Quality and productivity

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noerpa Quality and productivity are companions, not trade-offs. Quality outcomes can be enhanced only if managers manage to both quality and productivity. But hospitals seem to be missing out on both dramatic increases in productivity currently experienced by other industry sectors, and positive changes in patient outcomes. Without increases in productivity hospitals will continue to increase charges, further perpetuating rapid increases in healthcare costs. Without increases in quality outcomes, hospitals are placing a portion of their revenue at risk.

Hospital systems in the United States face two significant problems – decreasing productivity and neutral changes in quality outcomes. Starting in 1997, the Budget Reconciliation Act began reducing scheduled Medicare reimbursements to hospitals. Suddenly, responsibility for healthcare expenses began shifting to acute care hospitals, where management still finds itself grappling with the need to develop strategies to reduce hospital costs and improve the quality of patient care.

In 2006, the ability to maintain a competitive cost position will be further compounded as hospitals will have a portion of their reimbursements at risk, that is, based on hospital performance as measured by quality outcomes. Mixing decreased reimbursement with quality outcomes makes the pressure to increase quality an important initiative. However, it also places a concomitant squeeze on the financial resources of a hospital since it seems that the few solutions to delivering a higher quality of care require a significant investment in information systems and additional labor. Implementing any of the potential solutions to providing a higher quality of care, such as Computerized Physician Order Entry (CPOE), without considering how these components are integrated, or how other currently available resources will be impacted, will result in further decreases in productivity and ultimately a higher cost position for hospitals.

Contents 1 Why is productivity so important? 2 Productivity versus quality 3 The implications of low productivity 4 CPOE as an example 5 Performance management model 6 Summary 7 References and resources

Why is productivity so important?

In recent years many hospitals have failed to capitalize on their most significant labor and non-labor investments because the implementation of significant opportunities for improvement have lacked structure and measurement. Intensivists are being added to focus on ICU care, Hospitalists have been added to inpatient care units to manage care, Clinical Pharmacists have been introduced to encourage physicians to switch to less costly prescription alternatives and case management models are being expanded to focus on coordinating the Intensivists and Hospitalists activities, not to mention the patient's own Attending Physician who requests consults from other Specialists. At the same time hospitals are trying to train reluctant physicians on the usage and benefits of Computer Physician Order Entry (CPOE) to improve quality outcomes by automating medicine order and administration. However, recent productivity and quality data suggests that hospitals have been largely ineffective at maximizing system-wide return-on-investment from these initiatives. None of this additional expense existed prior to managed care and the net effect has largely been decreased productivity with little impact on quality outcomes.

Increasing productivity is the best way for hospitals to systematically control healthcare costs. To control costs, the dollar value of hospital initiatives that increase productivity needs to exceed those initiatives that do not. Over time, without increases in productivity, hospitals across the nation will be forced to ration healthcare to those who can afford it and to revisit their common missions of serving the needs of their community. While, hospitals suggest that the root cause of reduced productivity is the cost of providing healthcare for the uninsured population, national surveys show that the primary reason people are uninsured is because health insurance coverage is too expensive^[1].

Paul Klugman wrote in 1990 that “Productivity isn’t everything, but in the long run it is almost everything”. Without increases in productivity more people must be hired to produce the same amount of goods or services, which leads to increases in prices of products. The federal deficit, inflation and even international competitiveness are pretty much innocuous phenomenon as long as they don’t have a significant impact on productivity. The mighty productivity measure stands alone among economic measures. The last three years have quietly seen extraordinary increases in non-hospital industry productivity, especially when compared to the louder economic changes of the 1990s. The higher profile market craze of the 1990s ended with a stunning correction in 2001 that was again followed by dramatic changes in productivity among most business sectors.

Output per hour of all persons, labor productivity, is the most commonly used productivity measure. Labor is an easily identified input to virtually every production and service process. In the U.S non-farm business sector, labor cost represents more than sixty percent of the value of output produced. Output per hour in the non-farm business sector is the productivity statistic most often cited by the press. According to the chart below [Figure 1], changes in productivity in business, non-farm and manufacturing sectors continues to be positive, in the range of 3% to 4% since 1996^[2].

