Managing Healthcare Costs Through Hospital Cost Reduction

© Rajendra Pratap Gupta
emailrajendra@yahoo.com
Hospital Costs : Key to Managing
Healthcare Costs
Rajendra Pratap Gupta
Shangri-La at the Fort
Manila, Philippines
23rd August , 2017

Global Scenario - A model that
works ?
Economics of Scale
Learning
Emerging models
Future of Healthcare & Hospitals

Health is a top priority globally
‘Good Health & Well-Being’
one of the top three goals
for sustainable
development

USA is no 1 in Spending But 11th in
Healthy lives
U.K. is no. 1 in Quality & Coverage
but 10th in Health lives
France is no. 1 in Healthy life
indicators but 9th in overall rankings
More money ≠ More care
More Healthcare ≠ Better Health
TeD talk @ NUS Singapore in 2015 : hDps://www.youtube.com/watch?v=iI6Kj6fds

Health Care System Performance Compared
to Spending
y = -12.718x + 1.4
R² = 0.58451
-1.00
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
Overall Index
9%
10%
11%
9%
10%
11%
12%
11%
10%
Note: Health care spending as a percent of GDP.
Source: Spending data are from OECD for the year 2014, and exclude spending on capital formation of health care providers.
Higher
health system
performance
Lower
health system
performance
Eleven-country average
Higher health care spendingLower health care spending

Why is Healthcare
Expensive

“Hospital costs are the biggest single piece of
healthcare spend in America”
- George Halvorson, 2009

Hospital Spending & Hospital Discharge per
capita…. Data speaks$1,402
$1,239
$1,473
$1,614
$1,804
$2,132
$2,075
$2,253
$1,592
$1,759
$1,310
$2,811
$5,586
$8,434
$8,785
$9,346
$9,975
$11,363
$11,472
$13,540
$14,404
$14,832
$15,754
$20,932
Germany
NewZealand
France
Australia
Sweden
Norway
Denmark
Switzerland
Japan
Netherlands
Canada
UnitedStates
Hospital Spending per
capita
Hospital Spending per
Discharge

Sickest 11 % consume 85 % of the resources in
America*

* Healthcare Reforms in India - Making up for the Lost decades, by Rajendra Pratap Gupta ( E

Why is healthcare spending rising?
Hospital costs
are rising
Newer
treatments are
expensive
Lifestyle/chronic
diseases
•  Higher cost of inputs
•  Increasing overheads
•  New Technology
•  Biologics and biosimilar
•  Transplants
•  People live longer
•  Unhealthy life style

Hospital costs are a significant burden on
healthcare system
Hospital costs are an important
aspect of this challenge and need
to be addressed urgently for
reducing the cost of healthcare, and
also for improving the quality of
healthcare.

Cost break-up of a multi-disciplinary hospital
20% 25% 30%20% 5%
Physician
Salaries
Staff Salaries ConsumablesAdmin costs Others
45% costs are on salaries
65% costs are operational

It is a known fact that opera@onal
expenses represent a major cost of the
healthcare projects
(Taylor, 2011, p. 14)
Economies of Scale in Healthcare

Larger hospitals with over 500 beds have
been able to reduce the cost of labor In
Germany
(Lister, 2011, p. 20)


Studies have supported the belief that bigger the
size of the hospital, beJer is the produc@vity and
is economically signiﬁcant . It has been analysed
that when the size of the hospital doubles, the
produc@vity of the hospital increases by 10 %
(Masayuki, 2010)

Hospitals follow an “Economies of Scale”
principle
“Studies of the hospital
production function have also
been used to test hypotheses
about economies of scale by
estimating the relationship
between input and output. If
output increases more than an
equal proportional increase in
all inputs, this is obvious
evidence of economies of
scale”.

Higher capacity u@liza@on leading to beJer produc@v
per resource, higher bargaining power thus lowering
cost of inputs, mul@-disciplinary working eﬃciency &
higher bouquet of services - all make large hospital
chains a compelling value proposi@on for the investor
payer & the pa@ent
- Rajendra Pratap Gupta

There are examples of smaller nursing
homes quo@ng lesser prices due to lower
over-heads compared to larger hospitals
(Gyani, 2015)
Contrary Evidence

What’s the future
of Healthcare &
Hospitals ?

