Cost Containment and Best Practices

The Clinton Administration's attempts to pass a health care reform package have shed light on several key issues for the medical community. HMOs, managed care, surgeon preference, national health programs and cost-effectiveness are all topics which have surfaced in scrub rooms, boardrooms, ORs and hospital lounges throughout America. And while it appears that the administration has put health care reform on the back burner for the moment, the effects of its efforts have been far-reaching, resulting in policy and procedural changes for hospitals, professional organizations and the medical industry alike.

The catalyst for many of these changes has been the search for cost-effectiveness. Decision makers are being forced to examine the entire constellation of costs that accompany an incident of medical care, including those derived from the surgical procedure, and to determine the most effective way to cut these costs. To assist hospitals faced with this dilemma, United States Surgical Corporation has developed its BEST PRACTICES* Program. No longer content with its role as the preeminent technical innovator, USSC has developed a unique program that uses its considerable expertise within the medical industry to help control costs and keep hospitals financially healthy. By taking a broader look at the cost issue-one not limited to just instrumentation, but total hospital costs-the BEST PRACTICES* Program can help hospitals determine where and how they can control expenses. It asks hospital administrators and surgeons to become more outcomes-oriented and to examine the complete cost of a medical event, to view the treatment of a disease as a process and not as a series of instances of care. Only then, armed with a detailed picture of the real costs inherent in hospital care, can doctors, nurses and administrators effectively set about controlling medical expenditures.

View the treatment of a disease as a process
and not as a series of instances of care.



For physicians, such concern with financial matters has historically seemed inconsistent with their role as healers. And yet, in today's cost-conscious climate, physicians must realize that both proactively addressing financial issues now and partnering with hospital administrators are absolutely essential. To further understand medical costs, Deloitte & Touche, a leader in the health care industry, was asked to examine the impact of laparoscopic surgery on hospital costs and to compare the costs of open versus those for minimally invasive surgery (MIS) techniques. The study, funded by United States Surgical Corp., analyzed actual hospital costs, not charges, to ensure a clear understanding of how MIS might save money for both hospitals and patients.

Using information culled from nine domestic and six European hospitals, the D&T study, entitled "The Economic Impact of Laparoscopic Surgery," surveyed four laparoscopic procedures: laparoscopic cholecystectomy (LC), laparoscopically assisted vaginal hysterectomy (LAVH), laparoscopically assisted inguinal hernia repair (LIHR) and thoracoscopic wedge resection (TWR). As might be expected, the two more commonly performed procedures, LC and LAVH, save money relative to their open counterparts. TWR costs were found to be approximately the same; and LIHR, still early in the learning curve, was found to generate slightly higher costs than its open equivalent. However, in today's economic climate, which mandates that health care providers take a broader perspective in evaluating cost effectiveness, it is imperative to note that each of the four procedures analyzed in the D&T study is cost-effective when total system costs, including disability costs, are considered.



Study shows that hospitals must invest in the OR in order to take full advantage of the cost savings that minimally invasive surgery can offer. Direct variable costs only-Deloitte & Touche Management Consulting.

 In determining total costs for the MIS procedures explored, D&T examined the four main sources of expenditures, the so-called cost drivers, of each of the four procedures in the study:

Hospital length of stay
OR procedure and OR time
OR supplies and equipment
Ancillary services

Based on their findings, it was determined that improved efficiency in any one of these categories could dramatically lower hospital costs. With regard to laparoscopic cholecystectomy, the D&T study found that, in addition to lowering overall costs ($2,405 for the open; $1,937 for the laparoscopic procedure), the MIS procedure shifts the costs of resources to the OR. And, although the MIS procedure increases the use of services in the OR, ancillary costs, room and board charges and anesthesiaŠp;recovery time expenses are reduced. Thus, even a minimal investment in the OR can result in significant savings on each procedure (Fig. 1).

