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Many hospitals are cost-cutting in wrong places

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Navigant Healthcare Managing Director Bruce Hallowell says in a recent interview in  RevCycleIntelligence  that too many hospitals and healthcare systems overlook where there is management duplication. He says that they may be focusing on the wrong places.

He  asserts, that, among other things:

When hospitals do cost reductions, they look at cost, not outcomes. This takes their bottom line away. There is a bad habit in healthcare of treating everybody like a Medicare patient, so Medicare pays on DRG (diagnosis-related group) and we don’t get paid based on things like length of stay. There’s a huge effort to cut length of stay. When I’m cutting cost, I need to cut costs in the appropriate area.”

He says the best overall way for hospitals to consider costs is: “You have to look at it from the holistic approach. What are the costs that are actually costing me something in my different payer levels? Is it a utilization or a variation? How do I get rid of variation and not worry about the number of days?”

His view of  changes from  new payment methodologies:

If you have two underperforming units at two different hospitals that are five miles apart, if we moved them to one facility, they would be a high-performing function, but we don’t want to make those tough decisions. The new payment methodologies will force the healthcare industry to make tough decisions, such as do I really need four OB units within ten miles of each other or do I need one? ACOs (Accountable Care Organizations) – basically capitation with no control – are starting to look at risk components, making sure we get continuing of care from beginning to end provides an idea of how cost is structured.”

On ICD-10’s effects on  hospitals’ revenue and reimbursement situations:

ICD-10 is going to have a bigger impact on hospitals from a revenue and cash standpoint than anything else that’s coming right now. I have to get past that before I can deal with ACOs  and bundled payments. ICD-10 is the biggest threat to any income. ” (For laypersons: ICD-10 is the 10th revision of the International Statistical Classification of Diseases and Related Health Problems.)

“People who are not taking it seriously understand it from a technical standpoint and not a process standpoint. The threat is impending change that has a direct impact on reimbursement and that’s where my cash and investment comes from….”


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