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.

Format: Print

Find at Harvard Register to Read

Citation:

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

Based in Cairo, Afreximbank was founded in October 1993 as a specialized continental financial institution designed to address the low level of intra-African trade, the decline in financial flows to Africa, the worsening external debt situation of many African countries, and the sharp reduction in lending to Africa by international commercial banks. This case study explores how the Bank introduced the Balanced Scorecard (BSC) to improve the Bank’s performance management system. The goal was to transform the Bank’s bureaucratic culture and processes into one more attuned to the fast-paced and dramatic changes happening in Africa. The case examines how the BSC is being used to implement the Bank’s strategy and the issues arising from its implementation. The case facilitates a discussion on whether the Bank had become entrepreneurial enough to keep pace with the continent’s thriving, emerging markets.

Leaders at six hospitals conducted a research study to assess and compare the health outcomes and costs of pediatric aerodigestive care. Four of the hospitals delivered care with an integrated practice unit (IPU) while two delivered care traditionally, with isolated specialists. The study used time-driven activity-based costing as a tool to measure and compare costs across the six sites. The results demonstrate that the four IPU sites improved clinical outcomes and had lower costs of care.

Value-based care models are becoming instrumental in structuring clinical care delivery in our healthcare climate. Our objective was to determine the value associated with implementation of a Family-Centered Care Coordination (FCCC) program for neonates undergoing tracheostomy.

Faculty & Research

How Not to Cut Health Care Costs

Abstract

Citation:

About the Author

More from the Author