Additionally, the D&T study demonstrated that, if short-term disability costs are included in the calculation-and there is a very good rationale for them to be-then MIS procedures can save significant additional dollars in each case. Offering these endoscopic techniques can make hospitals more attractive to those health care providers seeking these cost-saving benefits. A Resource Worth Discovering The BEST PRACTICES* Program represents a dramatic change in United States Surgical Corporation's approach to the issue of health care. An established leader in the health care industry, the company is bringing its considerable health care experience to the cost issue and working with hospitals to help manage costs. Tom Terry, director of purchasing at Jordan Hospital in Plymouth, Mass, noted this new attitude: "We no longer feel at odds with their viewpoint. USSC's philosophy now covers the whole hospital environment; not only surgeons and technicians, but hospital management and procurement directors" as well. United States Surgical Corp. defines the benefits of its BEST PRACTICES* Program as those efficiencies a hospital can expect to achieve in the short term. Unlike programs sponsored by other corporations, the BEST PRACTICES* Program does not limit its scope to those easily quantifiable line items such as billed medical charges or insurance premiums. Instead, it is designed to take a broader view of health care costs, define methods of reducing these costs and assist hospitals in achieving these reductions. And it is not limited to questions of instrumentation.

The concept of the BEST PRACTICES* Program centers around obtaining optimum performance in each of several key study criteria. These criteria were explored and quantified by the nine domestic hospitals in the D&T study, and the best results comprise the target amounts used in the BEST PRACTICES* Program. That is, the lowest costs from the study hospitals are:

BEST PRACTICES*
Criteria Program Result
OR Equipment $26
OR Supplies and Instruments $503
Other OR Costs $1,166
Anesthesia and Recovery Time $223
Ancillary Service Cost $258

BEST PRACTICES* programs can save hundreds of dollars more per case. Deloitte & Touche Management Consulting. Thus, the BEST PRACTICES* Program results improve on the costs of the laparoscopic procedure, which themselves improve upon the costs of the open procedure (see Figure 2).



An important finding of the D&T study, giving added impetus for the entire BEST PRACTICES* Program, was the surprising fact that although each of the original nine hospitals surveyed showed a clear savings with the laparoscopic approach, none of the hospitals had begun to realize the full cost-cutting potential of MIS, as demonstrated by the results of the BEST PRACTICES* Program. Participation in a BEST PRACTICES* Program is offered by United States Surgical Corporation as a service to hospitals interested in providing cost-effective health care. It provides medical facilities with an outline with which to analyze where costs can be streamlined, services made more cost-efficient and time used more productively. The program is presented by a representative of the company using a computer with software developed for the BEST PRACTICES* Program.


Starting the Program

Each BEST PRACTICES* Program is unique to the facility involved, and the makeup of its in-house task force should be reflective of this fact. The majority of committees in hospitals presently implementing a BEST PRACTICES* Program are multidisciplinary and include medical staff, bioengineers, materials managers and purchasing agents. The spectrum of disciplines represented is reflective not only of each hospital's uniqueness but also of its acknowledgement of present economic needs in today's health care community. A BEST PRACTICES* Program begins by first identifying a need to improve, and second, setting goals to attain specific cost objectives. Key to attaining these objectives is a breakdown of costs at the procedural level.

Initially, statistics culled from laparoscopic cholecystectomies are used to determine the areas on which a hospital should concentrate its efforts. The choice of LC as the standard is a practical one: LC is the most commonly performed MIS procedure and it has become the procedure of choice for patients requiring cholecystectomy. One of the first projects that should be undertaken by the BEST PRACTICES* committee is an accurate assessment of present costs. The initial series of questions in the BEST PRACTICES* Program explores the hospital's equipment costs. For example, what is the number of MIS set-ups? The average number of procedures performed in a week? The average number of years the equipment is used? And what are the capital costs for each set-up? Capital costs are assessed to determine the equipment cost per procedure and the cost of wear and tear. The data are measured against the D&T study average, which is the average based on the results from each of the nine hospitals. As an example, let's take costs from Hospital X and compare them to the study average.


