Innovations in Orthopedics

To reconcile mission and margin, deliver better outcomes at lower costs

 

Anthony M.
DiGioia III

Starting with this issue, the Emerging Technologies and Innovations column has been renamed to Innovations in Orthopedics. I believe this name change better reflects the new practices, processes and technologies that will impact the future delivery of orthopedic care. Topics of future columns will include current innovations, as well as those developing ideas and novel concepts important for orthopedists and the orthopedic community. All previously published Emerging Technologies and Innovations columns are available online here.

— Anthony M. DiGioia III, MD

For this month’s column, I have reached out to Robert S. Kaplan, PhD, a professor at Harvard Business School and sought-out speaker on strategy execution, performance management systems and value measurement in health care. Kaplan’s collaboration on value measurement in health care with noted competitive strategist and fellow Harvard Business School professor Michael E. Porter, PhD, is well known and often cited in discussions on transforming health care.

Kaplan is the co-developer of the Balanced Scorecard and time-driven activity-based costing, which is used to measure costs throughout the cycle of patient care. In addition to the 14 books he has authored on these subjects, he has written or collaborated on more than 100 published academic articles and 23 articles published in the Harvard Business Review. Kaplan is a member of the Accounting Hall of Fame and received the American Accounting Association Outstanding Accounting Educator Award.

Anthony M. DiGioia III, MD
Editor

As pressure for cost containment increases, physicians have two feasible responses. They can ignore or attempt to resist the pressure, waiting until government payers, insurers and large employer groups eventually demand and implement arbitrary reductions in reimbursement. Such a response has predictable consequences: lower quality of care, rationing, financial distress, and eventually, breakdowns within the health care system. Alternatively, physicians can take control over their destinies by achieving cost reductions through intelligent redesign of their clinical and administrative processes. This response enables them to sustain financial margins while continuing to deliver their mission of excellent patient outcomes.

Robert S. Kaplan

Robert S. Kaplan

Value-based health care delivery

Fundamental reform requires that providers adopt a single performance goal: increase the value they deliver to patients. Physicians increase value when they improve patient outcomes, without increasing costs, and when they reduce costs while delivering the same or better outcomes. For the past 4 years, a value-based research team at Harvard Business School (HBS) has been working with orthopedic surgical groups at University of Pittsburgh Medical Center (UPMC), Brigham and Women’s Hospital, Boston Children’s Hospital, Mayo Clinic, University of California, San Francisco, Connecticut Joint Replacement Unit and the Schön Klinik in Germany. These sites are implementing the value approach, starting with accurate measurement of the outcomes and costs associated with repairing conditions, such as knee and hip arthritis and rotator cuff tears. During 2014, the Institute of Health care Improvement along with the HBS team will conduct a 1-year collaborative learning community with 25 organizations to measure and improve joint replacement costs and outcomes.

Orthopedic groups that implement the value-based health care delivery approach specify and measure the clinical and functional outcomes for the treatment of specific medical conditions using methods such as WOMAC and SF-12 scores as well as patient-reported outcomes including the degree of pain and physical function. The groups also measure costs spanning a complete cycle of care, starting with the initial visit to the orthopedic surgeon and concluding months later after physical therapy and rehabilitation.

Methods to manage costs

Cost measurement uses two management tools: process mapping, a method taken from industrial engineering, and time-driven activity-based costing (TDABC) taken from accounting. The process maps are developed by a project team of clinical, quality improvement and administrative personnel during face-to-face meetings with subject experts. The maps represent each clinical and administrative event performed during a patient’s complete care cycle, as well as the person (or equipment) performing that event and the time required. Due to the unique circumstances of individual patients, a map can include decision nodes, which allow alternative care paths to be followed when appropriate for the patient’s specific circumstances.

