by permission only

Kaiser Permanente by the Numbers

� 8 regions serving 9 states andthe District of Columbia� 9+ million members (as of 1/12)� 16,600 physicians � 173,000 employees (including 49,000 nurses)� 37 medical centers (with hospitals)� Nearly 600 medical offices (ambulatory care buildings)� $47.9 billion operating revenue (2011)

Cumulative value of PI efforts in improvingquality since 2008 estimated to be $229M


Our PI approach demonstrated great value but rougher waters were coming…

� Medicare reimbursement changes, health care reform

� Need to continue focusing on quality and accelerate

� Completely integrated system – learn how to redesign entire experience

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© Kaiser Permanente 2013 reproduce by permission only© Kaiser Permanente 2013 reproduce by permission only7

Aim 1: Improve quality while removing 1% of operating expenses

in 12 months of project work.

Driving the train at 100 MPH

IHI’s Guidance on Cost/Quality Testing

Source: IHI 2009

2 Kaiser Permanente Medical Centers

– Each chose to start with one service line-Service line was to improve quality and reduce cost by 10%

Orange County Medical Center

- Pneumonia care ambulatory- hospital-home- Targeted readmission reduction, reduced LOS and $1.24M


Example of Average Costing Approach(Direct Cost)

Outpatient Visit 150 Admitting 70 Patient Room 950 OtPt Pharmacy: Fill 10

Laboratory 50 Bed Placement 90 Pharmacy 200 OtPt Pharmacy: Drug 50

Radiology 110 MD Admit 70 Laboratory 40 F/U Appointment 150

OtPt Pharmacy 60 Discharge Planning 300 Radiology 110 Home Health (Per Visit) 300

OutPatient Cost $370 Cost Per Admission $530 Resp Therapy 90 Palliative Care (Per Visit) 220

MD Rounding 70 SNF (Per Day) 400

Emergency Dept $400 EVS 80

Nutrition 60

Per Day Cost $1,600

* Costs are an average department costs per: inpatient day, discharge, visits, prescriptions, worked hour, or other work load units.

* Costs are hypothetical and do not reflect the actual average cost of the medical care services.

Process Flow Costing Across the Continum

Outpatient Inpatient: Per Admission Inpatient: Per Day Post Discharge

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Where to Start? Voice of the Customer

6/16 - Onset

Illness

6/19 OP – RNP.

OTC meds. “I told

her I feel it in my

chest”

6/20

E mail to MD –

Fever spike,

green mucus

6/21 OP – MD.

X-Ray/abx/home.

Diagnosis pneumonia.

“I told her I feel it in my

chest”

6/23 Email –

Still unwell.

MD reply to

reassure

6/26 –

SOB, drove to

nearest ED (non-

KP). Admitted to

ICU

6/27 – Repatriated

to KP, Repeat

tests, change of

abx

6/28 – Inpatient

X-Ray – Patient unaware

of results 24 hours later

6/29 – Consult, then

discharged. Patient did not

know plan of discharge, &

did not know about Consult

6/30 –Hospital follow-up

call, documentation

incomplete. Unclear if

patient was spoken with

or not.

7/1 - Call to PCP.

Patient confused about

Consult follow up.

3

D

1

D

1

D

2

D

3

D

1

D

1

D

6

H

1

D1

D

4

H

wastewaste

waste

waste waste

$136 $251

$22 $14,500 $1,146 $1,146

$22

$361 $14 $25

© Kaiser Permanente 2013 reproduce by permission only© Kaiser Permanente 2013 reproduce by permission only10

Building a Portfolio: Phase I Teams

10

Outpatient Team Focus Inpatient Team Focus

Phase I :

Input Related Waste

(High Risk Patients Not

Vaccinated)

Phase I :

Discharge Process

Waste

Phase II

Phase II

Phase II

Phase II

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Case Study: Orange County

Goal: Decrease PNA operating costs by 10% or $1.24 M


Physician Involvement Performance Improvement

Michael Liu MD, MBA, FACP

Physician Lead Hospital Quality for Pneumonia, Stroke, Cellulitis, and Vaccinations

Kaiser Permanente Anaheim Hospital

Kaiser Permanente Irvine Hospital

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Our Journey

� 2010: End to end care for pneumonia

� What we knew…from science, business, finances

� And what we didn’t know…?

� Start by looking through the patient’s eyes….


What we discovered

� Tools helped us find gaps, get physicians engaged.

• Activity based costing (ownership of cost)

• Voice of the customer (customer view vs. physician view)

• Discovery of silos, inconsistent care

� Physicians surprised, vested in improving care system

� A new sense of ownership

• Who takes ownership of that patient’s care?

• Who’s responsible for the cost and quality?

• Who’s going to work out the solutions?

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Mixing it up

� Physicians and Finance

� Secretaries and physicians

� Outpatient and inpatient physicians

� Urgent care and radiology

� ED and critical care physicians


Resulting in strange questions….

