How BI is Lowering Healthcare Costs

February 11, 2014

Putting business intelligence in the form of cost accounting data directly into the hands of physicians can start rich dialogues within or between service lines to make healthcare more predictable, more consistent, and less expensive.

In this year of Meaningful Use Stage 2 and ICD-10 deadlines, CIOs are consumed by the effort of meeting the high bars set by government to achieve compliance with these mandates. Wouldn’t it be great if technology could also control escalating healthcare costs?

It might happen sooner than anyone thinks.

John Kenagy, PhD, CIO of Legacy Health, may just be the catalyst to making that happen, not only at his own five-hospital system in Portland, Oregon, but far beyond those walls.

A year ago at HIMSS, Kenagy conducted a kind of shuttle diplomacy between Epic and Strata Decision, two vendors with large installed bases. Epic’s reputation precedes it, and its own new business intelligence software, Cogito, is being adopted widely. Strata Decision is less well known, but its financial management and cost accounting software is installed in one of five hospitals in the U.S., more than 170 healthcare systems overall.

Kenagy’s big audacious goal: to get a unified view on healthcare costs down to the physician level, while overlaying clinical outcomes and patient satisfaction data. Kenagy is a man on a mission, and as a result of his legwork at last year’s HIMSS, he recently convened a summit at Legacy where all the stakeholders, including clinical leaders and finance chiefs, all worked in unison on Legacy’s big goal.

“It’s not like we’re looking at quality data in isolation of cost data, [or] in isolation of patient satisfaction data,” Kenagy says. “That conversation at HIMSS kind of snowballed into this effort where Legacy is not a development partner, but certainly bridging” the efforts of both vendors, he adds.

As a HIMSS EMR Adoption Model Stage 7 site, Legacy is an advanced user of electronic health record software. The system chose not to adopt earlier business intelligence solutions, such as Oracle or Cognos, but instead waited for more cost-effective solutions. “We’re really working with our vendors to develop the tools that we need, instead of bolting on other products,” Kenagy says.

The big huddle last month included a data architect Legacy had hired from Intel and other members of Legacy’s BI team, as well as more than a dozen representatives combined from both Epic and Strata. Over the course of two days, input came from more than 100 people inside Legacy, including service lines, pharmacy, care transformation, and Legacy’s CEO, George Brown MD.

“We were actually able to demonstrate some of the tools, because we did that in our test environment,” Kenagy says. Feeding in the various forms of cost—fixed, variable, labor, supplies—from Strata’s StrataJazz technology into Epic’s Cogito, meeting participants were able to quantify value as an equation with clinical outcomes as the numerator and cost as the denominator.

“It was wonderful,” Kenagy says.

Having installed StrataJazz, there are payoffs already coming this spring for Legacy. “This year is the year where we implement Cogito in production,” Kenagy says. “In April, not only does our budget year start, we’ll also be upgrading to Epic 2012. Managers now have access to their costs on a monthly basis, and I know they [will be] using that information as they make budgetary decisions.”

For instance, the cost accounting information will allow managers to break out a gross figure of cost of supplies, attribute it to various clinics, observe variations, and address the variations in next year’s budget.

“It will be wonderful if a year from now we are doing our fiscal year 2016 budgeting [and] making amazing use out of the data systems to inform that, that we’re just making sharper decisions on what we think our patient volumes will be, what we think the growth will be,” Kenagy says.

Along with other efforts to eliminate waste, such as Lean, Kenagy expects a return on investment in this business intelligence push within the next two years. “The proof of the pudding is healthcare becomes cheaper for the people of Portland, because Legacy has done this and then created a competitive excitement around lower cost,” he says.

One thing I’ve observed covering analytics technology is just how wedded some places are to using Excel spreadsheets to try to do the kind of work that Legacy is doing with StrataJazz. After digging into the tools themselves, CIOs inevitably come to the decision that an investment in a true business intelligence solution, while costly, is far superior to trying to achieve these insights via traditional spreadsheets.

I am also now convinced that business intelligence will help healthcare systems figure out how to fit themselves into newer, innovative emerging care delivery models. Cost accounting technology can show which service lines have higher costs than industry averages. Leadership might try to bring those costs down, or instead, it might decide to form a strategic partnership with a competitive provider in that area to enter an ACO or other arrangement, to leverage the lower costs of the competitor’s service lines while maximizing those service lines within their own organizations where cost is lowest and quality highest.

I also keep hearing that physicians love to see the data, and it’s entirely possible that systems such as the one Legacy is building can put cost accounting data right in the hands of those physicians – evidence that may start rich dialogues within or between service lines to make healthcare more predictable, and more consistent.

“Physicians are very data-oriented,” Kenagy says. “They’re trained to be really skeptical of information, inquisitive, wanting to discover the truth. Doctors don’t like to be outliers, and there’s kind of a moderating impact that just the transparency of information presents.”

As a physician colleague of Kenagy’s once told him, physicians can remember their most recent case, their best case, and their worst case, but usually have no clue about their “average” case.

“Meaningful Use is creating the databases and data structures to collect order entry information and some outcomes information to be able to run the cost accounting and more importantly take that cost accounting and compare it to outcome,” Kenagy says.

Even more promising is Kenagy’s attitude toward sharing this work with other providers who also run Cogito and StrataJazz. “There’s nothing proprietary in this for us, no competitive weapon,” Kenagy says. “Let’s make this something that Epic and Strata customers can benefit from [on] day one.”

With the collaborative attitude of leaders like John Kenagy, there is much reason to be optimistic about technology’s ability to truly bend healthcare’s cost curve.

Scott Mace is senior technology editor at HealthLeaders Media.