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Lowering Cost, Increasing Value: Starting Points and Approaches for Success
Lisa Schilling, RN, MPH, Kaiser Permanente
Michael Lui, MD, MBA, FACP, Kaiser Permanente
Derek Haas, Harvard Business School
Katharine Luther, Vice President IHI, Facilitator
D3/E3Presenters have nothing to disclose
Wednesday, December 11, 2013
International Forum
Session Objectives
Develop a framework for an organization to successfully reduce cost and improve value
Describe uses for value stream mapping in understanding patient flow and related costs• Planning to Learn at Scale: Selecting a Site and Approach
• Case study Orange County: Physician as Leader in Quality &Value
Explain the principles of TDABC (Time Driven Activity Based Costing)
• Learn how to measure costs using Time-Driven Activity-Based Costing (TDBAC)
• Learn how TDABC differs from typical cost accounting in health care
• Learn how TDABC can be applied to help manage costs and inform pricing
P2
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Mistakes of Cost Reduction in Healthcare
1. Assuming that many costs are “fixed.”
2. Analyzing costs at the line item level.
3. Not knowing the actual costs of clinical and administrative personnel.
4. Letting cost accountants do all the cost accounting
P3
From blog “Four Mistakes of Cost Reduction in Healthcare” Robert S. Kaplan, PhD, Marvin Bower Professor of Leadership
Development, Emeritus, Harvard Business School (HBS); Kathy Luther, RN, MPM, Vice President, IHI ; Derek Haas, MBA,
Senior Project Leader, HBS ; Sam Wertheimer, MPH, Project Leader, HBS.
Full blog available here
© Kaiser Permanente 2013 reproduce by permission only
Lowering Costs, Increasing Value:Getting Started in a Large System
Addressing Quality, Care Experience and Affordability
Lisa Schilling RN MPHVP Healthcare Performance ImprovementCenter for Health System PerformanceCare Management Institute
Michael Liu MD, MBA, FACPPhysician Lead for QualityHospitalist
IHI Annual ForumOrlando FloridaDecember 11, 2013
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© Kaiser Permanente 2013 reproduce by permission only© Kaiser Permanente 2013 reproduce by permission only
Kaiser Permanente by the Numbers
� 8 regions serving 9 states andthe District of Columbia� 9+ million members (as of 1/12)� 16,600 physicians � 173,000 employees (including 49,000 nurses)� 37 medical centers (with hospitals)� Nearly 600 medical offices (ambulatory care buildings)� $47.9 billion operating revenue (2011)
Cumulative value of PI efforts in improvingquality since 2008 estimated to be $229M
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Our PI approach demonstrated great value but rougher waters were coming…
� Medicare reimbursement changes, health care reform
� Need to continue focusing on quality and accelerate
� Completely integrated system – learn how to redesign entire experience
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Aim 1: Improve quality while removing 1% of operating expenses
in 12 months of project work.
Driving the train at 100 MPH
IHI’s Guidance on Cost/Quality Testing
Source: IHI 2009
2 Kaiser Permanente Medical Centers
– Each chose to start with one service line-Service line was to improve quality and reduce cost by 10%
Orange County Medical Center
- Pneumonia care ambulatory- hospital-home- Targeted readmission reduction, reduced LOS and $1.24M
© Kaiser Permanente 2013 reproduce by permission only© Kaiser Permanente 2013 reproduce by permission only
Example of Average Costing Approach(Direct Cost)
Outpatient Visit 150 Admitting 70 Patient Room 950 OtPt Pharmacy: Fill 10
Laboratory 50 Bed Placement 90 Pharmacy 200 OtPt Pharmacy: Drug 50
Radiology 110 MD Admit 70 Laboratory 40 F/U Appointment 150
OtPt Pharmacy 60 Discharge Planning 300 Radiology 110 Home Health (Per Visit) 300
OutPatient Cost $370 Cost Per Admission $530 Resp Therapy 90 Palliative Care (Per Visit) 220
MD Rounding 70 SNF (Per Day) 400
Emergency Dept $400 EVS 80
Nutrition 60
Per Day Cost $1,600
* Costs are an average department costs per: inpatient day, discharge, visits, prescriptions, worked hour, or other work load units.
* Costs are hypothetical and do not reflect the actual average cost of the medical care services.
Process Flow Costing Across the Continum
Outpatient Inpatient: Per Admission Inpatient: Per Day Post Discharge
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© Kaiser Permanente 2013 reproduce by permission only© Kaiser Permanente 2013 reproduce by permission only
Where to Start? Voice of the Customer
6/16 - Onset
Illness
6/19 OP – RNP.
