Why Clinical Quality Should Drive Healthcare Business Strategy

Why Clinical Quality
Should Drive Healthcare
Business Strategy

© 2018 Health Catalyst
Proprietary. Feel free to share but we would appreciate a Health Catalyst citation.
Transforming Healthcare Business Strategy
This report is based on a 2018 Healthcare Analytics Summit
presentation given by Brent C. James, MD, MStat, former Vice
President and Chief Quality Officer at Intermountain Healthcare.
Brent James, MD, MStat
Former Vice President and Chief Quality Officer
Intermountain Healthcare

A hundred years ago, the healing professions
went through a massive transformation in
healthcare delivery.
William Osler, a Canadian physician practicing
at Johns Hopkins University and the founding
father of internal medicine, was one of the
architects of that transformation.
In 1916, when the transformation of healthcare
was underway, Osler spoke to a group of new
physicians at Phipps Clinic in England.
“I’m sorry for you, young men and women of
this generation. You’ll do great things, you’ll
have great victories, and, standing on our
shoulders, you’ll see far, but you can never
have our sensations. To have lived through
a revolution to have seen a new birth of
science a new dispensation of health,
reorganized medical schools, remodeled
hospitals. A new outlook for humanity that
is not given to every generation.”

When William Osler gave that speech, he and
his colleagues were establishing the current
model of care delivery still used today.
Now, the healthcare industry is currently
experiencing a change of a similar magnitude.
With that challenge comes massive
opportunity, one in which today’s pioneers
will be able to echo Osler’s words to the
next generation.
While healthcare organizations need to
reduce costs to maintain viability, the change
must come from clinical quality as the core
business strategy.
Photo: Wellcome Library, London

One such massive opportunity is reducing
unwanted variation in clinical practice.
Variation in clinical practices undermines
the goal of providing high-quality care for
all patients.
High rates of inappropriate care, where
the risk of harm is inherent in the treatment,
can outweigh any potential benefit.
This leads to preventable care-associated
patient injury and death due to an inability to
do what healthcare providers know works.
Reducing Clinical Variation

Investigators began to apply rigorous
clinical research measurement methods
to routine care delivery performance.
In doing so, they discovered that these
systems identify evidence-based best
practice protocols that could be
incorporated into the clinical workflow.

Data from these best practices are then fed
back through a continuous-learning loop
that enables healthcare teams across
organizations to constantly update and
improve the protocols, ultimately reducing
waste, lowering costs, and improving
access to care and patient outcomes.

In the 1980s, healthcare organizations
began using activity-based costing (ABC)
systems that had been successful in
other industries.
At the same time, The Dartmouth Atlas,
developed by Jack Wennberg, worked
to measure and identify significant
geographic variations in care.
Activity-Based Costing in Healthcare

In 1986, Intermountain Healthcare localized
the otherwise broad approach of the
Dartmouth Atlas within its own healthcare
system, incorporating ABC principles and
standardizing the tool across the system.
Intermountain’s Quality, Utilization and
Efficiency (QUE) studies applied rigorous
clinical research methods to routine care
delivery performance in six clinical areas
at the health system’s inpatient facilities
on a local level.

The QUE studies identified massive
variations among physicians and care
teams, even within a single hospital with
all physicians following Intermountain’s
best practice protocols.
That variation was true for all six areas
measured: transurethral prostatectomy,
cholecystectomy, artificial hip joints,
bypass graft surgery of the heart,
permanent pacemakers, and
community-acquired pneumonia.

Each study showed a roughly two-fold variation.
In the case of the QUE studies, the amount
of variation within a single hospital is larger
than the amount of variation that Wennberg
and others were showing across hospital
referral regions.
That large amount of variation inside
each individual facility represents a
huge opportunity for improvement.

Healthcare falls short of its theoretic potential for
the following five reasons:
1. Massive variation in clinical practices
2. High rates of inappropriate care
3. Unacceptable rates of preventable care-
associated patient injury and death
4. Inability to follow best care practices
5. Vast amounts of waste
The Massive Opportunity: Clinical Quality

1. Massive variation in clinical practices
With variation so high, this essentially
guarantees that not all patients receive
high-quality care.

2. High rates of inappropriate care
Care is deemed inappropriate when the risk
of harm inherent in the treatment outweighs
any potential benefit.

