Originally Published MX May/June 2005
INFORMATION TECHNOLOGIES
The Big TargetWithout much assistance from medical device manufacturers, a number of IT firms are taking aim at reducing the costs of healthcare administration.
Ron F. Shinkman
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According to recent reports, nearly a third of every healthcare dollar spent in the United States goes to cover administrative costs. On a total expenditure base of roughly $1.7 trillion, that amounts to $578 billion each year—and counting.
Identifying the sources of such costs can be a complex task. Among the most obvious sources are the time required to create and process patient health records, data entry for hospital information and billing systems, and the processing of claims for third-party payers. But administrative costs also arise from the scheduling of patient appointments, filing and recovery of patient records, and handling of patient referrals. And none of these areas even remotely touch on administrative costs related to a healthcare setting's management of professional staffing, legal affairs, regulatory compliance, or physical plant.
Unquestionably, failure to execute these and other administrative duties would rapidly bring the U.S. healthcare system to a grinding halt. It would not be an overstatement to say that a well-oiled—and well-financed—administrative system is all that stands between a healthcare system that is functioning and one that is on the verge of collapse.
But for many healthcare analysts, administrative costs automatically equate to waste—especially when they soak up such a high proportion of overall healthcare expenditures. Such critics argue that ways must be found to reduce administrative costs in order to preserve the healthcare system as a whole. And the need, they point out, is urgent. Healthcare practitioners are ill-equipped to handle the rapid approach of the aging baby-boomer generation, whose healthcare needs could easily overwhelm a system already buried in paperwork and red tape.
Enter IT. The solution to all ills. The magic wand that will provide efficiencies and reduce costs to manageable levels, making it possible to serve more people, better, and faster. Or will it?
This article looks at the widespread contributors to healthcare administrative costs and some of the proposals for using IT-based systems to remedy current and future ills. Medtech manufacturers will discover that their own role in making such systems work could be a large one.
Top Heavy
For good or ill, Wal-Mart is the proverbial 800-lb gorilla of retailing. The discount chain has been on the cutting edge of such technologies as computerized inventory control and radio-frequency identification tags. It relentlessly pushes its suppliers to adopt such technologies wholesale. As a result, Wal-Mart is able to squeeze profits out of items down to the fraction of a penny and to offer its customers such items as $29 DVD players.
If such a gorilla exists in the healthcare industry, its audience still awaits its emergence from the mist.
Unlike retailing, there is no single customer demographic in healthcare. Hospitals daily perform procedures ranging from liver transplants to liposuction. The payment systems are heavily regulated via such government programs as Medicare and Medicaid, and are simultaneously data rich and rigid. And when it comes to personnel management, a Wal-Mart clerk and a cardiac surgeon must be introduced to new technologies in distinctly different ways.
As a result, healthcare veers toward administrative top-heaviness. A nurse whose primary duty is to deliver care can easily spend a quarter of the workday doing paperwork—assuming a hospital can recruit and retain a good nurse in the first place. If not, hospital managers can spend a good part of their day checking nurse registries for pricey traveling nurses. And that's just a fraction of the daily goings-on in hospital management.
According to a study published in the New England Journal of Medicine, 31% of all U.S. healthcare expenditures in 1999 were earmarked for administration—more than $1000 for every American. That's more than double the $450 spent on average in 1987. Those figures exclude the overhead costs of private healthcare insurers, which average nearly 12% of every dollar taken in. Restricted just to the hospital setting, more than 24% of all expenditures are for administrative tasks.1
Such infrastructure seems to beget more infrastructure, so it's little surprise that between 1969 and 1999, the percentage of administrative and clerical workers who compose the healthcare workforce has grown 50%—from 18.2% of the healthcare labor workforce in 1969 to 27.3% in 1999.1
The healthcare sector has yet to identify a driver of efficiencies on the scale of Wal-Mart. However, many factors are seemingly converging to make healthcare delivery and its administration more technologically savvy—and, by extension, more efficient.
HIPAA
One of the most important developments, experts say, has been the implementation of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). It mandated the creation of uniform electronic patient records, making data exchange between payers and providers far easier. Most providers have become HIPAA-compliant within the last couple of years.
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| Chuck Lund |
"Since we've moved to a HIPAA-enabled environment, many providers can generate an electronic request for treatment authorization, and that's eliminated clerical workers sitting on a telephone waiting for an authorization from an insurer," says Chuck Lund, a vice president of Capgemini Health Consulting (New York City).
