Thursday, December 15, 2011

What Do You Know: Quality Doesn't Automatically Translate Into Savings

Goin' goin' gone!
The Disease Management Care Blog recalls years ago when it was walking with some residents and students through a decommissioned wing of a hospital as a short-cut between patient floors.  Our footsteps echoed off the dreary beige tile while we chatted up the likelihood that we could get the next patient home this afternoon.  Then the  DMCB paused and took in the eerie fluorescent silence. "What you see around you," it mused, "is some valuable and unused capital."  The team then resumed the pace. That's when the DMCB looked at the young docs and said "If we keep it up, they'll need to close another wing!" 

The fly in the ointment.  The monkey in the wrench.  The doc's raised hand at a hospital board of trustees' meeting.  Call it what you like, but sometimes our most cherished assumptions and best laid plans have a way of going all akimbo.  True to that tradition, curmudgeonly Dartmouth authors Stephen Rauh, Eric Wadsworth, William Weeks and James Weinstein examine the "illusion" of  expecting "lower costs" to come out the back end of a health system system after "quality" is put in the front end. 

The authors' real focus is on hospitals and define "quality" as any intervention that reduces the utilization of health care services (versus other definitions). Despite the narrow view, the Disease Management Care Blog believes the article makes an important and yet obvious point: large and small health care organizations have rigid cost structures that cannot be flexed.  As a result, any increase in quality - such as reducing length of stay, admissions, readmissions or surgeries -  mostly results in additional dead space capacity, not bottom line savings.

Clinical improvement can reduce costs is in the general category of supplies and medications.  Unfortunately, those costs are at the margins.  Just because there are fewer readmissions won't mean all those expensive operating rooms. equipment, personnel costs and other administrative overhead will simply go away.  They don't.  They'll be idle and cost just as much.

Some economists will argue that hospitals can take beds off line and furlough nurses.  It's also been pointed out that multiple health systems can regionally consolidate high-cost low-frequency services.
Unfortunately, the quarter to quarter business cycle facing the typical hospital administrator doesn't really accommodate that kind of wishful thinking.  The only way out is to find other revenue by either charging more or providing other services.

Despite many valiant attempts, the DMCB never managed to close another hospital wing.


Big Chewy Pretzels said...


I agree entirely with your commentary and with the researchers results, when viewed from the eyes of an individual entity. Unless I am missing some subtleties in your discussion, it sounds like you are extrapolating this to the entire health care industry. But that's not true. Over time, hospitals and provider groups will consolidate, close, purchase less equipment, retire equipment, etc. and that eventually reduces costs.

Should we allow people to receive sub-optimal care because an administrator over purchased FF&E? I don't think you are saying that but it sounds like it!

Jaan Sidorov said...

Hi Big!

I was mirroring the original article. In thinking about this, you're right. INDIVIDUALLY, hospitals will resist, but at a MACRO level, (the right kind of) funding changes could force institutions to adapt to a smaller, leaner, more efficient and higher quality world.

My local hospitals, in the meantime, are in the middle of building campaigns. Something tells me something isn't working right, and that article explains some of that.

Thanks for the feedback Big!

Gus Geraci, MD said...

Jaan, a story recently about a Family Doc. Patient asks, "Doc, where does all the money in healthcare go?" Doc looks around at the threadbare carpet in his office and thinks about his pay, and says, "Not to me. But let's look locally at the hospital building the brand new wing, and the insurance company headquarters." Then you tell me?