OP-ED

How to save $40 billion in health care costs

What It Costs to Start-Up an Electronic HealthElectronic health records (EHRs) broaden access to patient data and provide the platform for pushing evidence-based decision support to clinicians at the point-of-care. This promotes optimal care for patients, reduces medical errors, optimizes the use of labor, reduces duplication of tests, and by the way, improves patient outcomes. When done in aggregate across all health providers, a team from McKinsey estimates that $40 billion of costs could be saved in the U.S. health system.

Reforming hospitals with IT investment in the McKinsey Quarterly talks about the American Reinvestment and Recovery Act’s (ARRA) $20+ billion worth of stimulus funding under the HITECH Act and estimates that 80% of existing hospital IT applications will be affected by the regulation. Hospitals will be spending about $120 billion to meet the adoption and meaningful use provisions of the Act. This equates to $80,000 to $100,000 per hospital bed. ARRA incentive payments will cover roughly 20% of this cash outlay, meaning that $60-80K won’t to covered.

But McKinsey says, “Hold on!” There are ways to recoup the spending gap between HITECH incentives and cash-out-of-the-hospitals-budget. McKinsey’s research calculates that optimizing labor, reducing adverse drug events and duplicate tests, and adopting revenue cycle management can help the average hospital save $25,000 to $44,000 per bed each year. That gets to the $40 billion in annual savings when multiplied across all hospital beds in the U.S.

In operational terms, the savings accrue through:

  • Managing inpatient beds more efficiently using equipment-scheduling software
  • Optimizing the use of clinical equipment
  • Determining optimal staffing
  • Reducing administrative waste
  • Reducing adverse drug reactions through computerized-physician-order-entry (CPOE) which cost $8,000 to $15,000 per bed each year (up to $3 million for a 200 bed hospital)
  • Managing the revenue cycle by billing unbilled services, equivalent to 0.4% of hospital services, or $4,000 per bed.

Jane’s Hot Points: The McKinsey team rightly points to three critical success factors for maximzing health IT investments that the most wired, effective hospital-adopters have learned: get critical buy-in among clinicians and hospital execs early in the HIT adoption process; ‘radically’ simplify health IT architecture; and, elegantly plan and execute.

It’s the implementation phase in health IT adoption that so often gets short-shrift. McKinsey notes that Canada’s hospital system devoted 30% of its entire budget to change management. That’s a big number, but it’s also where rubber meets road: a capital outlay of $N million is the easy part of HIT adoption. The follow-on implementation resources, both in terms of sheer dollar volume and labor/staffing, along with disruption of clinical workflow, is the hard part. But getting to meaningful use will require no small amount of implementation effort in the form of evangelism, education and training, and ongoing assistance and support.

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monirulmonirulVERONICA BRUCEstephanieNate Recent comment authors
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monirul
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Hi Tina! Great blog. I’m like you – punster first and then plot gets in there. I see you’re from Boston. My novels are set in and around Boston and the fictitious town of Laski, Mass. Thanks for following on Twitter… will catch up with you there! Cheers!

monirul
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As part of my university degree, I was given a chance to volunteer for six weeks (April to June 2010) in Knysna, South Africa, with an organisation called EDGE of AFRICA. Committed to responsible travel, EDGE of AFRICA provides “volunteer and internship placements in South Africa for gap years, career breaks, university internships, school groups and corporate team building projects.” Their aim is to make a direct positive impact on the local community and environment, while allowing travellers to gain firsthand exposure to the colourful local heritage, culture and traditions.

VERONICA BRUCE
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I worked for Wellpoint as an RN for 2 1/2 years. It is not HEALTH CARE it is SICK CARE that they concentrate on DENYING coverage. TOO BIG TO FAIL. Google Wellpoint subsidiaries. There are 116 all over US, one in China. None of their DRUG COMPANIES are listed here. This company has NO ETHICS. TOO many details. Here’s my point. Angela Braly CEO gets over 1 mil in salary and 8-9 mil in perks. This is only one company. AMERICA WAKE UP AND LET’S FAST FROM THIS SICK CARE INSURANCE. WE CAN DO IT CHEAPER WITH CASH AND NURSES… Read more »

stephanie
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I think that does post is helpful in a way that they try find ways in on how to shell more money to spend on more important things and that techonology helpful in achieving it.

stephanie
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I think that does post is helpful in a way that they try find ways in on how to shell more money to spend on more important things.

