Cost Containment in Healthcare: What Top Health Systems Do Differently

What is Cost Containment in Healthcare?

Cost containment is a strategy to reduce or control healthcare spending without sacrificing quality of care and patient outcomes.

You will find the strategies necessary in the current healthcare environment because the following issues are steadily driving up the cost of care:

• A rising case-mix index: Hospitals are serving more patients, and the cases are increasingly more medically complex. For instance, a recent analysis found that the case-mix index rose by 5% over 5.5 years.
• Rising workforce costs: Rising wages are pushing up total healthcare spending. The AHA reports that hospitals are spending over 1 trillion dollars annually to remunerate dedicated healthcare staff, with the workforce costs rising 5.6% in the year under review.
• Rising cost of clinical resources: Hospitals are facing higher costs for supplies, equipment, and drugs. Drug prices for complex conditions are especially concerning, with a recent report indicating that academic medical centers saw their drug expenses rise 21.6% in one year.

Given that the above factors are systemic, your cost containment strategies must be long-term and sustainable. Therefore, cost containment isn’t the same as cost cutting, a short-term strategy that may negatively affect the quality of care, patient outcomes, and staff morale.

Key Components of a Healthcare Cost Containment System

For your healthcare cost containment system to be successful, you typically need the following key components:

• Data visibility: Since you can’t control costs you can’t see or measure, you have to deploy solutions to give you visibility into patient and administrative data. You want the solutions to integrate seamlessly to eliminate data silos.
• Care coordination: To reduce costs for payors across the healthcare system, you want to share data with other providers to solve care fragmentation and duplicate services. For instance, in ED transfers, test duplication rates can range from 32% to 88% without efficient coordination.
• A proactive care model: Hospitalizations and readmissions are among the biggest healthcare cost drivers. You can reduce costs significantly with a patient-centered, proactive care model focused on prevention and early interventions.

Cost Containment Strategies in Healthcare

The most effective cost containment strategies are those that align your financial goals as a provider with the cost-saving goals of payors and the health goals of patients.

The following three strategies are perfect examples of how to achieve such alignment:

Shifting to Value-Based Care

Traditionally, healthcare operated on a fee-for-service basis, where revenue was tied to the volume of services you provided. It created a system with no clear incentives for cost control.

Value-based care solved the incentive alignment problem, and it can now reward/penalize you for administrative efficiency and quality of care in the following ways:

• Shared savings: If you manage a patient population for total costs below a set budget while meeting the required quality metrics, you receive a percentage of the cost savings.
• Downside financial risk: In some contracts, if the total costs exceed the set budget, you owe money and must pay it back. The incentive structure is such that you can work towards eliminating avoidable duplicate tests, ER visits, etc.

Also, value-based care encourages site-neutral care. For instance, an infusion therapy at one clinic might cost less than half the price charged at a larger hospital. Therefore, it makes sense to direct patients to the lower-cost option, and value-based care will reward you for doing so.

Tech-Supported Administrative Optimization

You can now use technology to solve several operational inefficiencies that used to cost the healthcare system a lot of money.

For instance, technology and regulatory changes have led to the following improvements:

• Interoperability standards are improving communication between providers’ and insurers’ computers.
• Prior Authorization (PA) systems allow automating approvals for routine services, leading to cost savings by eliminating the need for manual phone calls/faxing.
• Strict authorization turnaround times (e.g., within 7 days) are helping reduce the cost of delays.

Proactive Chronic Disease Management

With 90% of the total healthcare spending going towards patients managing chronic conditions and mental health challenges, you must prioritize cost optimization in the chronic disease management programs you run.

Some of the proactive care delivery models that have been proven to work in this space include:

• Remote Patient Monitoring (RPM): You can now use RPM devices and cloud-based platforms to remotely monitor your chronic patients’ physiological data. You’ll be able to notice signs of deterioration early, allowing you to intervene promptly and reduce readmissions, a major cost driver.
• Chronic Care Management (CCM): It is designed for patients with multiple chronic conditions and facilitates remote care coordination, care planning, and medication management. The benefit of CCM is that it supports care continuity and enhances coordination between providers.
• Principal Care Management (PCM): While CCM is designed for multiple chronic conditions, PCM helps you coordinate care for Medicare patients with one complex chronic condition. The goal is proactive management of the condition to reduce hospitalizations.

You can implement these care delivery models to reduce long-term costs without incurring high initial setup costs.

How KangarooHealth Supports Cost Containment

At KangarooHealth, we offer a turnkey setup with a cloud-based platform and connected devices. There's no setup fee required.

We help you roll out RPM, CCM, PCM, RTM, APCM, and GUIDE programs without high startup costs.

Our platform also helps you generate real cost savings by targeting the biggest drivers of chronic care spending.