3. Unacceptable rates of preventable care-associated patient injury and death
In a profession aiming to “First, do no harm,”
these are situations where patients are placed
in harm’s way in violation of health professionals’
core ethical commitments.
In fact, research shows there are 210,000
preventable deaths each year in the U.S. alone.

4. Inability to follow best care practices
A study of recommended care processes
found that adults surveyed received
recommended processes only about half
of the time (54.9 percent).
If healthcare practitioners can achieve
miracles in care delivery, and that happens
only half the time, imagine what could happen
if best care practices were achieved in close
to 100 percent of patients?

5. Vast amounts of waste
The U.S. spends $3.6 trillion annually on
the delivery of healthcare and as much
as $2 trillion of that amount may be
quality-associated waste.

All five of these factors add up to vast amounts
of waste in healthcare, leading to spiraling
prices that continue to limit access to care.
According to the National Academy of
Medicine, between 35 and 50 percent of all
money spent on care delivery today in the
U.S. is technically waste or non-value
adding from a patient’s perspective.

Some examples of quality-associated waste include:
Recovering from preventable mistakes.
Building unusable products.
Providing unnecessary treatments.
Simple inefficiency.
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Reducing waste is critical to the survival
of healthcare systems.
The interesting thing about tacking waste
reduction is that health systems need to
make an investment in order to make
system-wide changes that extract waste.
Typically, health systems use revenue
growth as their primary financial strategy.
In the average system, a net operating
income drop below three percent can
cause failure.

The response of many healthcare
systems is to build more hospitals,
ambulatory surgical centers, or other
specialty care buildings.
However, the financial leverage that
this mindset can deliver via increased
revenue is merely a five to nine percent
contribution for each case added.

In contrast, the financial leverage
from waste elimination is a 50 to 100
percent contribution to the operating
margin for each case avoided.
Reducing waste dwarfs all other
financial opportunities in healthcare
and in today’s society.

If health systems, want to survive, they need to focus on waste reduction.
Some examples of ways to reduce waste include the following:
Examples of Reducing Waste
Efficiency
This type of waste results
from supply chain or
administrative inefficiencies.
One way to eliminate waste
is to get a lower purchase
price for a drug or a lower
cost to produce a lab test.
Improving this type of
efficiency represents roughly
15 percent of waste.
Within-case utilization
This type of waste refers to
the number and type of units
per case. Some examples
are discussed above
including clinical variation
and avoidable patient
injuries, representing
roughly 40 percent of all
healthcare waste.
Case-rate utilization
This is the number of
cases per population and
includes inappropriate
cases, avoidable cases,
and preference-sensitive
cases, such as when
patients opt out of elective
care. This type of waste
represents 45 percent of
waste opportunities.

Waste Class
% of all
Waste Waste Subclasses
3 Case-Rate
Utilization
(# of cases per population)
45%
• Inappropriate cases (risk outweighs benefit)
(e.g., many cath lab procedures; CTPA)
• Preference-sensitive cases (when given a fair choice, many opt out)
(e.g., elective hips, knees; end-of-life care)
• Avoidable cases (hot spotting, move upstream)
(e.g., team-based care)
2 Within-case
utilization
(# and type of units per case)
40%
• Clinical variation
(e.g., QUE studies; surgical equipment)
• Avoidable patient injury
(e.g., serious safety event systems; CLABSI)
1 Efficiency
(cost per unit of care)
15%
• Supply Chain
• Administrative inefficiencies
- Regulatory burden - Billing thrash
- TPS Lean observation - Current EMR function
Examples of Reducing Waste
Each of these categories has breakouts that healthcare systems can drill down to
the level of action and put a plan in place to reduce waste.

Indicates the drop-in revenue is higher than
reduction in costs–a paved road to financial
dissolution.
The alignment of financial incentives.
Financial Alignment Around Waste
Reduction Opportunities
“The Case for Capitation” in the Harvard
Business Review, shows how to reduce
waste by level shown in Figure 2, (next slide)
correspond directly to payment mechanisms
(Figure 3).
(Figure 2 legend)

Waste Removal
Level
% of all
Waste FFS Per Case
Provider at
Risk
3 Case-Rate
Utilization
(# of cases per population)
45%
2 Within-case
utilization
(# and type of units per case)
50%
1 Efficiency
(cost per unit of care) 5%
Payment Method
Figure 2: Financial incentive alignment under various payment mechanisms.
Note: Green arrows, savings from waste elimination accrue to the care delivery
organization; for pink arrows, savings go to payer organizations.