COST COMPARISON PER LAP CHOLE PROCEDURE

1. How many MIS set-ups do you have? (ie, camera, monitor, insufflator) Study average 6 Hospital X average 7

2. What is your average capital equipment cost per MIS set-up?
Study average $39,400
Hospital X average $45,000

3. How many years does your average MIS equipment set-up last?
Study average 5
Hospital X average 5

4. On average, how many MIS procedures do you perform in a week?
Study average 23
Hospital X average 25

In addition to measuring OR time and the total length of hospital stay, a fifth question examines in more detail the specifics of the procedure, which in this case is LC: What is the cost of OR time? supplies? anesthesia care? recovery room services? nursing unit care? ancillary services? From this information, the hospital's committee is able to determine how its facility compares with the study average.

5. Currently, for your average patient undergoing this procedure:
a. How long is the OR time (minutes)?
Study average 137
Hospital X average 150

b. What is the OR cost per minute?
Study average $9.40
Hospital X average $11.00

c. What is the OR supply/instrument cost?
Study average $758
Hospital X average $800

d. What is the anesthesia/recovery cost?
Study average $336
Hospital X average $336

e. What is the total length of stay (days)?
Study average 1.7
Hospital X average 2

f. What is the nursing unit cost per day?
Study average $429
Hospital X average $460

g. What is the ancillary service cost per case?
Study average $619
Hospital X average $619

Since the goal of the tables is to reflect the hospital's present costs, actual data are used when available. When a hospital is unable to provide actual data, the D&T study's averages can be substituted. Should the committee's members feel that their facility's averages exceed those of the D&T standard, the numbers can be altered to reflect their view. Similarly, if the hospital's costs are greater than the D&T average, they should be accurately adjusted.

An analysis is made of the information provided and a summary table demonstrates the cost comparison. Such graphic displays provided by the software used in the BEST PRACTICES* Program help the hospital assess its actual costs per procedure against average cost standards set by the hospitals in the D&T study.


COST COMPARISON PER LAP CHOLE PROCEDURE

OR Equipment
Study average $40
Hospital X average $48

OR Supplies/Equipment
Study average $758
Hospital X average $800

Other OR Costs
Study average $1,288
Hospital X average $1,650

Anesthesia/Recovery Costs
Study average $336
Hospital X average $336

Nursing Unit Cost
Study average $729
Hospital X average $920

Ancillary Service Cost
Study average $619
Hospital X average $619

Total Cost
Study average $3,770
Hospital X average $4,373

D&T Study Average vs Hospital X Average Šp;$ 603

A bar graph is used to visualize cost comparisons and highlight areas that show an obvious need for improvement. However, the object of the BEST PRACTICES* Program is not to achieve parity with the study average but to strive for the optimum cost-efficiency possible for that hospital.

Comparison With the BEST PRACTICES* Program

To better determine how the hospital can reach these goals, a second cost comparison is made using the hospital's current costs and the results of the BEST PRACTICES* Program from the D&T study. Again, the BEST PRACTICES* Program provides the optimum outcome for each of the six cost types featured in the original table. Based on information taken from the previous table, Hospital X has the potential to save an additional $1,639 per laparoscopic cholecystectomy when the BEST PRACTICES* Program (BP) is applied.

ANNUALIZED LAP CHOLECYSTECTOMY PROCEDURES

(Current Revenue vs Current Cost of Hospital X)
Individual Medicare Medicaid Indemnity HMO PPO Other Total Annual Rev: $210,000 245,000 70,000 945,000 157,500 315,000 $1,942,500

Annual Cost: $153,055 306,110 153,055 459,165 229,582 229,582 $1,530,549

Net Income: $ 56,945 Šp;61,110 Šp;83,055 485,835 Šp;72,082 85,418 $ 411,951

COST COMPARISON PER LAP CHOLE PROCEDURE

OR Equipment
Study BP value $26
Hospital X average $48

OR Supplies/Equipment
Study BP value $503
Hospital X average $800

Other OR Costs
Study BP value $1,166
Hospital X average $1,650

Anesthesia/Recovery Costs
Study BP value $223
Hospital X average $336

Nursing Unit Cost
Study BP value $558
Hospital X average $920

Ancillary Service Cost
Study BP value $259
Hospital X average $619

Total Cost
Study BP value $2,734
Hospital X average $4,373

Study BEST PRACTICES* Program Average vs Hospital X Average $1,639

Once again, a bar graph is used to demonstrate differences between actual hospital costs and those that can be achieved when the standards of the BEST PRACTICES* Program are applied. For the majority of hospitals participating in a BEST PRACTICES* Program, as in the model used here, the potential savings are significant.

