by Stefani Daniels, for HealthLeaders Media, July 14, 2008
Published on Mar 12, 2016

The introduction of Medicare' prospective payment system in 1983 prompted some deep strategic thinking by hospital executives about future revenue and how to best preserve margins. The thinking went something like this: "If Medicare is giving the hospital a flat fee to cover its costs based on an expected length of stay, then if the patient stays in the hospital for less than the expected length of stay, the hospital will make a profit."

It sounds reasonable based on the reimbursement methodology, but it was flawed logic simply because it was assumed that if the patient stayed in the hospital fewer days than expected, then fewer resources would be consumed. With fewer resources consumed, the difference between Medicare's DRG reimbursement and the hospital's actual cost would result in an attractive margin that every hospital needs to financially thrive. The reality turned out to be quite different. Resource consumption did not decline and physicians continued to practice exactly the way they did pre-DRG—but they did it in fewer days. It is this legacy assumption that still pervades much of the thinking about hospital costs, margins, and length of stay, and hospitals are still feeling the pinch.

A recipe for bankruptcy?
Since 1983, approximately 2,500 hospitals have gone bankrupt, closed, or have been acquired. Though decreasing margins continue to grab headlines in healthcare magazines, hospital executives remain slavishly devoted to the LOS measure. It appears on their desk every morning, every month, and every year according to patient units, physicians, service lines, and any other drill-down meant to communicate the LOS impact. And when the hospital's LOS is higher than that of the state, regional, or national indicators—or if it's not in line with budgeted expectations-the occupants of executive suites across the country issue directives to beef up the hospital's control and command tactics to 'get the patients out quicker.'

That's not to say that LOS is not a valuable metric. Indeed, it is important to gauge hospital efficiency, to maximize the volume of patients in profitable service lines, to attract managed care contracts, to maintain competitive edge and to stay aligned with regional and national benchmarks. It is also a very easy metric to obtain. Though hospitals are replete with data, it is often difficult to access information that would prove helpful to hospital leaders in their quest to improve efficiency, reduce costs, and decrease length of stay.

There are many internal operational situations that every utilization review coordinator or, more recently, case managers routinely encounter in their efforts to advance a patient's treatment plan and effect a timely transition to a lower level of care or discharge. Singularly or in combination, these situations add up to a complexity of variables that needlessly prolong LOS. Situations ranging from inaccurate registration information to delays in delivery of care, consulting specialist responsiveness, ancillary services availability, timely diagnostic testing and reporting, scheduling limitations, and communication mishaps are among the numerous controllable situations that are often cited as cause for excessive length of stay.

Since 1983, length of stay has been the organizational mantra, and since 1983 doctors have been begged, harassed, coaxed, and sweet-talked into discharging their patients as soon as they no longer require an acute level of care. As part of this effort, physicians are asked to consider some other acceptable alternative that can be provided to the patient at a lower level of care. In addition, utilization review coordinators or case managers have pleaded, encouraged, and negotiated with department heads to schedule the diagnostics the doctors have ordered and expedite the results so the patient can be discharged promptly. These ‘discussions' have been going on since 1983 and nothing has changed. Physician practice decisions and delivery of care processes still drive the patient's navigation through the hospital system with the end result of a length of stay that keeps the chief financial officer awake every night. This scenario is a classic example of that overused example about doing the same thing over and over and expecting different results.

Physician practice behaviors
In the past, and according to Medicare's Conditions of Participation, it was left to the hospital's utilization review committee to monitor individual cases with excessive LOS. That directive, while still on the books, is beyond the reality of most hospitals and is rarely practiced. Instead, hospitals generally use LOS trends to identify physicians whose practice decisions routinely put patients over the accepted LOS threshold or whose use of resources far exceed those used by their peers caring for similar patients. But even with objective outlier evidence, offending physicians face little or no consequences. Hospital boards of directors and executive leadership are either unaware of the problem or incapable of implementing solutions. Research from Dartmouth University and the RAND Corporation have consistently confirmed that physicians aren't prescribing more resources because their patients are sicker, but rather because of practice patterns, resource availability, and a perverse reimbursement system that pays physicians for doing more-not doing better.