OTC meds. “I told
her I feel it in my
chest”
6/20
E mail to MD –
Fever spike,
green mucus
6/21 OP – MD.
X-Ray/abx/home.
Diagnosis pneumonia.
“I told her I feel it in my
chest”
6/23 Email –
Still unwell.
MD reply to
reassure
6/26 –
SOB, drove to
nearest ED (non-
KP). Admitted to
ICU
6/27 – Repatriated
to KP, Repeat
tests, change of
abx
6/28 – Inpatient
X-Ray – Patient unaware
of results 24 hours later
6/29 – Consult, then
discharged. Patient did not
know plan of discharge, &
did not know about Consult
6/30 –Hospital follow-up
call, documentation
incomplete. Unclear if
patient was spoken with
or not.
7/1 - Call to PCP.
Patient confused about
Consult follow up.
3
D
1
D
1
D
2
D
3
D
1
D
1
D
6
H
1
D1
D
4
H
wastewaste
waste
waste waste
$136 $251
$22 $14,500 $1,146 $1,146
$22
$361 $14 $25
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Building a Portfolio: Phase I Teams
10
Outpatient Team Focus Inpatient Team Focus
Phase I :
Input Related Waste
(High Risk Patients Not
Vaccinated)
Phase I :
Discharge Process
Waste
Phase II
Phase II
Phase II
Phase II
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© Kaiser Permanente 2013 reproduce by permission only© Kaiser Permanente 2013 reproduce by permission only
Case Study: Orange County
Goal: Decrease PNA operating costs by 10% or $1.24 M
© Kaiser Permanente 2013 reproduce by permission only© Kaiser Permanente 2013 reproduce by permission only
Physician Involvement Performance Improvement
Michael Liu MD, MBA, FACP
Physician Lead Hospital Quality for Pneumonia, Stroke, Cellulitis, and Vaccinations
Kaiser Permanente Anaheim Hospital
Kaiser Permanente Irvine Hospital
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Our Journey
� 2010: End to end care for pneumonia
� What we knew…from science, business, finances
� And what we didn’t know…?
� Start by looking through the patient’s eyes….
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What we discovered
� Tools helped us find gaps, get physicians engaged.
• Activity based costing (ownership of cost)
• Voice of the customer (customer view vs. physician view)
• Discovery of silos, inconsistent care
� Physicians surprised, vested in improving care system
� A new sense of ownership
• Who takes ownership of that patient’s care?
• Who’s responsible for the cost and quality?
• Who’s going to work out the solutions?
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Mixing it up
� Physicians and Finance
� Secretaries and physicians
� Outpatient and inpatient physicians
� Urgent care and radiology
� ED and critical care physicians
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Resulting in strange questions….
� Finance: Why are there so many readmissions for our pneumonia patients?
� Physician: What is the cost of treatment failure? And why won’t the staff walk the patients?
� Case managers: Why do the same patients keep returning to the hospital?
� Nurses: Why do we double check the doctor’s work?
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Strange doctor to doctor questions…
� Infectious disease to hospitalists: Why are 30% of the pneumonias you treat have negative x-rays for pneumonia?
� Hospitalists to radiologists: I can’t tell if it is pneumonia or not based on your reading.
� Urgent care/SNF doctors to hospital doctors: If you have standards, we should have the same standards.
� Hospitalist doctors to intensive care: If we know a patient is not going to do well, what would you like us to do ahead of time?
� ED to Hospitalists: Please help us determine who needs to be admitted to the hospital.