Productivity versus quality

Economist Tor Dahl researched and compared two sets of non-hospital business units, those that are considered quality-focused (six-sigma), and those that are considered performance-oriented (stable and consistent)^[3]. What he found was that corporations that focused on quality encountered lower changes in productivity and lower net income. The revelation of Dahl’s study is that over the same period, the performance-oriented corporations that focused on productivity are also associated with high quality. That is, those companies that primarily focused on increases in productivity produced high quality products and services to boot.

How would U.S acute care hospitals be categorized, quality focused or productivity oriented?

The Institute of Medicine (IOM) issued a report called “To Err is Human” in 1999. The IOM discovered that care in the United States is not safe, and that between 44,000 and 98,000 people die each year as a result of medical errors that could have been prevented. The Quality of Healthcare in America Committee of the Institute of Medicine stated that it is unacceptable for patients to be harmed by the same system that promises to “First do no harm”. The IOM recommended the creation of leadership, research, tools and protocols to enhance the knowledge base about safety; and to create a mandatory reporting system. Since that time, there has been an intense focus on measuring and tracking quality indicators and making those indicators public. However, five years after the IOM “To Err is Human report”, The Medicare Payment Advisory Commission (MedPAC) issued a report in June 2005 called “Healthcare Spending and the Medicare Program” determined that a large number of patient-safety adverse events in Medicare beneficiaries increased form 1995 to 2003. In short, the healthcare industry has been obsessed with measuring quality outcomes and as Dahls’ research and the MedPac report suggest, too many quality dollars are being spent without improvements in outcomes or productivity.

While a number of hospital processes of care did show improvement from 2001-2003, many of the rates of improvement on leading indicators, such as whether patients discharged for heart failure were given appropriate discharge instructions or whether prophylactic antibiotics were discontinued within 24 hours after surgery, remained too low. In 2002, the Agency for Healthcare Research and Quality (AHRQ), identified 20 indicators for potentially preventable patient safety incidents that could be readily identified in hospital discharge data. This set of patient safety indicators was created and released to the public in 2003 to be used to assess patient safety in U.S hospitals. The first year results of AHRQ’s initiative revealed that hospital-acquired infection rates, which appear to be correlated with AHRQ’s patient safety indicators, worsened by about 20 percent from 2000-2003. The excess costs associated with this single indicator represents almost 30 percent of the total excess cost related to patient safety incidents^[4]. These findings suggest that gathering data without a predetermined strategy for maximizing the return on investment of quality dollar expenditures will not only lead to undesirable patient safety outcomes, but also to an increase in expenses. The Centers for Medicare & Medicaid Services (CMS) is now introducing financial incentives to improve patient safety indicators to help speed up the process of protecting patients from harm in acute-care hospital settings^[5].

So if hospital quality outcomes have not been the result of the post 90s economic growth spurt, what about acute-care hospital productivity?

Each year since 1996 has been marked by a net increase in employed hours and, according to the U.S. Department of Labor, the percentage change in employed hours in hospitals during this time ranged from .5% to 2.5%. Productivity is measure by dividing employed hours by some measurement of industry output. A common measure of output in the hospital industry is admissions. But this measure does not reflect the outpatient population served by acute care hospitals. And so, hospitals generally modify this measure based on the relationship between inpatient and outpatient revenue. This output measure is called “adjusted admissions”. Employed hours per adjusted admission shows that the change in hours per adjusted admissions has slowed to practically zero from the year 2000 to 2005^[6]. But how does this dynamic of percent change in output per hour compare to other U.S industry sectors?

As you can see in Figure 2, while the change in business, non-farm and manufacturing productivity has steadily increased, hospital changes in productivity has steadily declined. Without positive changes in productivity, hospitals need more and more resources to produce the same amount of services. If productivity is decreasing, then the only way for hospitals to generate positive earnings is to increase pricing, which would explain why the stakeholders of healthcare providers, particularly employers who pass on only a percentage of healthcare costs to employees, are experiencing a healthcare expense crunch. Those employers, many of whom are faced with union contract provisions precluding changes in health benefits, are forced to close factories and add to the ranks of unemployed individuals. This diverse economic model creates a vicious cycle where decreases in health sector productivity contribute to increases in the number of uninsured people, which has the ultimate effect of further jeopardizing the financial stability of our leading healthcare providers.

