Blog Post

Improving healthcare productivity to reduce costs

Improving healthcare productivity to reduce costs will be an exciting topic to understand as it fulfills two goals of increased productivity and cost reduction. There is a broad agreement on the subject of the need for improvement in healthcare. Significant morbidity and mortality continue to occur due to preventable harm. Avoidable healthcare use, resulting as a consequence of many patients' chronic diseases not being treated optimally, is an example that elaborates on the above point.

Scope of cost reduction in healthcare

By focusing on productivity gains instead of workforce expansion, the healthcare industry could save between $1.2 trillion and $2.3 trillion in the next decade, according to a new McKinsey and Company report. The report identifies possibilities and opportunities for healthcare organizations to improve productivity through better care coordination and workplace efficiencies. Hospitals are always looking for ways to strengthen financials and cut costs, and administration and labor costs are a big part of their expenditure. We need to analyze the three drivers of industry growth - labor, capital, and multifactor productivity (MFP) - to understand why productivity gains have lagged in healthcare.

Dynamic factors such as innovation and technology changes are hard to measure. The 3.3% annual growth rate of the healthcare industry stands out for several reasons. More than two-thirds of the labor's contribution was due to workforce expansion, in addition to it being responsible for 99% of that growth. The capital contributed about 14%, and MFP had a negative contribution of minus 13%. According to the report, reasons for healthcare's low productivity include suboptimal use of the clinical workforce. The surveyors found that the physician's schedule density was about 80% at many organizations, compared with 90%-95% at high-performing practices. Another deterring factor is complex administrative systems that require complying with CMS performance reporting requirements and interacting with various payers.

Improving processes in healthcare

Hospitals have hired large numbers of non-clinical workers to deal with tasks that could be digitized or automated, and streamlining performance metric reporting could also be beneficial to these organizations. Consequently, hospitals targeting dollars for ‘underutilized fixed assets’ rather than productivity-improving projects, capital's contribution to industry growth has also been low. The drag on Multifactor Productivity hinges in part on payment systems that make it hard to realize value from technology investments and clinical products. According to the report, payment mechanisms typically insulate decision-makers (both patients and clinicians) from recognizing the impact of their choices on spending. The absence of quality information and detailed product cost sometimes makes it impossible to differentiate based on value. Providers could revise physician scheduling systems to increase the use of automatic reminders to reduce the number of patient no-shows and limit the types of patients doctors see at certain times; to improve productivity. Payers could further establish a clearinghouse for billing and insurance-related data and automate billing and insurance-related processes. The report also encourages CMS and other government agencies to adopt smart regulations to adapt to changes that occur and align with current healthcare delivery needs.

There are two ways to reduce costs in any industry: increase productivity, or use fewer services. The healthcare industry's larger focus on using fewer services is appropriate on one hand because the industry overuses many benefits, and some are harmful. However, on the other hand, no other sector solved its cost problems by merely consuming less. They also improved their productivity. Despite spending enormously on technology, the healthcare industry has experienced declines in productivity. Recent small productivity gains have come from healthcare workers working at unsustainable levels, resulting in burnout. Economic models suggest that we could solve the healthcare cost problem if healthcare cost productivity could grow by 4%. Some healthcare components, such as discussing individual cancer care options, would undoubtedly be difficult to improve productivity. Clinicians spend up to 50% of their time and several after-work hours documenting in the EMR, contributing to physician burnout and its associated productivity, safety, and personal risks.

Delivery systems can improve clinician productivity significantly by automating documentation as a part of daily work. Regulators need to reduce the documentation burden to minimize this, clinicians need to partner with technology companies, and EMR vendors need to allow other companies to document in their EMRs. Healthcare needs a new system focused on the design of safe systems, rather than clinicians' heroism, leveraging proven systems engineering approaches. Addressing the specific opportunities outlined above can lead to significant improvement in healthcare safety and productivity. Delivery systems will provide the type of care that patients deserve, payers demand, and providers desire as healthcare delivery evolves into an engineered system and opportunities for improved value and productivity grow.