� Finance: Why are there so many readmissions for our pneumonia patients?

� Physician: What is the cost of treatment failure? And why won’t the staff walk the patients?

� Case managers: Why do the same patients keep returning to the hospital?

� Nurses: Why do we double check the doctor’s work?

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Strange doctor to doctor questions…

� Infectious disease to hospitalists: Why are 30% of the pneumonias you treat have negative x-rays for pneumonia?

� Hospitalists to radiologists: I can’t tell if it is pneumonia or not based on your reading.

� Urgent care/SNF doctors to hospital doctors: If you have standards, we should have the same standards.

� Hospitalist doctors to intensive care: If we know a patient is not going to do well, what would you like us to do ahead of time?

� ED to Hospitalists: Please help us determine who needs to be admitted to the hospital.


Goal: Consistent, OptimizedAcross the Continuum

EDCURB 65

InpatientAmbulation, D/C bundle, standard abx, radiology

reporting

SNF ED to SNF, CURB65,

Standard abx

Home HealthStandard bundle

OutpatientCURB-65, Vaccines, CXR

Standard Abx

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Project Objective Results – Reduced Utilization Rate for Members 65+

19

Harbor

MacArthur

All Orange

County

OutPt Visit Rate: 2010 50.6 40.7



OutPt Visits Rate Change (2010 to 2012) (16.8) (0.6)

% Changed (33.2%) (1.5%)

Avoided Visits 48

Avoided Costs ($215 = avg cost per visit) $10,359

Harbor

MacArthur

All Orange

County

ED Visit Rate: 2010 6.4 10.2

ED Visit Rate: 2011 4.1 8.2

ED Visit Rate: 2012 4.9 7.8

ED Visits Rate Change (2010 to 2012) (1.5) (2.4)

% Changed (23.4%) (23.5%)

Avoided Visits 4

Avoided Costs ($540 = avg cost per visit) $2,323

Pneumonia Outpatient Visit Rate Per 1,000 Members

Ages 65+

Pneumonia Emergency Visit Rate Per 1,000 Members

Ages 65+

* Excluding Emergency Department

Harbor

MacArthur

All Orange

County

Inpatient Admission Rate: 2010 12.4 15.4

Inpatient Admission Rate: 2011 16.0 17.2Inpatient Admission Rate: 2012 10.5 16.0

InPt Admission Rate Charge (2010 to 2012) (1.9) 0.6

% Changed (15.3%) 3.9%

Avoided Admissions 5

Avoided Costs - Low Admit Rate ($2,000 = avg cost per day)(5.3 alos in 2012) $57,762

Harbor

MacArthur

All Orange

County

Pneumonia ALOS: 2010 7.3 5.3



InPt ALOS Charge (2.0) 0.3

% Changed (27.4%) 5.1%

Reduction in Average Length of Stay 2.0

Avoided Costs - Reduction of ALOS (7.3 alos in 2010 - 5.3 alos in 2012) * 30 $120,000

Pneumonia Inpatient Admission Rate Per 1,000 Members

Ages 65+

Pneumonia Inpatient Average Length Of Stay (ALOS)

Ages 65+


Project Objective Results – Reduce Average Length of Stay & Readmit Rates

Goal: Reduce ALOS by 0.5

in two Pilot Units

Irvine

DOU

Irvine

Telemetry

Goal: Reduce 30 Day Readmit

Rate at Irvine Hospital by 10%

Readmit

Rate

Pneumonia ALOS in 2010 6.3 4.5 Pneumonia Readmit Rate - 2010 4.5%Pneumonia ALOS in 2012 (Aug to Dec) 4.3 3.5 Pneumonia Readmit - 2012 (Aug to Dec) 2.3%

ALOS Change (2.0) (1.0) Readmission Rate Change (2.2%)

% Changed (31.7%) (22.2%) % Changed (48.9%)

Avoided Inpatient Days: 58 66 Avoided Readmissions: 4

Avoided Inpatient Days (alos 5.6): 22

* Irvine's average length of stay for readmits w as 5.6 in 2012

Pneumonia Inpatient Readmit Rate

- All Ages

Pneumonia Inpatient Average Length Of Stay

(ALOS) - All Ages

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Engaging physicians

� Highly engaged meetings

� Talk about the controversial topics first

� Improving quality often requires strong physician engagement

• Start with data and costs

• Voice of the customer

� Provide training (only 1/3 of physicians have quality improvement experience)

Copyright © Harvard Business School, 2013

Time-Driven Activity-Based Costing

Derek Haas, Senior Project Leader at Harvard Business School

[email protected]

December 11, 2013

Sessions D3 and E3Disclosure: On IHI faculty for Joint Replacement Learning Community

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23Copyright © Harvard Business School, 2013

The central goal in health care must be value for patients, not access, volume, convenience, quality, or cost containment

Value =Health outcomes

Costs of delivering the outcomes

The Value approach requires that we measure two fundamental parameters:

1. Outcomes: the full set of patient health outcomes over the care cycle

2. Costs: the total costs of resources used to care for a patient’s condition over the care cycle

Value-based health care delivery


Time-Driven Activity-Based Costing (TDABC)

• What activities are performed over the care

cycle for a medical condition?

