Report Pegs Hospital Efficiency Savings at $10 Billion; Hospitals Beg To Differ

The health system in California could save $10 billion a year in hospital costs alone, if it were more efficient. That’s the conclusion of a lengthy study released this month by an influential health care consulting firm.

At the same time, hospitals in California have good efficiency numbers in terms of admission rates and lengths of stay. In fact, hospital association officials say, the state’s hospitals are seventh in the nation in limiting inpatient hospital stays and 11th among all states in admissions per capita.

So are they efficient, or inefficient?

Both, said David Axene, president of Murrieta-based Axene Health Partners, which produced the 2016 California Hospital Risk Outlook report.

“Hospitals in California are more efficient than some other states. We are fortunate to have quite good utilization rates, but they’re just not good enough,” Axene said. “The question is whether we compare to the mean or the median, or [whether we compare to] the best we can do.”

If hospitals in the state were more efficient and could save about $10 billion every year, the comparison to other states is a specious argument, he said.

“The current system is inefficient and there is opportunity to save,” Axene said, primarily through changes in physician work patterns. “Hospitals have an opportunity to step up the improvement. This is somewhat of the silo problem. We need to break down the siloes.”

According to Anne McLeod, senior vice president of health policy and transformation at the California Hospital Association, high hospital costs do not equate to low hospital efficiency.

“Hospitals don’t admit patients,” McLeod said. “Hospitals don’t discharge patients. Hospitals don’t order lab tests. That’s the California health care delivery system that’s inefficient, not hospitals.”

In fact, she said, the rate of hospital inpatient admissions has dropped significantly over the past 30 years.

“As we look at the last three decades, hospital care has declined by 10%, and that is continuing to fall. It is likely that trend will continue to go down,” McLeod said.

“At what point do we acknowledge the precedent that it has gone down instead of just pointing fingers at one sector,” she asked.

Axene said his study doesn’t single out hospitals, but that sector is where a vast amount of money is spent, he said.

“The big question is: Is there any more money we can save? What is the likelihood that, if hospitals can take some risk, will they save money?”

A Big Piece of the Health Care Pie

One of the reasons the savings are potentially so high in the inpatient hospital sector, Axene said, is because that represents one of the largest percentages of health care spending.

Making efficiency changes, even if they’re small, could mean sizable savings because of the immense scale of inpatient costs.

For example, Axene said, many patients could be discharged a day earlier if physicians visited those patients more often. With one physician visit a day, that makes discharge more difficult, he said, even if it’s the best course medically.

“If [rounding on patients] happens at 11 in the morning, that’s the only time you can discharge someone,” Axene said. “But if you add other times, people can be discharged when it’s the right time to be discharged. You can be more efficient without affecting the quality of care. There are opportunities to do that and save money through discharge planning or the timing of physician visits.”

Axene said his research over the years has shown hospitals have a much higher percentage of opportunity for efficiency savings. He estimated that two-thirds of the efficiency savings to be found in California’s health care system could come from the inpatient hospital sector.

Overall, the study concluded:

  • Inpatient costs at all types of hospitals in California could be reduced by at least 25%;
  • Savings would total $10 billion among 275 hospitals across the state;
  • There is not much difference between for-profit and not-for-profit hospitals in terms of efficiency opportunities; and
  • Public hospitals are the least-efficient type of hospital, about three percentage points worse than private hospitals.

Erika Murray, president and CEO of the California Association of Public Hospitals, said public hospitals have a higher percentage of low-income, high-needs patients, and costs for those patients run high.

“Public health care systems care for many patients who have incredibly complex conditions and circumstances,” Murray said, and public hospitals have been working for years to change the delivery system.

“[Public hospitals] are committed to continuing to find ways to provide more efficient, patient-centered care,” she said. “There is certainly more work to be done, but through efforts like the Delivery System Reform Incentive Program (known by its acronym as DSRIP), public health care systems have been making great strides in recent years.”

That shift to provide low-income patients with a medical home and to streamline processes and procedures has been a steady effort in recent years, she said.

And people need to remember the mission of public hospitals, she said, which extends far beyond a fiscal equation.

Public hospitals, she said, represent 6% of all hospitals in California, but they have more than half of the top-level trauma and burn centers, and they train more than half of all new doctors in the state. And they provide 40% of care to the state’s remaining uninsured, she said.

“These are critical roles for the communities our members serve, and public health care systems are committed to maintaining them,” Murray said.

Help Coming Through Waiver?

State and federal health officials last month agreed in principle on a new five-year, $6.2 billion 1115 waiver. Also known as the Medi-Cal 2020 waiver, it could go a long way toward solving some of the care delivery inefficiencies in the system, hospital officials said.

The main funding in the waiver, more than $3 billion, is for a public hospital incentive program, to include hospitals operated by municipalities and health care districts in that program.

There also is $236 million for the first year of the Global Payment Program, to help handle the remaining uninsured in California, and another $1.5 billion for the state’s whole-person care pilot.

That Health Home pilot project could be especially helpful to reduce inpatient hospital admissions, Murray said.

“A tremendous amount of the work that will be done under the waiver is focused on … keeping our patients healthy through outpatient care,” Murray said, “so they don’t end up needing as many inpatient services, or being readmitted.”

McLeod said it’s simpler to cite inefficiencies and more difficult to shift a health care system that concentrates a lot of cost at the inpatient hospital setting.

“When you see one hospital in one marketplace, you see one hospital in one marketplace,” she said. “They’re all different. Hospitals along with their partners, our providers and clinics, all strive to provide care aimed at the patients. In some cases, with some hospitals, it’s more difficult to lead that cause, sometimes it’s easier, but overall there needs to be a mindset and shared vision.”

And part of that shared vision is an understanding that hospitals in California actually do have relatively low utilization rates, she said, despite the state’s high wages, high real estate expense, additional costs of seismic upgrade requirements and the costs of nursing ratio mandates.

“With all of that, California has some of the most efficient hospitals in the nation,” McLeod said.

And California hospitals have a lot of room for improving that efficiency, Axene said.

“Whenever we review practices, what we typically see is 60% to 70% of the savings is hospital inpatient-based,” Axene said. “So about two-thirds of what can be saved is in the inpatient hospital sector. That’s the gigantic takeaway — that there’s such a substantial amount to be saved.”

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