Providers can take a number of actions right now to reduce healthcare costs, and improve efficiency and effectiveness of the U.S. healthcare system.
Although the stimulus bill has allocated significant funds for stimulating improvements in the U.S. healthcare system — $19 billion for healthcare IT alone — the majority of that spending is targeted at developing and facilitating the adoption of EHRs. The HITECH Act provisions of the Recovery Act of 2009 are providing incentives to doctors and hospitals that adopt these technologies and meaningfully use healthcare IT. While these clinical IT solutions are important, they can only make our healthcare system stronger if healthcare organizations reform their basic business operations to increase efficiency and cut waste.
Many of the country's largest healthcare organizations have been successful in wringing administrative waste out of their operations through enterprise resource-planning technology that helps integrate and automate disparate applications.
Our current healthcare system is simply unaffordable. The cost of prescription drugs and new medical technologies has been cited as the primary contributor to the increase in overall health spending. Chronic disease has also placed tremendous demands on the healthcare system, with treatment accounting for an estimated 75 percent or more of national health expenditures. Administrative costs are estimated to make up 7 percent of healthcare expenditures.
Decades will be needed to solve these issues, but the good news is that there are software solutions healthcare organizations can use today to combat rising costs, pave the way for the success of future technology, and at least address one part of the overall equation: administrative efficiency and effectiveness in the healthcare system.
According to an article in the New England Journal of Medicine, written by Denis Cortese and Jeffrey Korsmo of the Mayo Clinic, “Organizations that deliver value focus on its elements: outcomes, safety, patient satisfaction and costs. They consistently collect performance metrics, conduct benchmarking studies, and use systems-engineering principles to improve outcomes, streamline clinical processes and wring waste out of the system.”
Increasing need for technology
This waste manifests itself in every administrative task: finance, purchasing, the supply chain, organizational structure, equipment tracking, employee scheduling, talent management, benefits, payroll, research grant funds and asset management. This is due to the fragmented healthcare IT market, with hundreds, and perhaps thousands, of disparate applications and technologies.
The industry is unique in that for more than a decade, healthcare has been a lagging industry in terms of IT adoption. The rate of adoption has increased dramatically, driven by increasing needs for automation and government requirements. Compounding this problem is the highly complex nature of patient care, clinical processes and business processes, all of which require specific solutions and technologies to solve.
Many of the country's largest healthcare organizations have been successful in wringing this administrative waste out of their operations through enterprise resource-planning technology (ERP) that helps integrate and automate disparate applications — from finance and supply chain to human resources — into one central system. The cost-cutting benefits and efficiency that such business applications generate are achievable and can be reaped within months of implementation. Here are a few examples of healthcare organizations cutting administrative costs:
To more efficiently manage resources and free up costs, a Denver-based nonprofit that serves 20 states, has 68,000 employees and $8.2 billion in revenues, completed an organization-wide deployment of the entire enterprise-management system to consolidate information systems across its various facilities. The effect has been reduced operational costs, centralized key business functions, and an enterprise-wide view of staffing and financial data. Since the inception of the project, the organization has achieved supply-chain cost savings of $125 million, and estimates it could achieve an ongoing reduction in annual operational costs of $50 million to $60 million based on automated processes and productivity gains supported by the new unified system.
In Phoenix, one of the largest nonprofit healthcare organizations — with 20 hospitals and medical centers in seven Western states — implemented an ERP solution and has since saved $16.3 million in supply chain costs.
Scheduling nightmare solved
In Baton Rouge, La., a 740-bed organization that treats approximately 35,000 patients and 350,000 outpatients annually, was facing a nursing shortage due to increasing competition and constant turnover, which made scheduling difficult. It wanted to decrease the amount of time managers spent doing their schedules and regulating premium pay contractors, and fill scheduling holes with its own staff. It chose a shift-bidding, talent-management solution to more effectively fill empty slots. Now, everything is automated and the staff self-schedules. Since implementing this technology, the organization has managed to decrease its expensive contract labor and incentive pay from 24 to 48 hours to four to eight hours of pay per pay period.
Another regional health system, located in Boone, N.C., recently implemented a charge-capture solution, which connects to its finance and supply-chain enterprise solution. The system now has more business intelligence to see which departments have a more-accurate reading on supplies being used, and can order and plan appropriately.
In addition to an ERP solution, another way healthcare organizations can reduce administrative costs is through cloud computing, in which on-demand resources are provided as a service over the Internet. Software-as-a-service (SaaS) is a type of cloud computing where users do not need to install or maintain any software themselves; simple Internet access and a browser are all that is needed.
Users do not need to have knowledge of or control over the technology infrastructure in the “cloud” that supports them. This approach eliminates the IT maintenance costs that serve as roadblocks to EHR adoption. It has the potential to reduce infrastructure costs by three to five times, is easier to use and reduces IT management complexity. It is also more flexible, with real-time allocation of capacity, has faster time to benefit, and offers an infinite and elastic infrastructure, with access to shared resources.
Healthcare organizations should start thinking outside the proverbial EHR box and look for the low-hanging fruit that can wring waste out of their systems by identifying the manual, paper-based administrative processes that can be automated, and assessing what cloud computing means for their organizations.
Jim Catalino is general manager for Lawson Software's healthcare division.
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