Fixing Targets of the BEST PRACTICES* Program

Based on these findings, the committee of key hospital managers identifies those areas in need of improvement and establishes target goals for its BEST PRACTICES* Program. These areas might range from reducing instrument costs, reducing OR time or average length of stay, or the reduction of presurgery testing as a result of a reevaluation of critical pathways. Clearly, establishing viable objectives for the program is essential to its success. Targets should be realistic and attainable given the facility and its existing staff. Once objectives have been agreed upon, a third set of graphs is used to compare the targets of the BEST PRACTICES*

Program against the hospital's current costs and to project possible cost savings per procedure

COST COMPARISON PER LAP CHOLE PROCEDURE

OR Equipment
BP target $48
Current Hospital X $48

OR Supplies/Equipment
BP target $700
Current Hospital X $800

Other OR Costs
BP target $1,540
Current Hospital X $1,650

Anesthesia/Recovery costs
BP target $336
Current Hospital X $336

Nursing Unit Cost
BP target $782
Current Hospital X $920

Ancillary Service Cost
BP target $500
Current Hospital X $619

Total Cost
BP target $3,906
Current Hospital X $4,373

Hospital X's potential savings per procedure when targets of the BEST PRACTICES* Program are achieved. $467

The goal of $467 is thus fixed as worth striving for, and it is important to underscore the fact that this goal is very much attainable.

Annual Savings To determine the annual savings potential in terms of the hospital's specific revenue mix, two additional graphics are used: a view of current costs versus current revenues and a view of potential BEST PRACTICES* Program costs compared to current revenue for the LC procedure. These figures are obtained by evaluating reimbursement for the procedure in six categories (individual [or self pay], Medicare, Medicaid, indemnity insurance, HMO/PPO, and other) in light of the appropriate percentage of the payor mix for the specific hospital. First, committee members are provided with a dollar breakdown of current costs compared to current revenue based on actual data. In the case of Hospital X, a profit of $411,951 is generated using current practices despite substantial losses from Medicare, Medicaid and HMO/PPO reimbursement cases. (See Figure 3)

"USSC's philosophy now covers the whole hospital environment; not only surgeons and technicians, but hospital management and procurement directors' as well."




When current costs are viewed in light of potential revenue generated if the targets of the BEST PRACTICES* Program are reached, losses in the three insurance reimbursement programs previously mentioned are cut dramatically and the increase in total earned income is substantial. By reaching the targets posed by the BEST PRACTICES* Program, Hospital X can increase its net annual income for laparoscopic cholecystectomy to $575,400 over its current income of $411,951, an increase of $163,449 annually, or 40%. (See Figure 4) Having determined that implementing a BEST PRACTICES* Program can be beneficial, the Hospital's task force is faced with determining how best to attain its BEST PRACTICES* targets. In many of the facilities presently involved in the BEST PRACTICES* process, standardization is a recurring theme.

Implementing a BEST PRACTICES* Program Using MIS equipment efficiently and well is a key element in all successful MIS procedures. By designating specific OR suites for MIS use, hospitals are finding that time is saved by eliminating the trouble of shifting the capital equipment from room to room. Light sources, insufflators and cameras are all subject to myriad glitches when repeatedly transferred about. In addition, missing connectors, hoses and cables can delay procedures substantially, increasing both OR time and the time patients remain under anesthesia, both of which negatively affect the overall cost of a procedure. The solution? Standardize the OR. Standardization of MIS staffing is another means by which hospitals can achieve goals set by the BEST PRACTICES* Program. By designating a specific team or set of teams of OR personnel to assist in MIS surgery, procedures become more efficient. Familiarity with the procedure and its instrumentation and comfort in dealing with the intricacies of insufflators, monitors, etc, can significantly reduce OR time and associated OR costs (and, not coincidentally, complications!).

