The Financial Keys to Population Health

May 1, 2014

Population health management is easier said than done. On the clinical side of a hospital or health system, it often entails tracking patients by disease groups, identifying gaps in care, and addressing them before they result in aggravated conditions, or avoidable admissions and trips to the ED.

Aggregated clinical data are essential to managing population health. From the finance perspective, a similar array of aggregated measures is required. But as Legacy Health, a 5-hospital, 1,500-plus bed delivery system in Portland, Ore., discovered, analyzing the financial health of various service lines is a complex undertaking.

Streamlined reporting

For one thing, acquiring in-depth insight necessitates freeing up finance department staff from the tedious task of generating reports off legacy systems. Before Legacy switched to an integrated financial planning suite of software applications, it relied on a cumbersome system to produce reports of often-dubious value, recalled Ben Shah, Legacy’s director of financial planning. “We were just running numbers, not adding value,” Shah said. “Many of the reports we ran were created out of a one-time curiosity that turned into a report you now run every day for the rest of your life. We were running over 200 reports, many with the same data.”

Shah spearheaded an effort to streamline the operation, not only discarding needless reports but turning to a user-friendly dashboard where department leaders could parse their own financial summaries. Now the dashboard includes standard metrics such as discharges, service line percentages of volume and margin, revenue by payer, as well as revenue and labor benchmarks, such as charity care and paid FTEs.

Enabled by role-based access privileges, executives retrieve data electronically, rather than combing through paper packets associated with legacy reports. By automating the reports, Shah freed considerable staff time in his cost accounting department. “We have reduced the number of FTEs working on financial decision support projects from 8 to 5,” he said. “Now these employees are involved with other strategic initiatives that are helping us move forward.”

For example, Shah recently completed a major analysis of a wide variance in OR supply costs. Costs had spiked, but the culprit was not the usual suspect of increased volume. Using the analytics capability of the cost accounting system, Shah’s team undertook an in-depth analysis of OR performance, looking at payer mix, types of surgery, patient mix, and service site. The group analyzed ORs by location, and took into account many of the variables that drive costs, including physicians, patient diagnosis and complications.

Shah said his team eventually identified one physician who was a cost outlier by virtue of the fact he was performing certain procedures in the cath lab, rather than the standard OR suite, where costs and personnel were lower.

That sole physician did not account for the entire spike in OR costs, but Shah said the exercise was useful in identifying how even one provider can cause a disproportionate rise in costs. His group later analyzed the use of implants, and determined that newer physicians were using more expensive implants. As a result, Legacy was able to shift its purchasing strategy to narrowing down its implants to a standard list, with better pricing from vendors, and working with physicians to take a more cost-effective approach with the same outcomes.

Partnering with physicians

Legacy is quietly promoting financial stewardship among its physicians. In the works is a “cost accounting 101” class targeting hospitalists. As part of the effort, the health system will provide data showing how hospitalist decisions ultimately drive the cost equation, Shah said.

“We can show how their costs vary from each other, including tests, imaging services, lab work,” he said. “Do we really need to do a blood draw every hour? We can show the impact of those decisions and then the hospitalists can look at the data from a clinical angle and challenge each other. We want to make sure what we are ordering is appropriate and we are not charging patients for things they don’t need.”

The medical staff drove development of the accounting education program, Shah revealed. “Physicians want the information,” he said.

Larry Hill, vice president of finance at North Carolina-based Mission Health, said the competitive nature of physicians comes into play in any financial awareness effort. Mission’s cost accounting platform enables surgeons at its flagship hospital—which served as a development site for the application—to compare physician performance by procedure. “We can look at the docs and see who has the lowest cost and what they are doing and using,” he said.

But in the accountable care era, merely reducing expenses will not be enough. That’s because payer programs invariably include hitting quality targets in order to qualify for any shared savings or pay-for-performance bonuses. That underscores why leaders such as Shah use the cost accounting data as a starting point of discussion with the medical staff—and any subsequent changes in medical protocols are driven by physicians, rather than finance executives.

“My job is to analyze,” he said, recalling the case of the physician outlier. “The data get us to that point, but then we turn it over to the clinical leadership.”

This is the second article in a two-part series. Read the first article here.