The implications of low productivity

It’s not surprising then that the likes of “The Leap Frog Group”, a consortium of 170 large national employers who purchase healthcare, have banded together to reduce preventable medical mistakes and improve the quality and affordability of health care. The Leapfrog Group is supporting efforts that direct employees to use those hospitals that offer relatively higher quality healthcare. Through a voluntarily hospital survey, Leapfrog asks hospitals whether they meet three quality and safety practices. The survey was created coincident with the IOH study “To Err is Human”. The survey is based on three criteria,

• Computer Physician Order Entry (CPOE): With CPOE systems, hospital staff enters medication orders via computers that are linked to prescribing error prevention software. CPOE has been shown to reduce serious prescribing errors in hospitals by more than 50%^[7].
• Evidence-Based Hospital Referral (EHR): Consumers and health care purchasers should choose hospitals with extensive experience and the best results with certain high-risk surgeries and conditions. By referring patients needing certain complex medical procedures to hospitals offering the best survival odds based on scientifically valid criteria — such as the number of times a hospital performs these procedures each year or other process or outcomes data — research indicates that a patient’s risk of dying could be reduced by 40%.
• ICU Physician Staffing (IPS): Staffing ICUs with doctors who have special training in critical care medicine referred to as Intensivists, has been shown to reduce the risk of patients dying in the ICU by 40%.

At the end of October 2005, 49 percent (952) of targeted hospitals had responded to the annual survey. In addition, more than 230 hospitals outside of the 28 regions had responded to the survey on their own initiative, without a formal request from Leapfrog.

But if hospitals are responding to the call for action from CMS and The Leapfrog Group to more closely measure outcomes, implement extraordinarily expensive IT systems, and hire specialized Intensivists, why are they experiencing decreases in productivity and neutral quality outcome results?

CPOE as an example

In a 2004 study, McKinsey and The London School of Economics randomly selected 100 companies and rated each on a scale of 0-5 on three dimensions – lean production, performance management and talent management. A one-point difference in any of these three dimensions showed a 25% difference in productivity. The study found that those companies that increased their management practices score by one point increased their financial returns by 42%. In the same comparison group, top quartile IT focused companies had one sixth the impact of a one-point improvement in management practices and companies with more powerful IT didn’t do better financially. Their conclusion was that companies get the biggest benefit from combining IT investments with good management practices. Good management practices can improve productivity a good deal by themselves. But companies should improve their management practices and then invest in IT.

For example, much of the medical care that physicians deliver is based upon tradition, their own training and personal anecdotal experience. As a result, different physicians achieve different outcomes when they treat patients with common conditions. And it’s the variation in practice that frequently obscures the comparison between particular interventions on patient outcomes. The key to unleashing hospital productivity gains is by reducing variation in practice, not just reducing the likelihood of an error.

While the imperative to implement Computer Physician Order Entry (CPOE) is in the reduction of medical errors, singularly focusing on reaping quality improvements from CPOE is simply not enough to achieve dramatic gains in hospital productivity. The implementation of CPOE has the potential to yield tremendous gains in both physician and hospital productivity. CPOE implementation can have a far greater impact on the return-on-investment if the preliminary steps to CPOE implementation go beyond order sets and into protocols and pathways. Wishard Hospital, an award-winning county hospital, is known nationally for its efficiency, excellent care outcomes, and state-of-the-art computerized order entry and patient database system. According to Dr. Paul Dexter, Chief Medical Officer at Wishard Hospital, "Although we have proven that CPOE can come before defined protocols and pathways, defining order sets prior to the implementation of CPOE does increase the likelihood that CPOE will be successful. However, having CPOE at your institution and using it effectively to improve productivity versus quality requires very different strategies.”

The construction of typical treatment pathways requires providers to agree prospectively on a common regimen of clinical interventions, a significant learning curve for many physicians. But if physicians don’t agree on a common regimen of clinical interventions, than the productivity gains of CPOE becomes limited to changes in physician productivity. And improving physician productivity has limited capacity to impact the hospital’s CPOE return-on-investment.