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| Mal Underwood |
Mal Underwood, a vice president with First Consulting Group (Long Beach, CA), believes that large-scale benefits from HIPAA compliance are still some years away. Most larger providers are HIPAA-compliant, he notes, but smaller providers have yet to hit that mark. "It's been longer to implementation than expected, but when everyone does get there, it will be a big boost," he says.
Both Lund and Underwood concede that a mandate such as HIPAA does not address one of the most onerous of healthcare administrative tasks: the compilation and fact-checking of voluminous invoices to be sent to payers for reimbursement. This task, often referred to as the back-office operation, is both labor intensive and expensive. According to the Healthcare Financial Management Association (HFMA; Westchester, IL), the typical back office for an academic medical center has a median of more than 10 full-time employees and supervisors per 100,000 claims. Cost per claim averages $7.48. And given that a $20 claim for an office visit requires the same type of handling as a $10,000 surgical claim, the ratio of labor and cost to revenue can be wildly uneven.2
Chipping Away
Experts say no technological initiative will ever remove the healthcare provider's back office, or completely eliminate the need for nurses to perform clerical double duty. There are simply too many forms for reimbursement required by private insurers and government payers. The picayune vetting process to ensure payment means a human element will still be required. Yet the more the human element is needed, the more likely it is that revenue opportunities are being lost. An HFMA study of a single orthopedic department in a group practice using paper-based billing records concluded that 6% of the billing for the department’s outpatient activity was being lost or written off due to billing inaccuracies.3
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| Drew Cobb |
But technologies exist that can chip away at the inefficiencies. One such product, a hardware/software module marketed by Surgical Information Systems (SIS; Alpharetta, GA), addresses billing problems in the surgical suite, from which hospitals derive a substantial chunk of their revenues. According to SIS vice president of systems development Drew Cobb, there are an enormous number of billing variables tied to every procedure. "If I’m having knee surgery, there are charges for the number of minutes the operating room is occupied, a charge for orthopedic services, a charge for each piece of equipment used, and a charge for each prosthetic device," among many others, he says. An OR nurse is typically responsible for recording each charge within the surgical suite, Cobb says. The data are then moved to the back office to be translated into the formats desired by payers. Errors are not uncommon; Cobb recalls one hospital that was receiving $450 less for the use of each prosthetic device than what it was entitled to charge, simply because of a transposition of numerals. "Quite simply, the OR is a scary place for billing," he says.
SIS's rules-based charging (RBC) system engages in real-time billing. The module—which typically employs a desktop computer in the surgical suite or a wireless model that can be wheeled from suite to suite—contains 14 preprogrammed variables to ensure that variable charges are captured accurately and that automatic charges are also included in each procedure. By the time the data are referred to the back office to be sent to payers, virtually all flawed data have been eliminated, Cobb claims. As a result, he says, some SIS clients have been able to generate as much as $400 in additional revenue for each surgery performed.
Medical Center East (Birmingham, AL), a 282-bed acute-care facility, is one of 16 providers using the RBC system. It has reduced the average cost of a surgical procedure by $100, saving an estimated $700,000 annually just in managing its surgical suites. St. Luke's Episcopal Hospital (Houston) used the system to cut late charges in half between 2002 and 2003, from 3.5% of gross revenue to 1.7%.
Another benefit of such a system is ensuring that surgical nurses are spending less time doing paperwork and more on patient care, according to Cobb. "About 30% of a nurse's time can be spent documenting charges," he says. There's no empirical data as of yet, but Cobb believes systems such as RBC will eventually allow hospitals to rely less on nurse registries and traveling nurses, cutting their costs significantly on such expenditures.
The RBC system is costly—$500,000 to $1 million depending on the way it's designed—and therefore out of the reach of many smaller physician groups. Less-pricey alternatives for handling back-office functions are available from firms such as MDeverywhere (Hauppauge, NY). The company's Total Solution/Every Charge package allows physicians to capture charges for care they're rendering in handheld computers. The data are then transmitted to MDeverywhere, which handles the billing submissions to payers. The company takes a commission on the billing, ranging from 4% for a surgical practice to as much as 10% for a primary care practice.
Despite the commission, Rick Jung, MDeverywhere's vice president for sales and marketing, believes that most physicians come out way ahead. "They're getting paid only 70-80% of what they're entitled to because of billing delays or errors," he says.
According to an MD everywhere case study, one group practice cut the average time per inpatient charge to billing from 19 days to 12, and reduced by more than 80% the time needed to correct charge errors. Moreover, the need for 1.3 full-time employees to manually handle billing was eliminated, saving about $48,000 in salary and benefits. That's in addition to the $126,000 in revenue captured annually from submitting previously missed charges.
