Contributed by Jeffrey C. Bauer
Delivering standardized medical services of acceptable quality (effectiveness) at the lowest possible cost (efficiency) is a major goal of every healthcare provider in the country. Unfortunately, most delivery organizations fall short of the goal for a variety of reasons – institutional inertia, resistance to change, physician independence, staff shortages, reimbursement disincentives, counterproductive regulations, liability concerns and other reasons.
Somewhat surprisingly, failing to deliver uniformly effective and efficient services has not been a serious problem for providers. Payers have always grumbled about high costs and low quality, but their reimbursement mechanisms have always paid providers at least enough money to keep them in business without forcing the issue of reducing costs and improving quality.
So why bother with effectiveness and efficiency when they don’t seem to make any difference at the bottom line? The implicit answer to this rhetorical question is likely to change very soon because growth in reimbursement has reached its limits. Most providers no longer will be able to rely on increased revenue to cover the costs of being inefficient and ineffective.
A precarious national economy is likely to put the brakes on spending in all sectors, which means healthcare must learn to live with its current 17 percent share of gross domestic product. The stock market recently moved from an all-time high one day to the largest decline in five years the next. High oil prices, a depressed housing sector, rising unemployment, and a devastated mortgage industry are just a few reasons why providers cannot expect economic growth to create more resources that payers will automatically transfer to healthcare with no questions asked.
Government budgets are strained to the limit, and producers of other public goods are starting to compete head-on with healthcare for limited federal, state and local dollars. For example, the need for massive investments in public infrastructure has been highlighted by dam breaks, bridge collapses and failures of air traffic control this summer. Public support for spending more on education and public safety is growing, and the costs of reconstituting the military will be staggering. Under these circumstances, healthcare providers will be lucky to keep their share of government spending, which amounts to 50 percent of total provider revenue.
Globalization has also become a significant factor for American healthcare for the first time. In just a few years, medical tourism has moved from being unimaginable to being a real threat to domestic healthcare providers. More patients will be going abroad not just to save money, but also to get treatments that are not allowed here because of government restrictions on certain types of research. And American foundations that exclusively supported domestic healthcare in the past now are making their largest commitments to programs in other parts of the world.
Last, but not least, new entrants have started to compete with mainstream providers. National pharmacy chains and major retailers are aggressively targeting business in primary care, home health, specialty pharmacy and other medical services that can be provided outside a hospital. These new competitors for health dollars are astutely riding the wave of consumerism by providing convenience, competitive prices and health information.
As a result of all these challenges, it’s likely that healthcare revenues no longer can be expected to grow. Providers’ expectations of capturing 20 percent of GDP need to be shelved and promptly replaced with action-oriented plans for doing a better job with the revenues they get right now. Becoming efficient and effective is the essential key to staying in business.
Ironically, the good news is that healthcare providers waste lots of resources that can be harnessed and reallocated to productive use. Published estimates suggest that somewhere between one-fifth and one-third of the money spent on producing health services is wasted and does not contribute value to the consumer. Redirecting these wasted resources to produce effective and efficient healthcare should be an urgent matter of professional pride, even if the end of revenue growth did not compel action.
Providers can use a variety of proven techniques to become efficient and effective. Six Sigma, continuous quality improvement, lean management and other tools of performance improvement have been used to turn things around in other U.S. industries that faced similar limits to revenue growth. Healthcare providers need to study these techniques and implement a model that will work in their organizations.
Providers can no longer refuse to adopt management practices from other industries on the grounds that healthcare is different. Many of this country’s most successful health systems – including some that were facing bankruptcy just a few years ago – have accomplished remarkable turnarounds by adopting tools from transformed industries like aviation, retail, transportation and banking. Effectiveness and efficiency are the new imperatives in healthcare.
Jeffrey C. Bauer, Ph.D., medical economist and health futurist, is a Chicago-based partner in healthcare management consulting for Affiliated Computer Services, Inc. His book on how to become efficient and effective in the delivery of health services, co-authored with journalist Mark Hagland, will be published this fall by Productivity Press.