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Goal: Consistent, OptimizedAcross the Continuum
EDCURB 65
InpatientAmbulation, D/C bundle, standard abx, radiology
reporting
SNF ED to SNF, CURB65,
Standard abx
Home HealthStandard bundle
OutpatientCURB-65, Vaccines, CXR
Standard Abx
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© Kaiser Permanente 2013 reproduce by permission only© Kaiser Permanente 2013 reproduce by permission only
Project Objective Results – Reduced Utilization Rate for Members 65+
19
Harbor
MacArthur
All Orange
County
OutPt Visit Rate: 2010 50.6 40.7
OutPt Visit Rate: 2011 43.5 42.7
OutPt Visit Rate: 2012 33.8 40.1
OutPt Visits Rate Change (2010 to 2012) (16.8) (0.6)
% Changed (33.2%) (1.5%)
Avoided Visits 48
Avoided Costs ($215 = avg cost per visit) $10,359
Harbor
MacArthur
All Orange
County
ED Visit Rate: 2010 6.4 10.2
ED Visit Rate: 2011 4.1 8.2
ED Visit Rate: 2012 4.9 7.8
ED Visits Rate Change (2010 to 2012) (1.5) (2.4)
% Changed (23.4%) (23.5%)
Avoided Visits 4
Avoided Costs ($540 = avg cost per visit) $2,323
Pneumonia Outpatient Visit Rate Per 1,000 Members
Ages 65+
Pneumonia Emergency Visit Rate Per 1,000 Members
Ages 65+
* Excluding Emergency Department
Harbor
MacArthur
All Orange
County
Inpatient Admission Rate: 2010 12.4 15.4
Inpatient Admission Rate: 2011 16.0 17.2Inpatient Admission Rate: 2012 10.5 16.0
InPt Admission Rate Charge (2010 to 2012) (1.9) 0.6
% Changed (15.3%) 3.9%
Avoided Admissions 5
Avoided Costs - Low Admit Rate ($2,000 = avg cost per day)(5.3 alos in 2012) $57,762
Harbor
MacArthur
All Orange
County
Pneumonia ALOS: 2010 7.3 5.3
Pneumonia ALOS: 2011 6.2 5.6
Pneumonia ALOS: 2012 5.3 5.6
InPt ALOS Charge (2.0) 0.3
% Changed (27.4%) 5.1%
Reduction in Average Length of Stay 2.0
Avoided Costs - Reduction of ALOS (7.3 alos in 2010 - 5.3 alos in 2012) * 30 $120,000
Pneumonia Inpatient Admission Rate Per 1,000 Members
Ages 65+
Pneumonia Inpatient Average Length Of Stay (ALOS)
Ages 65+
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Project Objective Results – Reduce Average Length of Stay & Readmit Rates
Goal: Reduce ALOS by 0.5
in two Pilot Units
Irvine
DOU
Irvine
Telemetry
Goal: Reduce 30 Day Readmit
Rate at Irvine Hospital by 10%
Readmit
Rate
Pneumonia ALOS in 2010 6.3 4.5 Pneumonia Readmit Rate - 2010 4.5%Pneumonia ALOS in 2012 (Aug to Dec) 4.3 3.5 Pneumonia Readmit - 2012 (Aug to Dec) 2.3%
ALOS Change (2.0) (1.0) Readmission Rate Change (2.2%)
% Changed (31.7%) (22.2%) % Changed (48.9%)
Avoided Inpatient Days: 58 66 Avoided Readmissions: 4
Avoided Inpatient Days (alos 5.6): 22
* Irvine's average length of stay for readmits w as 5.6 in 2012
Pneumonia Inpatient Readmit Rate
- All Ages
Pneumonia Inpatient Average Length Of Stay
(ALOS) - All Ages
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© Kaiser Permanente 2013 reproduce by permission only© Kaiser Permanente 2013 reproduce by permission only
Engaging physicians
� Highly engaged meetings
� Talk about the controversial topics first
� Improving quality often requires strong physician engagement
• Start with data and costs
• Voice of the customer
� Provide training (only 1/3 of physicians have quality improvement experience)
Copyright © Harvard Business School, 2013
Time-Driven Activity-Based Costing
Derek Haas, Senior Project Leader at Harvard Business School
[email protected]
December 11, 2013
Sessions D3 and E3Disclosure: On IHI faculty for Joint Replacement Learning Community
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23Copyright © Harvard Business School, 2013
The central goal in health care must be value for patients, not access, volume, convenience, quality, or cost containment
Value =Health outcomes
Costs of delivering the outcomes
The Value approach requires that we measure two fundamental parameters:
1. Outcomes: the full set of patient health outcomes over the care cycle
2. Costs: the total costs of resources used to care for a patient’s condition over the care cycle
Value-based health care delivery
24Copyright © Harvard Business School, 2013
Time-Driven Activity-Based Costing (TDABC)
• What activities are performed over the care
cycle for a medical condition?
• Who is performing each activity?
• How long does each activity take?
