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HFMA Live: Low-Cost Encounters and Quality

June 28, 2012
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Study looks at cost differences among hospitals


Do lower-cost hospitals mean lower quality? Jamie Cleverley, principal of Cleverley & Associates, Worthington, Ohio, compared the performance of hospitals nationwide, in a Wednesday session of the HFMA ANI conference. He thinks it’s a question worth considering, with the healthcare industry in crisis. “While the reasonableness of the country’s healthcare cost can be debated, our ability to fund healthcare cost cannot,” he says.

Costs in all healthcare segments are growing, with hospitals, physicians/clinical, drugs, insurance and nursing homes—ranked as the biggest drivers in national healthcare expenditures, he says—and each of those expenditures is growing at a rate greater than inflation, he says. With government payers responsible for nearly half of all healthcare spending, its responsibility is increasing, even as its ability to pay is being challenged, he says.

Healthier populations cost less, Cleverley says; nonetheless, it’s difficult to control behaviors. On the other hand, one area where costs can be controlled is in use of services, he says.

In a national study of U.S. acute care hospitals, he compared the performance of hospitals in various revenue, cost, and financial areas. The hospitals were divided into four hospital cost segments, with a 48-percent spread in the hospital median costs between the lowest and highest cost groups.

His data revealed that various demographic factors are moderately associated with higher cost. In general, high cost hospitals can exist in any region, organization type or structure. Low cost hospitals excel in numerous operational areas. Length of stay and quality do not show significant differences between groups. Low-cost hospitals are more profitable in Medicare, but with only slightly higher operating margins. Relatively speaking, high-cost hospitals must generate more revenue.

Cleverly says cost reductions can be either across the board or strategic, which permits cost efficiency steps to be taken only in areas that are weakest. Three areas that influence cost are productivity and efficiency (cost incurred to produce a specific procedure); intensity of services (the mix and quantity of services and procedures); and resource prices (price per unit). Hospitals can evaluate their cost position and identify and take action on cost opportunities, he says.

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