Study says everyone rides cost-cutting bandwagon
March 1, 1998 5 minutes read
Study says everyone rides cost-cutting bandwagon
But still room for more belt-tightening exists
Hospital executives in many areas might feel that their penny pinching in recent years has squeezed every last nickel out of their operating expenses. But a new study says United States hospitals still are bloated by nearly $5 billion.
And while some medical-surgical patients might feel as though they’ve been put on a bed inside a revolving hospital door, the same study says hospitals could have shortened their lengths of stay (LOS) even further, by another 4.8 million days.
The study, conducted by the National Research Corp. in Lincoln, NE, and analyzed by The Center for Healthcare Performance Industry Studies (CHIPS) in Columbus, OH, based its conclusions on 1996 hospital data. The data showed that if every hospital was able to reach the benchmark total cost achieved by the best practice facilities for 65 procedures, then nearly $5 billion would be saved.1
The study also found that hospitals in low managed care areas, defined as having HMO and preferred provider organization (PPO) penetration of less than 67%, are closing the gap on length of stay and cost reductions. In fact, the study says, those hospitals had a greater reduction in length of stay in recent years.
Representatives of hospitals in some lower managed care areas say this is because even non-HMO companies are managing care these days and telling hospitals how long patients should stay after various surgeries. Even payers that deal primarily in traditional indemnity insurance are employing utilization management initiatives in an attempt to cut costs.
Based on these findings, hospitals need to compare their LOS on various procedures with the LOS of hospitals in more managed care markets to determine what goals they might aim for, suggests Susan White, PhD, vice president of CHIPS. "You may not have to be there tomorrow, but eventually all the markets will end up there."
When will it end?
A New Jersey health system, located in a medium managed care market, has found that reducing the LOS is a never-ending chore. "We have been taking steps for years now and are continuing to take steps to reduce the length of stay," says Ira Meiselman, MBA, vice president of managed care for Atlantic Health Systems in Florham Park, NJ. But the reductions are often a lose-lose situation for hospitals, he notes. "Anytime my phone rings, we have a call saying, We’d like you to reduce your rates further.’"
Since the LOS has been going down, the hospital’s remaining in-service patients are sicker, which means their care is more costly. Yet the payers, who have successfully pushed for these LOS reductions, want even more days cut, he says. "The amount of denied days is incredible from managed care companies, and that’s a recent development. They authorize the admission and the patient may end up in the hospital for five days, but they might not authorize the last day."
The study found that LOS varied according to region, with the far West area posting the lowest LOS for all but one of the 65 procedures analyzed.
Desert Hospital of Palm Springs, CA, has reduced its average LOS from six days for all services in 1993 to 4.5 days today, says Robert A. Minkin, chief executive officer. "So there’s been a fairly substantial amount of work in five years to bring the average LOS down 25%."
Interestingly, the Northeast had the longest LOS for 59 of the 65 procedures but showed the highest cost in only five of the 65 procedures.
"In the Northeast, we’ve seen that although LOS is high, [hospitals] may be negotiating better contracts through group purchasing organizations to keep their supplies and fixed costs lower," White surmises.
Atlantic Health System’s costs have been reduced by 5% to 8% for 1996 and 1997, says Chris Fallon, CPA, vice president of finance and chief financial officer. "We refinanced debt and lowered interest expense because of lower prevailing interest rates in August of 1997. And we went out for competitive bidding for professional services and medical supplies."
The hospital’s average LOS for all services was 5.6 days in 1996. The proposed 1998 budget is for an average LOS of 5.2 days, Meiselman says.
Nebraska Methodist Health System in Omaha, located in a low managed care market, lowered its average LOS from 4.5 days in 1996 to about 3.9 days in 1997, says Craig Goscha, MBA, corporate vice president.
Swedish American Health System in Rockford, IL, has succeeded in lowering its LOS on a number of procedures, but the hospital system still needs to find out how that has translated into cost savings, says Henry Anderson, MD, FAAFP, vice president of professional affairs and chief quality officer. The health system is located in a low managed care market.
Between 1997 and 1996, Swedish American Health System lowered its LOS for total joint procedures from 6.4 days to 4.2 days. Also, coronary bypass surgery’s LOS dropped from 8.1 days in 1996 to 6.5 days in 1997, he says. "That’s significant, but here again there are a number of places around the country that are much lower than that. If your cardiovascular surgeon is very aggressive and skilled and can take on older patients who might be turned down by other hospitals, then you could have a higher LOS."
Hip and knee surgeries ranked high on the CHIPS study’s list of the top 10 procedures with the largest reduction in length of stay between 1993 and 1996. (See first graph, p. 33.) On the other end of the scale, digestive system procedures ranked highest among those procedures with the greatest potential cost and day savings. (See second graph, p. 33.)
Lengths of stay for some of these procedures probably could be lowered through the use of clinical pathways, White says. And physicians will accept pathways when they’re presented as peer guidelines, she adds. "If a hot surgeon does hips and knees and says, I can get my patients out in five days, and this is how I do it,’ that’s a pathway."
[Editor’s note: A copy of The Center for Healthcare Industry Performance Studies’ analysis, The 1998 Procedures Resource Book: A Guide to Inpatient Surgical Procedures, may be obtained for $295 plus $7 shipping and handling by calling CHIPS at (800) 859-2447.]
Reference
1. White S. Executive Summary; The 1998 Procedures Resource Book: A Guide to Inpatient Surgical Procedures. Columbus, OH: The Center for Healthcare Industry Performance Studies; 1997.
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