• Who is performing each activity?

• How long does each activity take?

Determinethe Care Process

• What is the cost per unit of time for each type

of personnel?Calculate

Cost Rates

• What materials, supplies, and drugs are

consumed during the care cycle?Account for

Consumables

• If a department has more than one person,

what are the drivers that lead to more work?Allocate

Indirect Costs

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2

3

4

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Map 1: Surgical

consultation

Map 2 : Pre-operative

testing

Map 3: Day of surgery

pre-operative prep

Map 4: Operation

Map 5: Post-anesthesia care unit

Map 6: Discharge

Map 7: Rehabilitation

Map 8: Follow-up

visit

Map 2

Level 1: Overall care cycle

Level 2: Study care cycle

Level 3: Process maps

Develop process maps for the care cycle1. Determinethe Care Process


Process map for initial orthopedic office visit

Average time

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• Costs: All the costs (salary, fringe benefits, occupancy, support resources)

associated with having that person (or piece of equipment) available to

treat patients

• Capacity: The capacity (time) that each resource (personnel, equipment)

has available for treating and caring for patients

• Capacity Cost Rate = Resource Cost/ Resource Capacity

Calculate the cost per minute of time for each

type of personnel2. Calculate Cost Rates

Data are illustrative

Surgeon

Physician

Assistant RN X-Ray Tech Scribe

Office

Assistant

Total Clinical Costs $546,400 $120,000 $100,000 $64,000 $51,000 $61,000

Personnel Capacity (minutes) 91,086 89,086 89,086 89,086 89,086 89,086

Personnel Capacity Cost Rate $6.00 $1.35 $1.12 $0.72 $0.57 $0.68


Compute total costs by multiplying resource cost rates by process times & summing across the cycle of care

Initial consultation

Minutes Cost/

minute

*Total

MD X1 Y1 136.13

RN X2 Y2 68.04

CA X3 Y3 6.17

ASR X4 Y4 15.74

$266.08

Surgical procedure MD X1 Y1 584.99

Anes. X2 Y2 603.89

RN X3 Y3 136.29

Tech X4 Y4 97.82

OR X5 Y5 329.16

$1752.15

Follow-up or post-operative visit MD X1 Y1 55.19

RN X2 Y2 13.61

CA X3 Y3 3.09

ASR X4 Y4 1.77

$73.66

Source: Meg Abbott, MD & John Meara, MD Boston Children’s Hospital

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TDABC provides a common platform – a single version of

truth – for clinical & administrative personnel

By standardizing on this

procedure and we can achieve

consistently excellent outcomes

at lower cost.

We can skip this process and save $120 per patient.

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How cost accounting typically works in health care

Example

• Sum up the costs for a cost center $10M

• Assign RVUs to each billable activity MRI = 5 RVUs

• Calculate total RVUs for each center 200,000

• Calculate cost per RVU (total costs/total RVUs) $50

• Calculate cost per billable activity

(# RVUs x Cost per RVU)

MRI = $250

1

2

3

4

5

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How TDABC is being applied in health care

• Bundling: Understand costs over the full care cycle to prepare

for implementing bundled payments

• Price Floor for Negotiations: TDABC reveals marginal costs

Pricing

Cost Management

• Process Improvement: Optimize and standardize processes

over a complete cycle of care

• Personnel and Resource Utilization: Enable care givers to

work at the top-of-their-license; who should be doing the

work, where, and how?


MD Anderson anesthesia assessment center achieved a 46% reduction in cost per case using TDABC

Anesthesia Assessment Center TDABC Costs

$139

$102

$75

$0

$20

$40

$60

$80

$100

$120

$140

$160

Baseline Phase I Phase II

Used TDABC to standardize workflow, implement consistent management of common comorbidities, and developed tool to assign patients to right level of provider

Better triaged patients based on care required (e.g. led to fewer outside consults)

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IHI learning community to measure and improve costs and

outcomes for joint replacements begins on 1/9/2014

• Participants will learn how to measure costs using TDABC, and what outcomes to track and measure (clinical and patient reported)

• The program will focus on total joint replacements, but the methodologies are transferrable to any condition

• Participants will be able to compare their outcomes and care cycle processes to highlight high value practices (exact cost information will be kept confidential)

• The program will help organizations identify and pursue opportunities to improve their outcomes and lower their costs

Learn

Share

Improve

www.ihi.org/jointreplacementvalue


“All we have to

decide is what to do

with the time that is

given us”

Gandalf in The Fellowship of the Ring by J.R.R. Tolkien

Closing words

lowering cost, increasing value: starting points and...

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