Determinethe Care Process
• What is the cost per unit of time for each type
of personnel?Calculate
Cost Rates
• What materials, supplies, and drugs are
consumed during the care cycle?Account for
Consumables
• If a department has more than one person,
what are the drivers that lead to more work?Allocate
Indirect Costs
1
2
3
4
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25Copyright © Harvard Business School, 2013
Map 1: Surgical
consultation
Map 2 : Pre-operative
testing
Map 3: Day of surgery
pre-operative prep
Map 4: Operation
Map 5: Post-anesthesia care unit
Map 6: Discharge
Map 7: Rehabilitation
Map 8: Follow-up
visit
Map 2
Level 1: Overall care cycle
Level 2: Study care cycle
Level 3: Process maps
Develop process maps for the care cycle1. Determinethe Care Process
26Copyright © Harvard Business School, 2013
Process map for initial orthopedic office visit
Average time
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27Copyright © Harvard Business School, 2013
• Costs: All the costs (salary, fringe benefits, occupancy, support resources)
associated with having that person (or piece of equipment) available to
treat patients
• Capacity: The capacity (time) that each resource (personnel, equipment)
has available for treating and caring for patients
• Capacity Cost Rate = Resource Cost/ Resource Capacity
Calculate the cost per minute of time for each
type of personnel2. Calculate Cost Rates
Data are illustrative
Surgeon
Physician
Assistant RN X-Ray Tech Scribe
Office
Assistant
Total Clinical Costs $546,400 $120,000 $100,000 $64,000 $51,000 $61,000
Personnel Capacity (minutes) 91,086 89,086 89,086 89,086 89,086 89,086
Personnel Capacity Cost Rate $6.00 $1.35 $1.12 $0.72 $0.57 $0.68
28Copyright © Harvard Business School, 2013
Compute total costs by multiplying resource cost rates by process times & summing across the cycle of care
Initial consultation
Minutes Cost/
minute
*Total
MD X1 Y1 136.13
RN X2 Y2 68.04
CA X3 Y3 6.17
ASR X4 Y4 15.74
$266.08
Surgical procedure MD X1 Y1 584.99
Anes. X2 Y2 603.89
RN X3 Y3 136.29
Tech X4 Y4 97.82
OR X5 Y5 329.16
$1752.15
Follow-up or post-operative visit MD X1 Y1 55.19
RN X2 Y2 13.61
CA X3 Y3 3.09
ASR X4 Y4 1.77
$73.66
Source: Meg Abbott, MD & John Meara, MD Boston Children’s Hospital
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29Copyright © Harvard Business School, 2013
TDABC provides a common platform – a single version of
truth – for clinical & administrative personnel
By standardizing on this
procedure and we can achieve
consistently excellent outcomes
at lower cost.
We can skip this process and save $120 per patient.
29
30Copyright © Harvard Business School, 2013
How cost accounting typically works in health care
Example
• Sum up the costs for a cost center $10M
• Assign RVUs to each billable activity MRI = 5 RVUs
• Calculate total RVUs for each center 200,000
• Calculate cost per RVU (total costs/total RVUs) $50
• Calculate cost per billable activity
(# RVUs x Cost per RVU)
MRI = $250
1
2
3
4
5
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31Copyright © Harvard Business School, 2013
How TDABC is being applied in health care
• Bundling: Understand costs over the full care cycle to prepare
for implementing bundled payments
• Price Floor for Negotiations: TDABC reveals marginal costs
Pricing
Cost Management
• Process Improvement: Optimize and standardize processes
over a complete cycle of care
• Personnel and Resource Utilization: Enable care givers to
work at the top-of-their-license; who should be doing the
work, where, and how?
32Copyright © Harvard Business School, 2013
MD Anderson anesthesia assessment center achieved a 46% reduction in cost per case using TDABC
Anesthesia Assessment Center TDABC Costs
$139
$102
$75
$0
$20
$40
$60
$80
$100
$120
$140
$160
Baseline Phase I Phase II
Used TDABC to standardize workflow, implement consistent management of common comorbidities, and developed tool to assign patients to right level of provider
Better triaged patients based on care required (e.g. led to fewer outside consults)
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33Copyright © Harvard Business School, 2013
IHI learning community to measure and improve costs and
outcomes for joint replacements begins on 1/9/2014
• Participants will learn how to measure costs using TDABC, and what outcomes to track and measure (clinical and patient reported)
• The program will focus on total joint replacements, but the methodologies are transferrable to any condition
• Participants will be able to compare their outcomes and care cycle processes to highlight high value practices (exact cost information will be kept confidential)
• The program will help organizations identify and pursue opportunities to improve their outcomes and lower their costs
Learn
Share
Improve
www.ihi.org/jointreplacementvalue
34Copyright © Harvard Business School, 2013
“All we have to
decide is what to do
with the time that is
given us”
Gandalf in The Fellowship of the Ring by J.R.R. Tolkien
Closing words