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| John Hummel |
There are also technological initiatives available for maximizing physician resources while improving the quality of care. Not-for-profit hospital system Sutter Health (Sacramento, CA) has invested $25 million in a system that allows intensivists—physicians who are board certified in critical care—to monitor Sutter hospital ICUs from remote locales. Given that Sutter has several facilities in rural areas of Northern California, where intensivists can be scarce and difficult to recruit, such a setup makes sense, says Sutter Health's chief information officer John Hummel.
According to the Leapfrog Group (Washington, DC), a coalition of purchasers and providers striving to improve healthcare quality, ICU patients whose care is monitored closely by intensivists can improve an ICU's mortality rate by as much as 40%. Yet only 6000 intensivists currently practice in the United States—about 1.5 per hospital on average.
The system Sutter is using, called eICU, was designed by VisICU (Baltimore), and in some ways is reminiscent of an air traffic control center. VisICU relays real-time patient data to intensivists who monitor it from a remote location. The intensivist is able to communicate immediately with other ICU staffers—including an on-site intensivist—if there is a serious change in a patient's vital signs. The remote intensivist also has the option of communicating directly with the patient if the patient is conscious.
Before eICU was introduced, Hummel says, the average intensivist on-site at a hospital could manage about eight ICU patients at a time. "We figured we could get the ratio to one intensivist for 15 patients," Hummel says. Currently, the ratio is one intensivist per 75 ICU patients. Hummel believes the ratio will peak at around one per 100 patients.
"Any productivity ratio where we can leverage one highly trained physician to do 10 times of what they were doing previously is a huge gain," Hummel says. Although this may sound like Sutter's intensivists are being stretched thin, merely putting the patient data right in front of their eyes rather than having them walk rounds is positively affecting the morbidity and mortality rate of each Sutter ICU, Hummel says. In particular, the eICU has proven extremely successful at catching patients with irregular heart rhythms and ordering treatment before they experience a cardiac arrest, which would otherwise greatly reduce survival rates even if a patient's heart were successfully shocked back into rhythm within a short time.
In another technological arena, Sutter is pushing a practice that has been commonplace in the retail world for 30 years: bar coding of drugs by dose. The rationale in the healthcare setting is to reduce medication errors by more closely charting the medications that patients receive. Considering that Sutter hospitals give patients 33 million doses of medicine annually, with a billing-error rate for pharmaceuticals as high as 20%, Hummel believes the need for extra efficiency is obvious.
Yet the design of Sutter's $29 million initiative illustrates just how much work there is left to do in the healthcare arena. Most retail items, from candy bars to plasma televisions, are individually bar coded. For the minority of items that aren't, even the smallest retailer can purchase an inventory control system that includes a bar code printer for less than $3000. Not so for drugs. The pharmaceutical industry bar codes medications in large lots (such as a 500-tablet container of Tylenol), but not individually.
As a result, Sutter has to break medications into individual doses and seal them in plastic bags. The bar code is then affixed to the bag, and checked against a bar code on the patient's identification bracelet. To take advantage of its high-tech drug initiative, in other words, Sutter is purchasing millions of low-tech plastic bags annually.
Conclusion
So far, the systems being implemented in healthcare settings to reduce administrative costs have mostly been developed without the assistance or involvement of traditional medical device manufacturers. The range of functions performed by such systems is impressive: they can be used to capture billing charges, to monitor patients remotely, to ensure proper administration of prescribed medications, and a variety of other labor- and cost-saving activities. But in relation to the medical devices that actually execute diagnostic and therapeutic functions, today's administrative solutions are mostly add-ons. Most existing devices were not designed with such solutions in mind, nor do they contribute anything to those solutions.
But next-generation products that are designed specifically with such solutions in mind aren’t far off. Device manufacturers are actively working to develop technical standards that will simplify connectivity and interoperability among medical products. A number of companies are working on remote monitoring systems, including both home-use and wearable monitors. And enhanced systems for reducing medical errors and ensuring patient safety are rapidly taking the place of older products.
Medical device manufacturers may not yet be focusing on the creation of product features that serve administrative functions exclusively. But with cost pressures and competition constant marketplace factors, the third of all healthcare expenditures that is spent on administration must be considered a tempting target.
References
Ron F. Shinkman is a freelance writer based in Burbank, CA.
Illustration by JONATHAN EVANS
Copyright ©2005 MX