Nate
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Nate

” with different branches and checks and balances and bills of rights and independent judiciary,” Had, Executive branch and their appointees write laws every day without ever going through congress. EPA is regualting emissions based on their own directives. Abortion, gay marriage, and many other laws have been defacto written by the judicial branch. Our lkegistlative branch is a joke that passes meerly the name of bills then allows Executibve and Judicial to fill in the blanks. What’s new is the degree to which we have allowed our protections from mob ruled to be weakended or eliminated. When else in… Read more »

Margalit Gur-Arie
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“A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine.” Thomas Jefferson Nothing new in this thought, Nate. We have been debating the Tyranny of Majorities since the very beginning. It was a great concern for those writing the Constitution as well. James Madison’s hope was that the sheer size and diversity of the new country will ensure “…that no common interest or passion will be likely to unite a majority of the whole number in an unjust pursuit.” This is why we have such a complex… Read more »

Nate
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Nate

when 51% get together to take advantage of the remainging 49% that is not what this country was built on. We are no longer a nation of equal rights, instead we are in a race to see who can be first to form a collition of 51% and enslave the rest. I seem to remember equality being mentioned more then once at founding.

Margalit Gur-Arie
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We haven’t lost anything. The fight was for keeping these decisions with the people on this side of the ocean and it was a complete success. The nature of taxation and the use of the proceeds was always debated, and we are continuing to do so today, and we will probably continue to do so for the foreseeable future. You have your opinions and I have mine. This is what elections are for. Sometimes your views prevail and sometimes mine do. This is exactly the process they fought for and it’s working just fine whether Bush is in the White… Read more »

Nate
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Nate

we know the country has gone down the wrong path when people refuse to share equally in responsibility, when they say it is OK to tax him 50% but I don’t want to pay any taxes then we have alredy lost what our founders fought for.

Nate
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Nate

being truly free is having 50-70% of your personal production confiscated to be redistributed to others who refuse to work, Margalit you surly have a different perspective on our history then I do.

Margalit Gur-Arie
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They were fighting for representation, not for a tax free existence. The more advanced society becomes, the more dependent we become on technology and the higher the standard of living is, therefore more “stuff” becomes necessary for minimum existence and the ability to “pursue happiness”, select representation and be truly free.
“fruits of labor from the minority of the nation that is productive”
The producing class is not a minority. Those who do no real labor, but certainly enjoy other people’s fruits are a minority. And in my book, they ought to be happy with a bit less unearned fruit.

Nate
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Nate

“We, as a society, will pool our resources” What exactly does this apply to? So far it appears food and shelter are benefits guaranteed at birth. We have since added utilities, healthcare, education. I remember us fighting a war so we were entitled to the pursuit of these I don’t recall ever decising as a nation to guarantee these to everyone that gets across our border and doesn’t want to earn them. How much farther do you want to take this? Once you forceably confiscate the labor and fruits of labor from the minority of the nation that is productive… Read more »

MD as HELL
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MD as HELL

I choose what I do. Anything else is tyranny. “Society” has an agenda. Physicians have ethics. You would be amazed how few life and death decisions actually change the outcome. Avoiding futile care and helping with death and dying are of immeasurable value.

Margalit Gur-Arie
Guest

“But I choose.”
No, you don’t.
Going to medical school for 12 years and graduating with large debt does not entitle you to choose who lives and who dies.
We, as a society, will pool our resources and pay you as much as we can afford. If that’s not enough, you are of course free to decline, but there will always be someone else, equally qualified, willing to apply for the job, because, comparatively speaking, we pay rather well.