The UPMC Bone and Joint Center (BJC) uses low-cost resources (students, interns and orientees) for real-time, direct observation of patients and families through every segment of their health care journey, which is followed by review and validation by subject experts. This technique, called shadowing, improves the accuracy and efficiency of process mapping, and also provides a mechanism to collect clinical and experiential outcomes (both of which are important components of value for patients and their families) and also can be used in new provider payment plans. The BJC uses the six-step Patient and Family Centered Care Methodology and Practice (PFCC M/P) to improve the processes that are identified by the process mapping and shadowing methods. PFCC M/P provides the framework for care teams to quickly implement improvements, as well as for clinical and financial teams to sustain continuous change.

The costing method (TDABC) uses project team members with finance expertise to assign the costs of direct and support staff personnel, space, equipment and consumables used during the entire care cycle, starting with the preoperative appointment and testing, and continuing through the operating room, day of surgery, inpatient stay, rehabilitation, home care and clinic visits. The finance people calculate a cost per minute (known as the capacity cost rate) for each person and equipment, multiply this rate by the time required at each administrative and care event, and then sum these elements (along with the costs of drugs, devices, supplies and other consumables) across all events to obtain accurate, detailed and transparent clinical and administrative costs across the entire care cycle.

The process maps and TDABC help clinicians reduce costs while improving clinical outcomes and patient satisfaction. Rather than forcing a trade-off between mission and margin, we have seen cost-saving opportunities of 20% to 40% at our pilot sites while we having the same or better outcomes.

Among the value improvement opportunities revealed are:

  • Process improvements: eliminate process steps that do not contribute to better outcomes, benchmark and standardize processes across similar facilities treating the same clinical condition, and reduce the time and resources required to perform the remaining processes.
  • Resource substitutions (work at “top of license”): use lower-cost clinical and administrative personnel to perform process steps currently performed by high-cost clinicians, with no degradation in outcomes; also perform procedures and process steps in lower cost locations or with less costly equipment, supplies and devices.
  • Resource capacity planning: expand volume where unused capacity exists or eliminate costly unused capacity no longer needed to meet patient needs.

The BJC’s success in combining TDABC and shadowing is being extended to another UPMC total joint replacement program, a benchmarking application within a health care system and to the clinical area of hysterectomy, which will demonstrate the applicability of the approach to nonorthopedic clinical conditions.

Perhaps the most important benefit will come when physicians use accurate clinical outcomes and cost information to partner with insurers and hospitals to adopt new value-based reimbursement approaches. Clinicians, confident of their costs and outcomes, can offer bundled prices that represent a discount from the current collection of fee-for-service payments for care cycles while maintaining and often improving their financial margins (profits) per case.

We believe that bundled payments will encourage value-based competition among providers for each medical condition. Providers, motivated to produce excellent outcomes and now accountable for delivering them at a fixed price, will strive to use more efficient processes, higher capacity utilization and seamless, integrated care for patients. With bundled reimbursement based on valid patient outcomes, effective and efficient physician groups should experience growth and profitability, and patients will enjoy the benefits from having physicians with proven experience and outcomes treating their clinical conditions. This is the recipe for healthy competition and a health care system that delivers value to patients, not arbitrary cost-cutting and rationing.

References:
DiGioia AM. J Nurs Adm. 2013;doi: 10.1097/NNA.0b013e31827860db.
DiGioia AM. Clin Orthop Relat Res. 2012;doi: 10.1007/s11999-011-2051-3.
http://blogs.hbr.org/2013/10/how-to-design-a-bundled-payment-around-value/
http://blogs.hbr.org/2013/10/intelligent-redesign-of-health-care/
For more information:
Robert S. Kaplan, PhD, is Marvin Bower Professor of Leadership Development, emeritus, at Harvard Business School. He can be reached at rkaplan@hbs.edu.
Pamela K. Greenhouse, MBA, is executive director of PFCC Innovation Center of UPMC, 3380 Boulevard of the Allies, Suite 270, Pittsburgh, PA 15213; email: greenhousepk@upmc.edu.
Anthony M. DiGioia III, MD, is the editor of Innovations in Orthopedics. He can be reached at tony@pfcusa.org.
Disclosures: Kaplan, Greenhouse and DiGioia have no relevant financial disclosures.
 

