Why Yale New Haven Health Systems is Using Quality Data to Maintain its Operating Margin

June 13, 2014

Stephen Allegretto has his hands full as vice president of financial planning and decision support at Yale New  Haven Health System (YNHHS)(Conn.).

At Yale-New Haven Hospital, the 1,541-bed academic medical center, the flagship of Yale New Haven Health System, Medicare reimburses 92 cents on the dollar, while Medicaid is about 60 cents. This is not atypical for many providers, who are required to  cost shift underfunded governmental payments to commercial plans. But those days of cost-shifting are coming to a close “As we continue to get pressure on both the Medicare and Medicaid side — and the commercial carriers, are looking to continue to lower their rates — we are facing a future downward spiral in terms of our revenue per unit of services that we provide our patients,” Mr. Allegretto says.

In a conversation that also featured Dan Michelson, CEO of Strata Decision Technology, Mr. Allegretto says cost accounting and financial decision support technology — specifically in relation to quality measures — have helped YNHHS rationalize how each System hospital can cope with declining revenue in the future. “Trying to understand the quality, as well as the costs of providing services, is where we’ve embarked on over the past 24 months,” he says.

Mr. Allegretto and his team have run the numbers several times, and the answer is generally the same: YNHHS will have to reduce its costs by 18-25 percent during the next four-plus years if the organization wants to maintain an adequate credit rating  in the face of reimbursement reductions.

By looking at data and finding out areas of variation in outcomes and cost, YNHHS hopes to hit the proverbial two birds with one stone. “As we take a look at the costs of services we provide on the inpatient and outpatient side, they need to be linked to our robust quality efforts,” Mr. Allegretto says. “It’s about looking at variations in quality by patient population as well as cost variation or utilization variation. We want to reduce as much variation as possible since we know that improved quality improves margin,” he adds.

“In the next four to five years, the drivers of that reduction in revenue per unit of service will require us to  increase our value by improving quality and lowering our cost per unit of service, ,” Mr. Allegretto says. “We know we have mission-driven services that we will always provide to patients in need. In my 25 years here we have been able to plan and operationally execute in a manner that has allowed us to keep those programs vibrant and responsive.”