Many quality care initiatives reduce unnecessary care. The transition to appropriate care thus results in fewer consultations, fewer days in hospital, fewer interventions, and fewer tests. But how can we turn these results into a cost saving and reverse the rising cost of care? That is a difficult challenge, especially because in the real world, Strategy& has noticed that volume reductions do not usually lead directly to lower costs. ‘But it’s certainly possible,’ says Anja Blonk of Rivas Zorggroep. ‘Between 2015 and 2017, we cut the number of days patients spend at Beatrix Hospital by approximately 2,500 (15%) by preventing new admissions and re-admissions. That meant that we were able to shut down a ward in 2017 and save about 500,000 euros a year.’
Cost categories and the impact of a volume reduction
Once the transition is under way and production volumes have declined, the time is ripe to reduce costs. We divide costs into three categories: variable, fixed, and staff-related. Variable costs include materials and food. In principle, a decline in production will lead straight to a fall in use. The aim in this context is to optimise procurement and consumption. Care institutions also have fixed costs, such as debt servicing charges. These are not influenced directly by care production and therefore do not have a direct impact on costs. Third, every care institutions has staff-related costs. These costs may represent more than half of the institution’s overall costs. Although lowering production will not lead straight to a drop in staffing costs, it will have a direct impact on the staff’s schedules. The size of that impact varies from one job category to the next.
Anja Blonk, director of hospital care of Rivas Zorggroep
‘Between 2015 and 2017, we cut the number of days patients spend at Beatrix Hospital by approximately 2,500 (15%) by preventing new admissions and re-admissions. That meant that we were able to shut down a ward in 2017 and save about 500,000 euros a year.’
Challenges of cost reduction
Our many years of experience have taught us that care institutions face a number of major challenges when attempting to reduce costs. We list them below.
Impact of appropriate care unknown beforehand: It is difficult to estimate the impact of appropriate care initiatives in advance. Capitalising on the cost savings driven by such initiatives requires a short cycle between volume impact assessments and the ensuing saving targets.
Impact per initiative and department is often small: The impact of initiatives is often highly fragmented. Hospitals will have to assess the effect on cost reduction by looking at the whole picture.
Cost reductions threaten efficient operational management: Intensive Care and Accident & Emergency require a certain minimum scale to function. When volumes decline and subspecialisations increase, a growing number of departments do not have enough scale to innovate and remain relevant. Hospitals can remedy this by entering into network structures with other hospitals and by sharing capacity.
Nature of sector makes reductions difficult: The health care sector focuses on people and social welfare and has little experience in staff reductions. Although this is one of its strengths, care institutions will need to give more consideration to costs in their structures, incentives, decision-making powers and information. Timing is important in managing cost reductions.
At Strategy&, we believe that volume reduction and lower costs should go hand in hand. In the real world, we have noticed that variable costs and the reduction of staffing costs offer the greatest potential. Active steps must therefore be taken to reduce capacity. But how does that work in practice? For example, to calculate how much an outpatient clinic could save, we calculate lower production volumes in terms of impact on hours worked. One option is to calculate a decline in the necessary visiting hours based a reduction in the number of consultations.
We then have three different ways to achieve cost savings, which we often introduce in practical situations in combination or in phases. They are:
- lower scheduled visiting hours for a pre-determined period by a certain percentage;
- optimise existing staffing (both specialists and support staff) during consultation hours;
- introduce structural changes, for example having different outpatient clinics share assistants, merging department support staff, or optimising the specialist/assistant ratio.
There is a tendency to fill in the time gained with other activities. In some cases that can be a good move, as long as the activities concerned are related to appropriate care (for example, taking more time in the outpatient clinic for decision-making or to develop new appropriate care initiatives). Often, however, such moves are not advisable and concern new activities that offer little or no value. It is therefore crucial to strike the right balance and be strict about not filling in the time with activities that have nothing to do with appropriate care.
Next month we will discuss a new way of managing care institutions. This new approach streamlines quality management and cost control and simplifies the transition to patient-centred care.