It could be as simple as everybody ordering the same kind of plastic cup or artificial hip implant. It could be as complex as eliminating a department or merging with a chain of hospitals.
Whatever saves — or makes — a hospital money.
Methodist Health System, Nebraska Medical Center and Alegent Creighton Health officials say they are on the hunt for savings, efficiencies, income sources and cuts for their 11 hospitals in the Omaha area. The goal is to reduce budgets by 10 to 15 percent. In the case of the Nebraska Medical Center, 10 percent would be about $100 million.
Short term, the Affordable Care Act, also known as Obamacare, constrains the growth of Medicare payments and cuts what the federal government gives hospitals that serve a disproportionate share of poor patients. Automatic spending cuts tied to the sequestration process reduce Medicare payments to hospitals by 2 percent.
Long term, hospital system reviews and budget-cutting are here to stay, said Dr. Bradley Britigan, dean of the University of Nebraska Medical Center's College of Medicine.
“Frankly,” he said, “Obamacare could go away tomorrow and it wouldn't make much difference in that many of the changes we're talking about are being driven as much by the private health insurance industry as by Medicare and Medicaid.”
Hospitals, he said, are hearing from insurers who are being told by business leaders that “we can't continue to afford double-digit increases in premiums every year.”
Alegent Creighton officials already have announced that they will close the inpatient obstetrics unit at Papillion's Midlands Hospital this fall, and last month described a process they will use over the next few months to evaluate how to configure services at a time when the area has too many hospital beds.
Alegent Creighton officials are looking for a 10 percent budget reduction over the next few years.
Richard Hachten, Alegent Creighton's chief executive officer, said that in developing the system's budget for the next fiscal year, “we faced the largest financial challenge in our history. Things are only going to get more difficult in future years.”
Bill Dinsmoor, the Nebraska Medical Center's chief financial officer, said the $100 million targeted by his system is approximately the difference between what the hospital and its related operations get paid for Medicare and what it costs to provide the care. Finding the savings, he said, “doesn't have to happen today. But that's probably the journey we have to be on.”
The hospital has brought in business consultant Deloitte LLP to help identify what is and isn't working and share ideas that have helped other hospitals around the country.
Since personnel costs make up the biggest expense for most businesses, it seems logical that job cuts would be part of the mix.
But Dinsmoor said, “We do not honestly know what the impact will be on jobs. It is possible that there will be an impact, but we don't know for sure. One change that's possible as health care transitions from 'sick care' to prevention is to see shortages in some types of health care jobs. People who have historically been in one type of health care position may be needed in another area.”
Officials at the nonprofit hospital systems describe the work they're doing by referring to corporate waste-reducing managerial concepts such as Lean Six Sigma, business models for managing integrated systems like the Baldrige framework and payment methodologies such as value-based purchasing.
Methodist Health System officials and staff meet regularly to identify practices that waste money or time, said Sue Korth, vice president and chief operating officer of Methodist Women's Hospital.
“We always have the bedside caregiver (participate) as part of that process,” Korth said. “We have to specifically look at how do we help the nursing staff work more efficiently so they can do more in less time.”
The process, she said, is one of “continuous improvement. It's about getting the right product at the right time in the right place for the user.”
Eliminating waste, she said, could mean eliminating extra steps. If, for example, a nurse needs materials or equipment for a process or procedure that must be performed on a patient, she said, evaluators determine whether the material or equipment could be stored closer to the patient's bedside.
Methodist Health System employees can submit money-saving ideas online that are reviewed by a committee. More than 100 have been implemented in the 1˝ years the process has been in place, officials said.
Hospitals need to be as efficient as they can be, Korth said. “The length of stay is going down. We are going to get less reimbursement. Therefore, we would want to have less cost on the inpatient and outpatient sides.”
Methodist is looking to cut its budget by 15 percent.
Methodist's “value-analysis” meetings have produced savings ranging from hundreds of dollars to $1 million, said Jim Koraleski, Methodist Health System's logistics director.
The $1 million savings, he said, came from renegotiating a contract for orthopedic implants. With help from physicians, he said, the health system was able to commit to buying a large percentage of equipment from just two vendors, who agreed to lower the price on all of their orthopedic implants.
Hospitals account for a third of the health care dollar, the American Hospital Association says. Spending on hospital care has grown more slowly than spending on other health services, the group says, as hospitals have tried to make care more effective and efficient.
Still, hospital spending increased 4.3 percent to $850.6 billion in 2011, the most recent figures available, according to the Centers for Medicare and Medicaid Services. That compares with 4.9 percent growth in 2010.
Some of the cost-cutting efforts aren't new, but Caroline Steinberg, vice president of trends analysis for the American Hospital Association, said, “I think a lot of the low-hanging fruit has been taken out of the system. It will be increasingly difficult to meet the productivity increases in the Affordable Care Act and all the other cuts that are facing hospitals.”
(The law requires hospitals to increase their productivity at the same rate as the rest of private industry. If they don't, their Medicare payments will drop.)
Steinberg said she's seeing hospital systems across the country that have multiple operations in the same city or region shifting people around and choosing to merge with other hospitals or become part of a chain so they can save money through purchasing in large quantities.
In addition to the purchasing power that its health system, Banner Health, can provide, Ogallala Community Hospital benefits from Banner Health's electronic medical records system, hospital CEO Sharon Lind said.
The records system, she said, has helped reduce patients' average length of stay, pharmacy costs and adverse drug reactions by allowing providers throughout the system to see what medications patients are using or have used.
In general, hospitals evaluate how patients progress through their care, from emergency room to inpatient room to discharge, and try to improve the experience so that the flow is more efficient, Steinberg said. The goal, she said, is to reduce the time a patient spends in the hospital.
Some of the process improvements, she said, “actually increase revenue, which is another way of dealing with the cuts in reimbursement.”
Steinberg said that creating a fast track for urgent-care needs in the emergency room has become a common strategy for improving patient flow through the ER, allowing hospitals to accommodate — and bill — more patients. Process improvements that reduce a person's length of stay, she added, can free up beds for other patients.
Job growth in U.S. hospitals is down sharply this year, Steinberg said — according to the Bureau of Labor Statistics, the seasonally adjusted, year-to-date growth in that sector was 7,400 jobs, compared with 44,500 for the same period last year.
“Usually, (hospitals) take the staffing out of administrative departments,” she said. “Then they start looking at programs that are losing money. So they may choose to no longer offer psychiatric care or they may no longer offer skilled nursing care or home health or something.”
Some hospitals are shifting workers' hours or assignments, said Deborah Bowen, president and CEO of the American College of Healthcare Executives. “Some are using people in different ways … maybe looking at outsourcing differently.
“It's not just about eliminating mass quantities of people. It's really about managing the costs and the labor resources in ways that help the hospital do what it's trying to do.”
Not everything being considered for savings will be noticed by patients.
By choosing one vendor to supply trash bags, Methodist's Koraleski said, the system was able to save more than $10,000 a year, based on the quantity that's ordered. “Standardization also eliminates carrying multiple companies' products in our supply rooms,” he said.
Methodist always has focused on cost management, said Linda Burt, Methodist's chief financial officer, “but the value-analysis program has refined our ability to use data to identify and act on opportunities.”