How Not to Cut Health Care Costs

Robert S. Kaplan; Derek A. Haas

Article | Harvard Business Review

How Not to Cut Health Care Costs

Abstract

Health care providers in much of the world are trying to respond to the tremendous pressure to reduce costs—but evidence suggests that many of their attempts are counterproductive, raising costs and sometimes decreasing the quality of care. Using evidence from field research conducted at more than 50 health care provider organizations, Kaplan and Haas identify five common mistakes when managers attempt to cut health care costs. The mistakes are triggered, primarily, by working from the line-item expense categories on P&Ls, rather than clinically based structural models of the processes actually used to deliver care. Sustainable cost reduction is best achieved by optimizing the quantity and mix of all the resources needed to produce excellent outcomes for a patient's medical condition, not by across-the-board reductions in line-item expenses.

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Kaplan, Robert S., and Derek A. Haas. "How Not to Cut Health Care Costs." Harvard Business Review 92, no. 11 (November 2014): 116–122.

In 2016 the newly appointed surgeon general of the Navy launched a value-based health care pilot project at Naval Hospital Jacksonville to explore whether multidisciplinary care teams (known as integrated practice units, or IPUs) and measurement of outcomes could improve the readiness of active duty personnel and lower the cost of delivering care to them, their dependents, and local retirees. This article describes the formation of the project’s leadership structure; the selection of four conditions to be treated (low back pain, osteoarthritis, diabetes, and high-risk pregnancy); the creation of the care team for each condition; outcomes and costs measured; and the near-term changes in outcomes during the twelve-month pilot period. Patient outcomes improved for three of the four conditions. We describe factors that contributed to the project’s success. After the pilot concluded, the Navy combined the back pain and osteoarthritis IPUs into a single musculoskeletal clinical unit and established a similar IPU at another naval hospital and its clinics. The diabetes IPU was continued, but the high-risk pregnancy IPU was not. We offer several observations on the elements that were key to the success of the project, explore challenges and opportunities, and suggest that the pilot described here could be taken to greater scale in the Military Health System and elsewhere.

In 2016, the Centers for Medicare & Medicaid Services (CMS) launched its first mandatory bundled payment program, the Comprehensive Care for Joint Replacement (CJR) model, by randomizing metropolitan statistical areas (MSAs) into the payment model. The paper analyzed Medicare costs for beneficiaries undergoing lower extremity joint replacement between April 1, 2016, through December 31, 2017. The introduction of the CJR was associated with reduced Medicare Part A spending ($582 per episode, a 2.5% savings) largely through lower post-acute spending in skilled nursing facilities. The CJR hospitals had no significant differences in hospital length of stay, readmissions, complications, 30- or 90-day mortality, volume of episodes, or patient characteristics relative to the non-CJR hospitals. We conclude that mandatory bundled payments may help to change clinicians’ and facilities’ behavior without harming quality.

Article | Journal of Medical Economics | 2019

Time-Driven Activity-Based Cost Analysis for Outpatient Anticoagulation Therapy: Direct Costs in a Primary Care Setting with Optimal Performance

Robert S. Kaplan, Rohit A. Bobade, Richard A. Helmers, Thomas M. Jaeger, Laura J. Odell and Derek A. Haas

Objectives: To determine how overall cost of anticoagulation therapy for warfarin compares with that of Novel Oral Anticoagulants (NOACs). Also, to demonstrate a scientific, comprehensive, and an analytical approach to estimate direct costs involved in monitoring and management of anticoagulation therapy for outpatients in an academic primary care clinic setting, post-initiation of therapy.

Methods: Time-Driven Activity-Based Costing (TDABC) was applied in a population-based cross-sectional study at Mayo Clinic’s warfarin anticoagulation clinic. The study measured the personnel and supplies costs to monitor and manage anticoagulation therapy for 5,526 patients.

Results: The cost of warfarin management for patients who display unstable International Normalized Ratio (INR) is more than three times those who display stable INR over time. For complex anticoagulation patients, the total cost of medication and monitoring for warfarin anticoagulation therapy is similar to that for NOACs.

Conclusion: Despite warfarin being significantly less expensive to purchase than NOACs, overall warfarin management incurs higher costs due to laboratory monitoring and provider time than NOACs. NOAC treatment, therefore, may not be more expensive than warfarin therapy management for complex anticoagulation patients.

Keywords: Time-Driven Activity-Based Costing; Activity Based Costing and Management; Health Care and Treatment; Analysis;

Citation:

Kaplan, Robert S., Rohit A. Bobade, Richard A. Helmers, Thomas M. Jaeger, Laura J. Odell, and Derek A. Haas. "Time-Driven Activity-Based Cost Analysis for Outpatient Anticoagulation Therapy: Direct Costs in a Primary Care Setting with Optimal Performance." Journal of Medical Economics 22, no. 5 (2019): 471–477. View Details

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