MediClick met with Kerry Gillespie a few weeks ago at HFMA's ANI Conference in Seattle. Kerry is CFO at Ardent Health, a for-profit network with 11 acute care hospitals in Oklahoma and New Mexico.
For Ardent, establishing a culture of savings starts with a focus on quality. Ardent always talks with its clinicians about how to improve quality and patient outcomes before discussing cost reductions. Kerry says this shows his clinicians that Ardent shares their priorities, and it helps align the interests of the clinical staff with the teams responsible for driving costs out of the supply chain.
Kerry also argues that medical device suppliers need to hold themselves to a higher quality standard: If they're increasing prices 20, 30, 40 percent and justifying it with claims that their new technology is generating better patient outcomes, give us the proof. Show us how quality outcomes have improved at least as much as you've increased the costs to our hospitals.
Below, we talk with Kerry about how his organization fosters and benefits from a culture of savings.
MediClick: How do you involve your clinicians with Ardent's culture of savings activities?
Kerry Gillespie: We rarely talk with clinicians about cost without talking first about quality. That resonates with them. If all they hear is "cost, cost, cost", they think all you care about is process and money. But if they hear "quality and cost; quality and cost", then they know this is an organization that cares about me and cares about my obligations to the patient. They know we're focused on doing the right things.
Managing costs in a quality organization is easier than managing costs in an organization where your nurses and other clinical staff don't think you care about quality. It affects their willingness to participate in your savings initiatives.
There's a business purpose to quality, too. At Ardent, we know we have to stay healthy from a patient volume perspective. It's really easy to manage out your costs when your volumes are there, but it's tougher to manage costs out as volume drops. There's a circular nature to it: we believe that in driving quality up, we'll keep the volumes coming in. If the volume comes in, we're more confident we can manage the costs.
MediClick: Physician preference items present an ongoing struggle for hospitals trying to rein in costs. What is Ardent's approach to the challenge, and what results have you seen?
Kerry: We've come to realize that vendors try to sell us a lot of extraneous supplies, especially for total knees, total hips, and cardiac services. For example, they insist on selling us high-end catheters even when a lower cost product would produce the same quality outcomes.
These vendors are driving the cost factors through our physicians and taking control away from the hospitals. The medical device companies put their reps on aggressive commissions, so they go out and build these great relationships with the doctors. Before you know it, you're using stuff in your operating rooms you didn't have a clue were being used. It's a ton of money, and it's driving up the costs of your services.
So, we're working hard to address this.
We're part of the Acute Care Episode [ACE] Demonstration project through CMS which allows us to work with our physicians to reduce costs. It lets them participate in the up-side of cost reductions through gainsharing. We're able to substantially improve their payments on individual cases.
In terms of engaging physicians, if you can give them an appropriate economic incentive that includes an enhancement to the quality of care delivered, they will work with you every time. We're exploring this through the ACE Demonstration project.
We also stay very focused on the top 20 most expensive med/surg items in all of our facilities. The individual hospital's CFO, materials manager and department heads have conversations with the physicians about utilization and alternative items they might use. Our regional materials managers are ultimately responsible for reducing costs on these items and they report monthly to the corporate office. It's part of our ongoing supply chain operational review.
This process has been very successful. In 2008 alone we took almost $4 million out of supply costs.
MediClick: Does Ardent blaze its own trail, or do you subscribe to a particular process improvement methodology?
Kerry: We recently introduced Lean to our revenue cycle management and realized we had significant waste in our upfront registration processes. We're going to take out 60 percent of the steps and 30 to 40 percent of the costs associated with registration.
We're beginning to bring Lean into our clinical departments, too. Right now we're building a value stream map of the emergency room of one of our biggest facilities, and we'll implement Lean processes there soon.
For people who say Lean works well in manufacturing but not in the patient care setting, I see that as an excuse. It's true that every patient is different, and we're not making simple widgets. But you can use the same principles: pull out the steps that don't add value, reduce the variability, etc. All those things make complete sense in any environment, not just manufacturing.
As I've mentioned, quality is a critical part of the equation. The interesting thing is that when you reduce cost and reduce variability, you improve quality. It's a Six-Sigma concept, and while we haven't implemented that specific methodology, we're borrowing heavily from its ideas. It's making us considerably better and improving our quality metrics.
MediClick: There's been a lot of talk lately about Harvard Business School Professor Clayton Christensen's The Innovator's Prescription. It has renewed dialogue about the true definition of "integrated delivery network." Tell us about Ardent's approach to providing integrated healthcare.
Kerry: I'm familiar with Dr. Christensen and his works, and we're trying to follow a true integration model.
For example, Ardent has a pretty good-sized health plan in our Albuquerque market with about 40 percent market share. We've developed the program so we can sell insurance to organizations at a significantly reduced cost. We pass that cost down to the hospitals, so they're motivated to reduce their costs in order to continue to maintain their budgets.
Albuquerque represents a single market inside of Ardent. It includes the hospitals, the health plan, and all the other services we provide. These are all rolled up into an overall market budget with an earnings target. A significant portion of compensation for the managers is tied to the success of the entire market as well as their individual business units. So it creates aligned incentives. They're motivated to make the health plan successful by containing costs, and they're also responsible that the hospitals keep costs in check.
We don't own physician practices, so the doctor side of it can be a challenge. But everything else is integrated very well.
MediClick: What challenges do you see for the future of the healthcare supply chain?
Kerry: If the industry is really going to reform itself, the suppliers have to come along. They have to participate and sacrifice, too, or reforms are going to be real problematic and put too heavy a burden on the hospitals.
There's something wrong with a medical device company making a 40 percent gross margin on their business and we're doing well to be at seven percent. What's wrong with that picture?
Every time I turn around there's a new pacemaker or new defibrillator. I can't keep a lid on hips and knees because all these joints are always getting a new tweak and being marked up more each time. The device manufacturers are pushing them on the doctors saying they provide better care for their patients. So the doctors are bringing the new products into the hospitals, and we don't have a say in the matter.
The hospitals have to ask: do the innovations improve outcomes at the same rate their prices increase? I'm not seeing new devices producing 20, 30, 40 percent better outcomes. Then how can we justify their prices going up at that rate? We must look at effectiveness when addressing rising costs.
MediClick: Thanks for sharing, Kerry!
