Article
Harvard Business Review

How Not to Cut Health Care Costs

Format:Print

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.