The financial impacts of clinical quality alignment are real.
Intermountain Healthcare reduced its total cost of
operations by 13 percent through waste reduction
over a four-year period.
The opportunity is there and achievable for
health systems that make the investment.

Figure 3: Financial impact of clinical quality improvement.

In Figure 2, the far-right column shows that the
per case payments are lower risk opportunities
than fee-for service, but if a healthcare system
wants to tackle case-rate utilization opportunities,
that comes with some financial or shared risks.
The bottom line being, the group that makes the
investment must harvest sufficient waste savings
to ensure financial survival and contribute to
operating margins.
Figure 2 also shows that population health-based
payments are the only method that allows the
health system to benefit from reducing all
three categories of waste.

The Lessons
Lessons learned about possibilities for healthcare delivery are:
Clinicians count successes in lives.
While the healthcare industry as a whole is still
falling far short of the miracles within reach,
patient outcomes can be dramatically better.
Knowing that presents an ethical obligation
to do so.
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The Lessons
The path to financial success leads
through clinical management.
Almost always with proper clinical
management, better care is cheaper
care through waste elimination.
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The Lessons
Success does not come from comparing
oneself to others, but through solid
analytics based on good internal data.
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The Lessons
The long-term organizational viability of
clinical quality improvement strategies
requires aligned financial incentives.
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The Future of Healthcare
Knowing these lessons, it’s interesting to speculate
on what the future of healthcare holds.
The two predictions with the greatest implications are:
Pay-for-value will continue to grow
Healthcare IT will mature.
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The implications for increasing pay-for value are:
Increasing focus on waste elimination through
move upstream strategies.
Care delivery organizations will increasingly seek
capitated risk through ownership or partnership.
Stand-alone specialty care practices and
hospitals will increasingly become price takers.
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What maturing healthcare IT will mean:
EMRs’ primary purpose will shift to clinical
decision support.
The resulting systems will be much more
clinically natural and adaptable.
Analytics, including AI and machine
learning, will explode.
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Quality will become the core business and that
will drive bottom-line cost control and waste in
a provider at risk financial environment.

Conclusion
An old Yiddish proverb sums it best:
“Better has no limit.”
Harkening back to the William Osler quote,
healthcare providers and administrators
have only begun to discover how good the
future of healthcare might be.
Each person in the industry should be
tasked with the mission of creating a new
system and paradigm shift of such great
magnitude that future generations can only
begin to imagine the possibilities.

For more information:
“This book is a fantastic piece of work”
– Robert Lindeman MD, FAAP, Chief Physician Quality Officer

More about this topic
Link to original article for a more in-depth discussion.
Why Clinical Quality Should Drive Healthcare Business Strategy
Linking Clinical and Financial Data: The Key to Real Quality and Cost Outcomes
Bobbi Brown, MBA, Senior VP
Transforming Healthcare Analytics: Five Critical Steps
Ann Tinker, MSN, RN, Professional Services, SVP; Dan Hopkins, Professional Services, VP
Prioritizing Healthcare Projects to Optimize ROI
Dorian DiNardo, Senior VP of Analytics; Aaron Neiderhiser, Product Management, Sr. Director
Emergency Department Quality Improvement: Transforming the Delivery of Care
Health Catalyst Editors
Healthcare Project Management Techniques: A Pragmatic Approach to Outcomes Improvement
Curt Sellke, Client Engagement, Sr. Director

Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com
Health Catalyst is a mission-driven data warehousing, analytics and outcomes-improvement company
that helps healthcare organizations of all sizes improve clinical, financial, and operational outcomes
needed to improve population health and accountable care. Our proven enterprise data warehouse
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Health Catalyst was recently named as the leader in the enterprise healthcare BI market in
improvement by KLAS, and has received numerous best-place-to work awards including Modern
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Millenials, and a “Best Perks for Women.”

Why Clinical Quality Should Drive Healthcare Business Strategy

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