Back in the 1980s, hospital information systems and technical support staff were ill-prepared for the kind of monitoring it takes to examine physician practices beyond length of stay. Today however, every practice decision made by the physician—how many tests are ordered, how many consultants are brought in, how many days the patient remains warehoused before elective surgery is done—are known. The data exist at the hospital, state, and federal level, and are often used by a variety of public and proprietary oversight agencies and insurance companies to compare a physician's practice against those of his peers caring for similar patients. While the use of the claims data is an inexact science and subject to the vagaries of hospital-specific financial policies, they can be used as a consistent measure of resource consumption. Even if the data are unreliable—and often they are, given the inconsistencies in the hospital's CDM or revenue codes—they will be consistently unreliable. Statistical consistency rather than reliability makes the process a suitable technique to objectively confirm physician practices. This data provides practice information about medical interventions that are not related to the patient's reason for admission; wasteful discretionary treatments; disregard of evidence-based medical protocols; excessive LOS; and compliance with quality measures. Armed with this information, especially when presented in a comparative format, physicians tend to self-modify practice patterns to stay under the bell curve and avoid scrutiny as long as patient quality is never compromised.

Delivery-of-care processes
Hospitals are complex organizations and suffer from the silo-centric nature of their structure. Administrators are put to the test daily to improve delivery-of-care processes to meet staggering demands and overcome the challenge of communication between multiple caregivers. Tracking the timeliness of scheduling a treatment or service, providing that treatment or service, and reporting the results of that treatment or service are tests of patience. The number of steps in every delivery-of-care process, the sheer number of people who have a hand in the care process, and the process variables that have to be considered are overwhelming, especially in large academic medical centers. Hospitals have tried. From Deming to Six Sigma, administrators have introduced methodologies to help hospital departments streamline processes to make them more patient-centric. But the structural and operational complexities of the hospital defy every effort, and obstacles continue to emanate from every service delivery department. Just think of the number of people and tasks involved in a simple order for a blood test. The complexity and cost of delivering a treatment or service create barriers. 

Over the past few years, however, as hospital case management programs have matured, one of the features of most programs involves capturing, quantifying, and reporting potentially avoidable days. Using a preprinted list of every possible system-, patient-, community-, nurse-, or physician-related reason why a patient's navigation through the episode of care has been delayed, hospital case managers are providing objective information to the C-suite on hospital efficiency. Like physician profiles, potentially avoidable day (PAD) reports are not an exact science, but as hospitals strive to streamline processes and evaluate the business case for providing 24/7 delivery-of-care, the reports take on new value. In the absence of anything better, PAD reports paint a vivid map of barriers and obstacles that impede or delay a patient's progress through an episode of acute care and subsequent return to the community. Knowing that every day in the hospital increases the patient's risk of a medical miss-adventure, case managers are the eyes and ears of the executive team to target opportunities for performance improvement. Whenever possible, the case manager will advocate on the patient's behalf to expedite the prescribed service or treatment. At some point, however, the department heads of those departments must be held accountable or hospitals will continue to see patients suffer and margins decline.

One against the other
The combination of physician practice decisions and delivery of care processes add costs to every patient admission, extend LOS beyond the geometric mean, and eat away at potential margins. Hospitals are overrun with data relating to both of these major variables, and only recently are hospital executives able to turn that data into practical information. Today, using severity-adjusted comparative data, hospital execs know the source of their financial hemorrhaging; they know which physicians are consuming resources beyond the mean for a similar group of patients; they know the physicians who are making questionable referrals to specialist consultants; they know what system or community obstacles obstruct the patients' safe and swift navigation through the acute level of care; and they know which physician or service line produces the needed margins to stay economically healthy. Armed with this information, it's time to shift the center of attention from length of stay to delivery-of-care processes and resource management using physician specific margins, costs per case, and data demonstrating system inefficiencies.

Slavish focus on length of stay is an out-of-date tactic. If cost per case is less than the DRG reimbursement, the hospital achieves a margin no matter what the LOS might be. The literature is replete with studies showing that a decrease in LOS, occurring as it does at the end of the patient's stay when less intensive resources are consumed, does not equate to a concomitant decrease in total resource utilization and cost per case. If quality patient care and financial viability is the hospital's goal, then it's time to switch strategies.

Shifting focus to physician-specific practice patterns and consistent monitoring of delays and obstacles caused by organizational and community barriers is of even greater significance in hospitals with per diem, fee-for-service, or discounted-fee-for-service commercial contracts. Under these reimbursement methodologies, every acute care day and every medically prescribed intervention will be scrutinized by the payer. Positive reimbursement determination will be made once the payer is satisfied that the service, treatment, or care could only be provided at the acute level of care and are appropriate to the patient's severity of illness and prognosis. Denial information is essential to identify the source of revenue hemorrhaging. However, hospital finance departments have little if any information on their denial situation. They have denial management committees–an oxymoron if I ever heard one–but can rarely tell committee members the specific source of the denial by payer, reason, or attributable source. They have write-off lists galore, but buried in those lists of contractually dictated revenue shortfalls are the actual denial dollars that had to be written off, as well. It is the rare hospital that I have encountered that can point to specific payers denying specific services for specific populations.

