Until this year, people couldn't use the phrase "healthcare cost increases" without adding the adjective "spiraling."
That's changed. Nobody can say hospital costs are spiraling anymore. Earlier this fall, the Prospective Payment Assessment Commission reported that hospital costs per admission rose 2.7% during the first four months of 1994. That was lower than the 3% rise of the Consumer Price Index-something that hasn't happened since the early 1970s.
What's more, hospitals aren't the only "nonspiraling" part of the trend. Medical costs in general are increasing at the lowest rate in 20 years, according to Milliman & Robertson, a consulting and actuarial firm based in Radnor, Pa.
"We've gone to a low-margin business, and when you're in a low-margin business, you have to pay attention to details," said Albert Greene, president and chief executive officer of Alta Bates Medical Center in Berkeley, Calif.
In a marketplace that dictates little or no cost increases, successful providers manage to be profitable, maintain quality care and hold costs down.
It's not an impossible task. Last month, HCIA, a Baltimore-based healthcare information company, reported that the nation's hospitals had a profit margin of 3.02% in 1993, compared with 2.84% in 1992. They got their costs in line by lowering the percentage spent on salaries, benefits and supplies.
To cut costs, hospital executives can choose to lay off staffers and squeeze deeper discounts from vendors. Experienced cost-cutters say, however, that further trims will only be achieved when hospitals change the way they deliver care by embracing concepts such as care-mapping, work redesign and return-on-investment formulas for technology assessment.
Works in progress.To see how that's working, MODERN HEALTHCARE looked at
three facilities in the throes of cost-cutting.
Although Houston's Hermann Hospital, Brookwood Medical Center in Birmingham, Ala., and Alta Bates face different problems and have settled on varying strategies, hospitals can learn from some general observations:
Put your money on the fast horses. Select people to help in the cost-cutting effort who really want to do it. It sounds logical, but consider this: At Brookwood, the 27-member steering committee met weekly at 6 a.m. and averaged a 98% attendance rate.
Use a carrot, not just a stick. At Hermann, 60% of the employees are in incentive compensation programs that reward them for meeting cost or quality targets.
For example, Hermann has employees perform as "mystery shoppers" to judge service in the outpatient clinics. The hospital has paid $700,000 in bonuses and documented $5 million in annual savings since starting the programs two years ago.
Take a "magic-eye" approach. Executives should relax and look deeply into the multidimensional way they do business. As they consider what jobs need to be done, they'll also see which ones don't. Alta Bates accomplished this through care-mapping, which starts in the physician's office and ends with the home-care nurse.
What follows is a look at how the three hospitals are reducing costs.