Healthcare system of Sri Lanka
shows, that Public hospital based-
Single payer healthcare systems
deliver better health indicators at a
lower GDP per capita spend on
healthcare

Sri Lanka Model
Sri Lanka is a public hospital dominated health care system
1930s 1950s Present
Prioritization of hospitals
in healthcare policy
Hospital spending
accounted for 70
percent of government
recurrent spending
Better health indicators
than some European
countries
Hospital Industry worldwide has become quite influential BUT if we continue this way,
the headwinds will become stronger with time !!

Healthcare costs will bankrupt the
developed and developing nations, if the
cost curve is not bent in time

Will Health Costs Bankrupt America?

Healthcare costs unsustainable in advanced
economies without reform

What next?
What is the future?

“Value Based Care” models
Crisis of relevance – Payment for Procedures to Payment for Outcom
Accountable
Care
Organizations
(ACO)
ACOs are alliances of
doctors, hospitals and
other health care
providers that deliver
and coordinate care for
their patients
•  Goal alignment
between doctor,
hospital, and patient
•  Population based
care
Patient-
Centered
Medical Home
(PCMH)
Primary care doctor led
model that is focused
on providing enhanced
care coordination
across the health care
system
•  Better access to
care
•  Improved outcomes
Pay for
Performance
(P4P)
Rewards doctors and
hospitals that improve or
maintain quality, while
keeping across-the-
board rate increases
lower
•  Improves quality of
care
•  Improves efficiency
Bundled
Payments
A single payment is
made to doctors or
health care facilities (or
jointly to both) for all
services associated with
an episode-of-care
•  Reduces ‘over
treatment’
•  Reduces costs
•  Increases
coordination

ACO: Kaiser Permanente
The face of future hospitals
Kaiser Permanente is a clear example of the
clinical structure and coordination that
underpin the ACO concept, such as:
•  Providing quality, patient-centered health
care across the care continuum
•  Measuring performance systematically
•  Investing in infrastructure and resources
•  Promoting accountability among
practitioners
“Kaiser Permanente takes the responsibility of
the population it covers and the most cost-
effective plan across all markets”
Aon Hewitt

eConsult*

•  35 % required F2F consultaNon
•  eConsults took a third of the Nme of a F2F consult
•  98 % of the eConsults were appropriate
•  84 % of the referring primary care physicians were very or somew
saNsfied
•  Over 90 % of the paNents were very or somewhat saNsfied
* Think BIG, start small, MOVE FAST by Nicholas LaRusso , Barbara Spurrier & Gianrico Farrugia– ( N-6

DigiNzaNon is here to stay & can flip the healthca
infra matrix ..

Learning so far…
Bigger, better
hospitals
Tech Integration
Policy level
changes
•  Lean Six Sigma
•  Economies of
scale
•  Profitable
•  Multi-disciplinary
•  Co-ordinated care
•  Better & Timely
access to health
•  Asset light models
•  Better outcomes
•  Universal health
care
•  Public private
partnership
•  Accountable care

Future ?
Technology & Automation will
become a dominant force . Low
cost – Asset light models / ‘No frills’
hospitals
Profit capping – Political Issue
Insurance has to reinvent to
assurance
Consolidation in the hospital Industry is the
inevitable – Economies of Scale will cut
down costs & is the way forward

@rajendragupta www.facebook.com/rajendragupta

Managing Healthcare Costs Through Hospital Cost Reduction

Recommended

Recommended

More Related Content

What's hot

What's hot (18)

Similar to Managing Healthcare Costs Through Hospital Cost Reduction

Similar to Managing Healthcare Costs Through Hospital Cost Reduction (20)

More from Prof. Rajendra Pratap Gupta

More from Prof. Rajendra Pratap Gupta (20)

Recently uploaded

Recently uploaded (20)

Managing Healthcare Costs Through Hospital Cost Reduction