Physicians who practice the same way today they did 10 years ago will generate more denials than those who are in synch with the exigencies of today's financial environment. Hospital executives must commit to using severity-adjusted physician resource utilization practice profiles to help physicians target practice areas that extend beyond the bell curve, and they must hold department heads accountable for efficient service provision with consequences to both within a given time frame. Unless the medical staff sees a genuine improvement in hospital efficiencies they will not be motivated to make a change in their practice.

Stop the insanity
Length of stay is an easily obtained proxy measure of both physician practice decisions and the inefficiencies of hospital delivery-of-care processes. While there are many other variables that contribute to LOS, these two factors comprise the major stumbling blocks and constitute the ones that can be modified with renewed vigor in the administrative suite and supported by the board.

The hospital environment has changed dramatically, and access to inpatient care has become even more complex with the shortages in nursing staff, available acute care beds, medical specialists, and access to primary care. These variables are often used as ancillary arguments supporting the continued use of LOS as the key metric for financial health. However, after 25 years since PPS was introduced, it's time to shift priorities. Influence the physician's use of the pen and remove, or at least minimize, system, process and community barriers, and LOS will fall like a row of dominos. Unfortunately, many hospital administrators have been reluctant to tackle the former and have not been very successful in improving the latter.

But there is a light at the end of the tunnel in the form of the hospital's case management program. Hospital case management and the PPS share the same birthday. The former was initially developed to cope with the latter. In the 1990s, plummeting margins, the re-engineering craze, and the lack of understanding about what constitutes professional case management practice forced hospital executives to downsize and reduce expenses resulting in the deterioration of case management practice into discharge planning and utilization review programs. Recently, however, there has been a welcome resurgence of executive interest in authentic case management as a strategy to engage the medical staff to advance the treatment plan and invigorate the hospital's bottom line. Relieved of the burdensome tasks foisted upon them during the re-engineering craze of the 1990s, today's hospital case manager is a valuable asset and a consistent advocate for safe, swift, and cost-effective care.

But first, stop the badgering. Stop harassing the current staff of case managers, utilization reviewers, discharge planners, medical chiefs, and the CFO about length of stay. Then get your information systems up to snuff. Make sure you regularly update your CDM, review and update your utilization review plan, coordinate departmental rev codes, purchase access to severity adjusting software, and recruit decision support specialists who know how to turn data into business intelligence.

To monitor and ultimately efficiently overcome delivery-of-care obstacles, make sure your case management team has access to a method of capturing potentially avoidable delays or days (PAD) and that there is a mechanism to quantify the data based on a pre-determined financial metric such as average variable costs per patient day or average revenue per patient day. If it turns out it costs $300,000 to fix a $100,000 PAD problem, obviously it makes no business sense to do so. But let case managers and medical staff know that administration will revisit the issue at some future date. But if it costs $60,000 to fix a $150,000 problem, then something should be done, and that, too, should be broadcast to hospital associates.

Reorganizing and reorientating the hospital's case management program will also spell relief. In the vast majority of hospitals, case management programs are functional models; that is, the professionals on staff—case managers and social workers—typically perform the two major functions traditionally associated with length of stay: Utilization review and discharge planning.

Utilization review is a retrospective contractual obligation. In terms of Medicare and Medicaid patients, it is governed by the CoP and the language spelled out in the hospital's utilization review plan. In terms of commercial insurers, it is spelled out in the payer provider manual and the contract. Contract language can be changed, and if the hospital can provide objective evidence that the hospital's payer denial rate is so low that boilerplate utilization review language is no longer applicable, it should be changed. Likewise, since the language of the UR plan dictates the review activities for Medicare and Medicaid beneficiaries, that too can be modified. With efficiency improvement, the professional resources dedicated to the perfunctory activities of chart review and post-discharge arrangements can be delegated to non-professionals, leaving the professional staff to work alongside the physicians at the point of service to promote high-quality, cost-effective care and advocate for the patient.

The business case for case management
Like so much in healthcare, case management has evolved. Today's models focus on achieving outcomes and are structurally and operationally designed to generate clinical and financial bottom line results. Offering a case manager to serve as a navigator for targeted physicians and selected patient populations is a popular strategy to achieve those results. In addition, delegating burdensome clerical and record review activities to non-professional staff is a growing strategy to increase the case manager's visibility and availability to work in partnership with rounding physicians and clinical nurses. Starting with a robust and centralized gatekeeping system through transition to home or a lower level of care, the case manager serves as the chief experience officer: a single consistent, point-of-care resource to their customers to promote better quality care at lower costs. In an era of value-based purchasing, pay for performance and public reporting of safety, financial, and quality outcomes, patients and physicians benefit from having an advocate at their side. They warrant closer attention and greater support from the C-suite.