A dramatic improvement in hospital productivity from CPOE requires the organization to push forward with defining protocols and clinical pathways. Use of clinical pathways for patients admitted with chest pain and congenital heart disease have been proven to decreased hospital costs and lengths of stay. Clinical pathways can reduce hospital variation in drug usage, allowing hospitals to take advantage of volume discounts on drug purchases that cannot be achieved when the hospital has to maintain a larger inventory of disparate drugs. While these combined efforts can reduce healthcare costs via drug savings and increased staff productivity, success does not come without a substantial investment of time spent on securing physician consensus.

Dr. Marc Overage of the Regenstrief Institute, an internationally recognized informatics and healthcare research organization, points out, "You would likely find much more agreement than disagreement in terms of the way different doctors treat their patients. But only about 20% of medical practice has an evidence base, so it is very difficult to gain agreement on the things they do differently." Therefore, in order to maximize the return-on-investment from implementing CPOE, hospital leadership needs to formulate a strategy for gaining agreement on clinical pathways from their physicians so that savings from increased productivity can be realized.

Unlocking these excess costs due to variation means using new management methods, using objective data to demonstrate the variation in how resources are used. Collaboration and networking between hospitals can speed up organizational learning. According to Dr. Overage, "There is much less variation within an institution that you may think and much more variation between hospitals”, which makes inter-hospital collaboration critical.

Comparative and objective outcome information is available and can be shared between physicians. For example, cost data exists that can measure productivity variation within a hospital, and between hospitals. Variation in costs suggests variation in practice. Isolating the service line and the physician practices that show the greatest variation is a critical first step.

Allow physicians to be involved in the new work design. Redirect physicians to focus on how the delivery of care can be streamlined. Identify where the bottlenecks to care are, the performance glitches, and then implement CPOE only as a means of supporting the caregivers’ efforts at standardizing care. A core set of metrics should be created and tracked over time (treatment cost variation within a hospital and comparisons with other hospitals). Then hospitals can get the combined benefit from good management practices and IT investments. Then hospitals can dramatically improve the return on investment in IT systems like CPOE.

Performance management model

Poor quality is the result of a performance glitch. In any facility, if a product or service is not delivering expected outcomes then there is opportunity to increase productivity. This is based on the premise that a poor outcome (resulting in low productivity) costs more than a good outcome (resulting in high productivity). The difference between the two rests entirely on how the institution is managed. Peter Drucker stated it clearly:

“All businesses have access to pretty much the same resources. Except for the rare monopoly situation, the only thing that differentiates one business from another in any given field is the quality of management on all levels. That is, the degree to which resources are utilized and their yield. The continuous improvement of productivity is one of management’s most important jobs.”

Identifying opportunities for improvement and leveraging all available resources to the same goals and objectives is what good managers do. Demanding improved performance, exploiting opportunities through the best information available and converting critical weaknesses into strengths requires managerial discipline. Too many hospitals manage productivity and quality separately, leading to decreases in productivity. Improving productivity by managing waste out of the system and creating quality outcomes are on the same side of the coin in any industry.

1. Identify a gap.
   Identify the organization’s strategic imperative for success and then measure the difference between current operating performance and the funding requirement of the strategic imperative. Communicate the gap throughout the organization. Many hospitals miss opportunities resulting from governmental regulations. Rather than characterize required changes as 'unfunded governmental mandates', hospitals can look for the opportunity within the mandate.
   CPOE Example: CPOE cannot be successfully implemented if it's only benefit is perceived to be satisfying a manadate from a regulatory agency. The strategic imperative is to streamline the practice of medicine and standardize processes so productivity and patient outcomes can be improved?
   
2. Prioritize the opportunity.
   Triangulate on opportunity for closing the gap by comparing department information (by function) and clinical information (by service line) [see Figure 3]
   
   