Here's the impact our programs deliver:

• Fewer unnecessary hospitalizations: Our proactive monitoring catches problems early. This helps you avoid costly admissions before they happen.
• Reduced adverse events: Our RPM and CCM programs have helped organizations cut adverse events, including ED visits and hospital readmissions, by up to 48%.
• Lower total cost of care: When you catch health decline early, patients stay out of the ED. That means lower per-patient spending over time.

Here's how else KangarooHealth supports your cost control goals:

• We provide a dedicated team of US-based nurses so you can run remote monitoring without hiring new staff.
• We automate time-tracking and documentation for reimbursements. This cuts down on manual admin work.

Want to see how our remote care solutions can help you reduce the cost of chronic care delivery?

Contact us today to get started.

How to Implement Cost Containment Initiatives

To execute a successful cost-containment initiative, you’ll first need to secure buy-in from all key stakeholders. Ensure your entire team understands that, in addition to controlling costs, the measures you are about to implement will also improve the quality of care and patient outcomes.

You can then proceed with the implementation process as follows:

• Analyze utilization patterns to identify the key cost centers.
• Start with the highest impact areas, e.g., patients with multiple chronic conditions.
• Design the enabling workflows, e.g., who monitors patients, how alerts are escalated, etc.
• Deploy the enabling technology or program on a pilot basis. You can start with one cohort before scaling to your entire patient population.
• Measure the initiative's impact on costs and patient outcomes. You can iterate and make improvements based on the data.

Examples of Cost Containment in Healthcare

The strategies we’ve discussed have been implemented in several healthcare settings with incredible success. There’s also a growing body of evidence supporting their effectiveness nationwide.

Below are some examples:

• The success of remote chronic care: Geisinger Health Plan (GSP) implemented telemonitoring for patients with heart failure. Among the sample enrolled in the telemonitoring group, the odds of 30-day and 90-day readmissions were 44% and 38% lower, respectively. These improvements resulted in about 11% cost savings for the payor.
• The success of tech-supported efficiency: A study evaluated the impact of interoperability standards and prior authorization processes. It revealed that the processes can automate up to 50% of routine requests, reduce the average decision turnaround time from 72 hours to under 24 hours, and reduce admin processing costs by 15-30% for providers and 25-40% for payors.

How to Select the Right Healthcare Cost Containment Solutions

Your cost containment strategy can only be as effective as the technology you use to implement it. You must evaluate both technical capability and clinical fit.

Consider prioritizing the following selection criteria:

• EHR integration: Can the solution integrate with your existing EHR? For instance, KangarooHealth integrates with popular EHR systems such as Epic, Cerner, and Athena.
• Patient compliance: If the cost containment strategy includes rolling out a solution with patient-facing features (as is the case in remote chronic care), you must consider the vendor’s track record of patient engagement. For instance, KangarooHealth boasts 85-92% patient compliance rates, nearly double the industry average of 53%.
• US-based clinical support: Select vendors that offer regional clinical support services. At KangarooHealth, we offer US-based nurses for clinical monitoring. The staffing ratio is above standard, with each nurse monitoring only 125 to 150 patients, ensuring each patient receives the personalized attention they need.

Frequently Asked Questions (FAQs)

Let’s now address some common questions about cost containment in healthcare:

Can Cost Containment Initiatives Affect Patient Outcomes?

Ideally, your cost-containment initiatives should reduce expenditures while improving patient outcomes.

For instance, by reducing readmissions, eliminating redundant testing, and shortening decision turnaround times, you can contain costs while improving outcomes.

What Data is Required to Identify Cost Containment Opportunities?

You’ll typically need the following data to identify potential areas to reduce costs in your healthcare organization:

• Financial and claims data
• Clinical data (outcomes, comorbidities, readmission rates, etc.)
• Administrative/operational data (staffing ratio, equipment downtime, etc.)

How Long Does it Typically Take to See Results from Cost Containment Efforts?

The timeline varies depending on the patient population, cost containment strategy, and the vendor you choose to work with.

Nonetheless, as we noted earlier, you should treat cost containment in healthcare as a long-term strategy to guarantee sustainable results.

What Metrics Define Success in Cost Containment Programs?

A successful cost containment program will positively impact your organization clinically, financially, and operationally.

Here are some of the measurable improvements that define success:

• Clinical metrics: Lower all-cause readmission rates, lower emergency department visit rates, and higher patient engagement rates.
• Financial metrics: Lower total cost of care per patient, lower cost-to-collect, higher net collection rate, and higher shared savings realization.
• Operational metrics: Faster time-to-implementation and shorter decision turnaround times.

Conclusion

The best way to implement cost containment in healthcare is to align your financial goals with patients' health goals and payors' cost-saving goals.

The simplest way to do this is to design your workflows, patient data streams, and financial incentives around patient outcomes.

At KangarooHealth, we provide the infrastructure to implement such cost-containment initiatives for chronic disease management.

You can use our cloud-based platform, connected devices, and clinical support services to enhance chronic care and drive superior patient outcomes, lowering long-term utilization and costs.

Schedule your free demo to see how our remote care solutions can transform your healthcare organization.