The opportunity to introduce less experienced staff to MIS procedures while assisting and observing a highly trained unit is ancillary to the block scheduling approach. Not only will this help to build a more diverse pool of trained professionals from which to draw; it provides educational experience without increased expense. Yet another way that hospitals can help to reduce OR costs is to institute a policy in which a selected person or persons is dedicated to maintaining all reusable instruments. Disassembling, cleaning, sterilizing and reassembling sometimes complicated reusable instruments is both labor-intensive and time consuming, and mistakes of omission and commission can occur.


Figure 4:

ANNUALIZED LAP CHOLECYSTECTOMY PROCEDURES
(Current Revenue vs BEST PRACTICES* Program Cost of Hospital X)

Individ. Medicare Medicaid Indemnity HMO PPO Other Total Annual Rev:
$210,000 245,000 70,000 945,000 157,500 315,000 $1,942,500

Annual Cost:
$136,710 273,420 136,710 410,130 205,065 205,065 $1,367,100

Net Income:
$73,290 Šp;28,420 Šp;66,710 534,870 Šp;47,565 109,935 $ 575,400


Again, experience is key to eliminating waste and error. As part of the D&T study, the issue of reusable and disposable laparoscopic instrumentation was explored. In keeping with its broad, total cost view, the study not only evaluated purchase costs, but also included labor and supply costs needed for sterilization and cleaning, the costs for repair and maintenance of reusables and other related costs. The study found that the total costs of both reusables and disposables were essentially equal. However, it noted that disposables offered benefits not quantifiable in the study: "These included reduced risk of postoperative infection/transfer of bloodborne pathogens resulting from improper cleaning and sterilization, improved instrument performance and reduced risk of employee injury." The added benefits of disposable versus reusable instrumentation were also extensively studied and quantified by such experts as Kathie Weatherly and Marimargaret Reichert (AORN Journal 1993;57[3]:637).


Through education and experience, surgeons and OR staff
are able to reduce the kinds and numbers
of instruments pulled for a given procedure.



Another method relating to the BEST PRACTICES* Program that can significantly lower costs is to standardize instruments for any given procedure. As surgeons and technicians become more comfortable with a set of instruments or eliminate dated or redundant instruments from their armamentarium, instrument carts should be reorganized. Gaining a consensus from surgeons on which instruments are critical for a given procedure can eliminate wasted time preparing and maintaining rarely used or multiple products that add to the cost of the procedure. Just as no two hospitals are alike, no two BEST PRACTICES* Programs are alike. Pat Clement, Vice President for Perioperative and Invasive Therapies, St. Mary's Hospital, Waterbury, Conn, found she was able to reduce instrument costs with BEST PRACTICE* Kits, available through United States Surgical Corporation.

Built and customized to reflect the needs of the hospital, the kits can be adjusted as preferences or needs require. Ms. Clement, citing one of the benefits of the kits she likes the most, said "BEST PRACTICES* Kits save money by providing you with the flexibility to switch instruments as surgeons' techniques and preferences change. You're allowed to do some 'horse trading' and restructure the kits." Barbara Caddy, a unit coordinator at Kaiser Hospital, San Diego, Calif, also cited the BEST PRACTICES* Kits as a way to reduce costs. "The BEST PRACTICES* Kits simplify our lives. They cut down on storage and help to ensure that all of the products are available for a procedure. And if one of the instruments isn't used, it is individually sterile-packed and can go right back on the shelf. There's a remarkable savings per year in going with the kits." Dr. Thomas Paluch, also of Kaiser Hospital, said that "the kits guarantee that I'll have every instrument I need for a given procedure. I don't have to be concerned that the staff will waste time running around trying to find something that wasn't placed on the cart. The kits can also be modified. As we advance our technique, we're able to add or pull out items from the kits." In addressing the issue of reusables vs disposables, Dr. Paluch commented that, as in many hospitals, his BEST PRACTICES* Kits are a combination of both. "I find it more practical to use reusables in some cases. However, I like sharp scissors, and no matter how many people try to make me use a reusable pair, I'm going to use disposables."