   Figure 3: Opportunity by Function and by Service Line
   CPOE Example: Use both clinical information and financial information to identify opportunities for improvement in care and improvement in costs. List these opportunities in descending order and find out what those components have in common. How many could be addressed if standardized processes were in place. How many bottlenecks occur from variations in processes?
3. Engage managers and care givers.
   Communicate the strategic imperative and the operating gap. Show managers how the data is constructed in the initial stages of the analysis so they can identify anomalies and be fully engaged in the PI process.
   CPOE Example: Use comparable benchmarks to isolate opportunities for improvement in service lines or DRGs. Show physicians the source of data and demonstrate variations in practice.
4. Evaluate the implications.
   Senior Management aligns the strategic gap with the identified opportunity from the benchmark. Communicate both the gap and the opportunity to achieve the strategic imperative.
   CPOE Example: Reach a majority opinion (not necessarily consensus) on where the opportunity lies. Describe the potential future state if the barriers to improving patient outcomes are overcome and if streamlining processes could occur.
5. Generate alternatives.
   Provide networking opportunities between other hospitals to support idea generation. All hospitals are basically generating the same outcome with slightly different processes.
   CPOE Example: Contact other hospitals that have experienced a similar problem. Find implementation success stories. While all hospitals are unique, the desired outcomes are similar. Speed up the learning process by leveraging the experience of others.
6. Create action plans.
   Encourage managers to move forward and create an action plan. That is, what is the manager going to do, what opportunity would it yield, who needs to be involved, how will it effect other stakeholders?
   CPOE Example: Be specific about the desired outcomes. Identify who the stakeholders are and engage them in improvement efforts early on. Find opinion leaders and involve them in specific tasks that need to be accomplished.
7. Measure progress.
   Identify action plan measures to track progress against team goals and objectives. The senior team evaluates action plans for potential stumbling blocks or other missed opportunities.
   CPOE Example: Define each action plan in terms of a specific measure. Have the senior management team describe their concerns in terms of measures.
8. Create a dashboard.
   Track PI team progress and measure action plan impact on the entire organizational system.
   CPOE Example: Consolidate all measures in one location. Define control limits around process measures to be sure mission critical systems are not disturbed. Track action plan measures for periodic progress. Create opportunities for team updates and include milestones for mid-project accomplishments.

Summary

Moving the hospital industry to share in the productivity changes that other business sectors are currently experiencing requires a new hospital management model. If hospitals continue to create strategic objectives without a vision for specific operational targets to support them, then opportunities for gains in productivity will go unnoticed and unrealized. Overtime, lost productivity will result in higher healthcare costs, and higher costs will result in a decrease in demand. In short, identifying operational capability in advance of identifying the strategic requirement is limiting and can cause an organization to fall short of its mission.

In order to yield the gains that other business sectors are experiencing, hospital leadership needs to first identify the cost of the hospital strategy that will achieve the hospital mission, measure the gap between the current operating performance and the required operating performance, and then identify what is required to close the gap. Identify the operational opportunity through credible benchmarking data that identifies the top areas of functional and clinical excess. Be sure to build manager support for your initiatives by thoroughly communicating the data that will support the decisions you will need to make to fund your strategic imperative. Move managers to action by requiring them to build action plans, which contain specific measures around goal attainment. Close the cycle by tracking the movement of your specific action plan measures against the goals you have set for funding the hospital’s mission. Finally, be sure that these indicators that you are tracking are easily accessible to everyone in the organization.

Hospitals can share in the productivity opportunities provided in the current market just as other business sectors have by using similar management techniques. And quality outcomes can be enhanced only if managers manage to both quality and productivity. It doesn’t have to be one or the other.

References and resources

1. ^ The Henry J. Kaiser Family Foundation. The Uninsured: A Primer, Key Facts About Americans without Health Insurance. 2004. 10 November 2004.
2. ^ U.S Department of Labor Statistics.
3. ^ â€œThe Unfreezing of America”, Tor Dahl
4. ^ HealthGrades Quality Study, Second Annual Patient Safety in American Hospitals Report, May 2005
5. ^  MedPAC Quality of care for Medicare beneficiaries. Report to the Congress: Medicare Payment Policy, March 2005.
6. ^ The change in productivity was derived from The Lewin Group analysis of American Hospital Association Annual Survey Data, in American Hospital Association/The Lewin Group, TrendWatch Chartbook 2004.
7. ^ The cost of CPOE systems & Other IT Patient Safety Activities in Georgia Hospitals, Steven D. Cutler, Rollins School of Public Health, Emory University, AHRQ Annual Conference, June 6, 2004.

Stephen Lothrop and Sarah Nickerson are consultants with The Healthcare Management Council, Inc. (HMC), a Needham, MA based firm that focuses on acute-care hospital Benchmarking and Performance Improvement Management systems.