Anthony M.
DiGioia III

Starting with this issue, the Emerging Technologies and Innovations column has been renamed to Innovations in Orthopedics. I believe this name change better reflects the new practices, processes and technologies that will impact the future delivery of orthopedic care. Topics of future columns will include current innovations, as well as those developing ideas and novel concepts important for orthopedists and the orthopedic community. All previously published Emerging Technologies and Innovations columns are available online here.

— Anthony M. DiGioia III, MD

For this month’s column, I have reached out to Robert S. Kaplan, PhD, a professor at Harvard Business School and sought-out speaker on strategy execution, performance management systems and value measurement in health care. Kaplan’s collaboration on value measurement in health care with noted competitive strategist and fellow Harvard Business School professor Michael E. Porter, PhD, is well known and often cited in discussions on transforming health care.

Kaplan is the co-developer of the Balanced Scorecard and time-driven activity-based costing, which is used to measure costs throughout the cycle of patient care. In addition to the 14 books he has authored on these subjects, he has written or collaborated on more than 100 published academic articles and 23 articles published in the Harvard Business Review. Kaplan is a member of the Accounting Hall of Fame and received the American Accounting Association Outstanding Accounting Educator Award.

Anthony M. DiGioia III, MD
Editor

As pressure for cost containment increases, physicians have two feasible responses. They can ignore or attempt to resist the pressure, waiting until government payers, insurers and large employer groups eventually demand and implement arbitrary reductions in reimbursement. Such a response has predictable consequences: lower quality of care, rationing, financial distress, and eventually, breakdowns within the health care system. Alternatively, physicians can take control over their destinies by achieving cost reductions through intelligent redesign of their clinical and administrative processes. This response enables them to sustain financial margins while continuing to deliver their mission of excellent patient outcomes.

Robert S. Kaplan

Robert S. Kaplan

Value-based health care delivery

Fundamental reform requires that providers adopt a single performance goal: increase the value they deliver to patients. Physicians increase value when they improve patient outcomes, without increasing costs, and when they reduce costs while delivering the same or better outcomes. For the past 4 years, a value-based research team at Harvard Business School (HBS) has been working with orthopedic surgical groups at University of Pittsburgh Medical Center (UPMC), Brigham and Women’s Hospital, Boston Children’s Hospital, Mayo Clinic, University of California, San Francisco, Connecticut Joint Replacement Unit and the Schön Klinik in Germany. These sites are implementing the value approach, starting with accurate measurement of the outcomes and costs associated with repairing conditions, such as knee and hip arthritis and rotator cuff tears. During 2014, the Institute of Health care Improvement along with the HBS team will conduct a 1-year collaborative learning community with 25 organizations to measure and improve joint replacement costs and outcomes.

Orthopedic groups that implement the value-based health care delivery approach specify and measure the clinical and functional outcomes for the treatment of specific medical conditions using methods such as WOMAC and SF-12 scores as well as patient-reported outcomes including the degree of pain and physical function. The groups also measure costs spanning a complete cycle of care, starting with the initial visit to the orthopedic surgeon and concluding months later after physical therapy and rehabilitation.

Methods to manage costs

Cost measurement uses two management tools: process mapping, a method taken from industrial engineering, and time-driven activity-based costing (TDABC) taken from accounting. The process maps are developed by a project team of clinical, quality improvement and administrative personnel during face-to-face meetings with subject experts. The maps represent each clinical and administrative event performed during a patient’s complete care cycle, as well as the person (or equipment) performing that event and the time required. Due to the unique circumstances of individual patients, a map can include decision nodes, which allow alternative care paths to be followed when appropriate for the patient’s specific circumstances.

