By G.T. LaBorde, CEO, IllumiCare
More than half of hospitals in the U.S. are projected to experience negative margins in 2022, with expenses estimated to increase by nearly $135 billion over 2021 levels, according to a recent Kaufman, Hall & Associates report.
While health systems have no direct means of controlling the rising rate of inflation, they are able to reduce the impact of losses through the use of utilization management strategies and tools designed to ensure that patients get the care that they require, without excessive testing and unnecessary costs associated with care they don’t need.
Utilization management, while effective at addressing the most obvious sources of waste within a health system, has been less successful at a more granular level, due in part to the disconnect between those who create and enforce clinical cost guidelines and those who actually provide the care. Hospital-based utilization reviews grew in popularity throughout the 1960s and 1970s, as a result of growing doubts that greater medical care expenditures resulted in improved health status.
By the 1980s, utilization efforts began to transition to third-parties, such as health plans, in response to research that suggested that many medical services were unnecessary or inappropriate; an increased emphasis by purchasers on linking cost containment with quality assurance; and a proliferation of information resources and assessment tools that made case-by-case review of proposed services feasible on a large scale.
Throughout its history, utilization efforts have placed increasing pressure on providers with regards to the cost of care, starting with prospective pay, then HMOs, and now value-based care and bundled payments. Each new effort has sought to transfer greater economic risk onto providers, perhaps because those who administer costs take the perspective that since providers are the ones making decisions about what to spend, they should also manage the implications of their decisions.
Over the same period, provider access to cost data remained very limited, so decisions about what drugs to prescribe or treatment to undertake were made with no exposure to the related costs. As a result, clinicians have long been outspoken critics of utilization management because it’s been seen as limiting their clinical autonomy and contributing to an ever-increasing administrative burden.
Looked at from another perspective, it’s clear that a health system wouldn’t allow a CFO to manage their finances without knowing what anything costs. The same is true for clinicians who are being asked to exercise a clinical mindset while also being value-minded. How are providers supposed to do that if they don’t know what anything costs? It’s a seemingly impossible task.
Too much information can become noise, so it’s important to focus on the situations where clinical quality can be held constant but costs reduced. A clinical vignette and its associated citation are also provided to assist in the decision making process. This approach enables a provider to confidently exercise good financial management without diminishing the value of the treatment provided.
How data is delivered is as important as the data itself. Clinicians ideally need quick access to contextually relevant data when meeting with a patient. This can be achieved through an EMR-agnostic ribbon of information that unobtrusively puts the wholesale cost of medications, labs and radiology tests, iatrogenic risks, and other actionable information within a provider’s EMR workflow.
This empowers clinicians to practice more clinically efficient medicine, while also being better stewards of hospital and patient resources. A good example is length of stay, which has well known utilization metrics such as how long a patient is expected to stay, how long they have already occupied a bed, and what clinical impediments exist to patients being discharged from the hospital. Making it easy for providers to see those metrics at the point of care allows the patient to be more physically and medically able to go home on time. Presenting only contextually appropriate data can also serve to decrease a clinician’s cognitive load by eliminating the need to click and search through innumerable data elements within the EMR.
To test the validity of this approach, we conducted an eight-month study of 287 physicians identified as hospitalist, internal medicine, or family medicine providers and found that when providers are “nudged” to stop wasteful behaviors, their average spend on meds and labs decreases by an amount that exceeds the sum of the specific opportunities identified.
Our analysis showed that for every $1 decrease in average savings opportunities per provider per patient, the clinician actually saves up to 1.5 times that amount per admission. We call these providers advanced stewards because they embrace financial stewardship opportunities and are able to reduce the cost of care while maintaining the quality of care delivered. Historic data reviews across multiple health systems reveals an average cost savings of $83 to $136 per discharge.
Managing rising hospital costs while delivering high-quality medical care involves two highly complex processes that don’t have to be at odds if the right mix of data, access, and technology are employed. Gone are the days of having utilization management be done to providers as opposed to being done by them. The new reality affirms that the closer you are to the patient, the more accurately you can apply fiscal responsibility with clinical nuance, resulting in an ideal outcome for all parties involved.
 The Current State of Hospital Finances: Fall 2022 Update, AMA, Kaufman, Hall & Associates
 Starr, Paul, The Social Transformation of American Medicine, New York: Basic Books, Inc., 1982.
 Wickizer TM, Lessler D. Utilization management: issues, effects, and future prospects. Epub 2001 Oct 25.