Are BEST PRACTICES* Kits always a cost saver? Not necessarily. In those hospitals less experienced in MIS procedures, where surgeons are still early in the learning curve of laparoscopic procedures, the BEST PRACTICES* Kits may not be the most cost-effective alternative initially. Until surgeons are able to reach a consensus of which instruments are necessary for each of the procedures, kits may not be the best answer. However, this type of packaging always should be a goal in order to minimize cost and maximize efficiency. Certainly, the procedure-oriented BEST PRACTICES* Kits are not the only method suggested to reduce OR costs. A frequently mentioned alternative is standardization of instrumentation. Through education and experience, surgeons and OR staff are able to reduce the kinds and numbers of instruments pulled for a given procedure. The reduced cost can be measured in both time and instrument expense. Costs can be further reduced by reevaluating the 'critical pathway' for medical procedures. Also called clinical pathways, care maps and myriad other terms, these are the procedures, tests and medications undertaken in pursuit of patient care. Critical pathways are reviewed in order to ascertain the optimum use of hospital resources, and the critical pathways for specific surgical procedures vary.

Rick Dana Barlow (Hospital Purchasing News 1994, Vol. 18, No. 7), noted that "physicians may wrinkle their noses and attach the label 'cookbook medicine' or 'health care ˆ la paint-by-numbers' to clinical pathways, but health care material managers are finding them to be effective avenues to streamline supply flow and to control expenses." Use of critical pathways is becoming increasingly common. Certainly with regard to MIS surgeries, the series of blood tests, x-rays and procedural requirements might vary, even substantially, from those traditionally administered for open procedures. Often, hospitals that have implemented the BEST PRACTICES* Program have also begun to study the critical pathways presently used for open procedures.

Connecticut's Norwalk Hospital is implementing a BEST PRACTICES* program to reduce the overall costs of its laparoscopic cholecystectomy procedures, and one facet of its approach is a reexamination of its critical pathways. Claudette Ikeda, Administrative Director of Nursing Resources and Systems, is a member of the team charged with this responsibility. "With the assistance of a consultant, we were able to summarize and define our BEST PRACTICES* [Program] target." Norwalk's multidisciplinary care team is responsible for drafting, testing, fine-tuning and educating personnel about the BEST PRACTICES* program. The team identifies problems and critical pathways and oversees the program's overall impact. Comprising surgeons, nurses, OR Managers and discharge planning personnel, the committee's goal is to reduce the hospital length of stay to 23 hours by reexamining the critical pathway associated with their LC procedure. Each member of the team is responsible for examining his area of concentration to determine what changes should be made to support the desired outcome. "Basically, we begin in the surgeon's office, from pretesting through to recovery," Ikeda explained.

Rita Connaughton, Administrative Manager for Surgical Services, is also a member of the team evaluating critical pathways at Norwalk Hospital. Having spent almost two years organizing OR equipment and staffing for MIS procedures, Ms. Connaughton had a lead on several of the tenets of standardization of the BEST PRACTICES* Program. Charged with concentrating initially on reusable instruments' hidden costs, such as maintenance, turnover time and depreciation, Connaughton expanded her scope of responsibilities to include the length of set-up time for MIS equipment and laparoscopic instrumentation in order to determine how costs could be streamlined. In addition to the use of techniques related to the BEST PRACTICES* Program presently being explored in the OR for minimally invasive surgery, she was confident that a similar program of reevaluation could be effectively used for open procedures. Of the BEST PRACTICES* Program itself, Connaughton said that "once you involve the physicians and the other departments and everyone can see the global picture, it provides a more positive experience." The results of Norwalk Hospital's pilot program with selective LC patients are presently being evaluated.