The UPMC Bone and Joint Center (BJC) uses low-cost resources (students, interns and orientees) for real-time, direct observation of patients and families through every segment of their health care journey, which is followed by review and validation by subject experts. This technique, called shadowing, improves the accuracy and efficiency of process mapping, and also provides a mechanism to collect clinical and experiential outcomes (both of which are important components of value for patients and their families) and also can be used in new provider payment plans. The BJC uses the six-step Patient and Family Centered Care Methodology and Practice (PFCC M/P) to improve the processes that are identified by the process mapping and shadowing methods. PFCC M/P provides the framework for care teams to quickly implement improvements, as well as for clinical and financial teams to sustain continuous change.

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The costing method (TDABC) uses project team members with finance expertise to assign the costs of direct and support staff personnel, space, equipment and consumables used during the entire care cycle, starting with the preoperative appointment and testing, and continuing through the operating room, day of surgery, inpatient stay, rehabilitation, home care and clinic visits. The finance people calculate a cost per minute (known as the capacity cost rate) for each person and equipment, multiply this rate by the time required at each administrative and care event, and then sum these elements (along with the costs of drugs, devices, supplies and other consumables) across all events to obtain accurate, detailed and transparent clinical and administrative costs across the entire care cycle.

The process maps and TDABC help clinicians reduce costs while improving clinical outcomes and patient satisfaction. Rather than forcing a trade-off between mission and margin, we have seen cost-saving opportunities of 20% to 40% at our pilot sites while we having the same or better outcomes.

Among the value improvement opportunities revealed are:

  • Process improvements: eliminate process steps that do not contribute to better outcomes, benchmark and standardize processes across similar facilities treating the same clinical condition, and reduce the time and resources required to perform the remaining processes.
  • Resource substitutions (work at “top of license”): use lower-cost clinical and administrative personnel to perform process steps currently performed by high-cost clinicians, with no degradation in outcomes; also perform procedures and process steps in lower cost locations or with less costly equipment, supplies and devices.
  • Resource capacity planning: expand volume where unused capacity exists or eliminate costly unused capacity no longer needed to meet patient needs.

The BJC’s success in combining TDABC and shadowing is being extended to another UPMC total joint replacement program, a benchmarking application within a health care system and to the clinical area of hysterectomy, which will demonstrate the applicability of the approach to nonorthopedic clinical conditions.

Perhaps the most important benefit will come when physicians use accurate clinical outcomes and cost information to partner with insurers and hospitals to adopt new value-based reimbursement approaches. Clinicians, confident of their costs and outcomes, can offer bundled prices that represent a discount from the current collection of fee-for-service payments for care cycles while maintaining and often improving their financial margins (profits) per case.

We believe that bundled payments will encourage value-based competition among providers for each medical condition. Providers, motivated to produce excellent outcomes and now accountable for delivering them at a fixed price, will strive to use more efficient processes, higher capacity utilization and seamless, integrated care for patients. With bundled reimbursement based on valid patient outcomes, effective and efficient physician groups should experience growth and profitability, and patients will enjoy the benefits from having physicians with proven experience and outcomes treating their clinical conditions. This is the recipe for healthy competition and a health care system that delivers value to patients, not arbitrary cost-cutting and rationing.

References:
DiGioia AM. J Nurs Adm. 2013;doi: 10.1097/NNA.0b013e31827860db.
DiGioia AM. Clin Orthop Relat Res. 2012;doi: 10.1007/s11999-011-2051-3.
http://blogs.hbr.org/2013/10/how-to-design-a-bundled-payment-around-value/
http://blogs.hbr.org/2013/10/intelligent-redesign-of-health-care/
For more information:
Robert S. Kaplan, PhD, is Marvin Bower Professor of Leadership Development, emeritus, at Harvard Business School. He can be reached at rkaplan@hbs.edu.
Pamela K. Greenhouse, MBA, is executive director of PFCC Innovation Center of UPMC, 3380 Boulevard of the Allies, Suite 270, Pittsburgh, PA 15213; email: greenhousepk@upmc.edu.
Anthony M. DiGioia III, MD, is the editor of Innovations in Orthopedics. He can be reached at tony@pfcusa.org.
Disclosures: Kaplan, Greenhouse and DiGioia have no relevant financial disclosures.