Improving quality, reducing costs – how to square the circle

The challenge

All healthcare systems around the world, particularly in developed countries, face the challenge of soaring demand for healthcare.

Aging populations, increasing prevalence of long term conditions, new treatments and altering consumer expectations have resulted in inexorable growth in healthcare spend – currently at levels of  10 to 16 per cent for most developed countries and projected to grow to 15 to 20 per cent by 2020 if the spend trend continues.

 
Not only will this spend be difficult to finance for most countries, but it is also unclear what the increase in spend will buy in terms of outcomes.  In developed countries, there is weak correlation between spend on healthcare and health status of the population.
The current economic crisis is forcing health systems to explore ways of cutting costs while maintaining or increasing the quality of care provided to their population.

The opportunities

We believe there are eight concrete opportunities to significantly reduce spend while improving quality of services in high income countries.  We have identified four actions that focus on allocative efficiency (e.g. the way in which money is spent); and four actions to improve technical efficiencies (to ensure that services are delivered as efficiently as possible), which apply equally to hospital based providers and to out of hospital providers such as primary care services or community nursing services.  The relative size of each opportunity is shown in the diagram below and each area is then explored in more detail.

Exhibit 1

ACTIONS TO IMPROVE ALLOCATIVE EFFICIENCY

1.  Prioritise spend
All healthcare systems need to consider what population groups, disease areas, healthcare interventions to spend money on.  While the clinical evidence base underpinning efficacy of health spend is by no means comprehensive, there is sufficient information to make robust decisions about resource allocation.

Prioritisation of healthcare spend can be made at disease level – how much should I spend on cardiac disease versus neurological conditions – or at disease care pathway level.  The diagram below (Exhibit 2) shows the recommended best practice treatment pathway for coronary heart disease, covering prevention through primary care, secondary care and end of life care.
 
Exhibit 2

 
Each of these interventions can be quantified in terms of the expected impact on health (measured as quality adjusted life years or years of life lost) and the costs of delivering that intervention in different healthcare systems.  This allows a “cost curve” to be constructed showing which healthcare interventions will deliver the maximal health gain per $ spent, and enables healthcare systems to dis-invest from low value added services.

2.  Improve the care of people with long term conditions and complex health needs
Over the last decade, it has been increasingly recognised that better management of patients’ primary care needs can significantly improve their health status and prevent both complications and the need for hospital admission.  A number of healthcare systems around the world have experimented with the best way of ensuring care for people with diabetes, heart disease, chronic airways disease – and a number of key success factors can be identified.  These include:
• Early identification of people at risk of, or with, long term conditions through screening – either for entire populations or, more effectively, for targeted groups
• Management of a register of people with a long term condition so that all patients can be pro-actively managed and monitored
• The development of a benefit package that encourages and supports self care
• Ensuring compliance with programmes and support behaviour change
• Effective monitoring and performance management

3.  Optimise settings of care
As healthcare technology has advanced, so have views on where healthcare services should be delivered.  Traditionally, most healthcare services were delivered in hospital based settings.  However, new treatments, new technologies, and new aspirations have led to a trend of providing as much care as possible in an integrated out-of-hospital setting.  Often, these alternative settings provide better quality, proactive care, at lower unit cost, thanks to the considerably lower overhead costs associated with hospitals.

Similarly there is increasing evidence that for some of the more complex conditions, better quality outcomes are achieved by having care delivered by more senior staff.  However, to have staff available 24 hours a day, seven days a week in every small hospital around your country would not be a sensible economic solution – nor a sensible clinical solution as it would provide insufficient training opportunities for senior staff.

4.  Focus on Prevention
Improving healthy behaviours to reduce prevalence and incidence of costly lifestyle diseases, such as obesity can have considerable impact on the cost burden put on the healthcare system. However, impact on prevalence and incidence is often shown only a decade or two after the interventions. 

Nevertheless, there are a number of public health interventions that can have shorter term impact.  Of note are vascular screening programmes which can identify patients at risk and intervene early to prevent acute cardiac or vascular events; improving breastfeeding rates which has proven to achieve a significant reduction in hospital admissions of young children; and smoking cessation which has resulted in an immediate reduction in acute cardiac admissions in some geographies.

To prioritise and sequence actions in their health system, decision makers need to be able to quantify the impact of public health intervention and assess feasibility (including for example, likelihood of success and time to impact).

ACTIONS TO IMPROVE TECHNICAL EFFICIENCIES

5.  Ensure best practice and reduce error rates
Healthcare services are littered with examples of little knowledge of – or poor adherence to - best practice care. The underlying reasons for this are complex and related to the autonomy of doctors. There is little guidance on best practice care and often a poor management system to share and monitor the use of guidelines for care.  This can result in overtreatment and unnecessary spend.

Poor quality care can also lead to significant errors in the treatment of patients with adverse consequences.  It has been estimated that about 10% of inpatients in the UK’s national health service (NHS) experiences an adverse event.  Not only is this damaging for patients, it is also expensive to the system.  Reducing errors through more systematic adherence to guidelines and through closer monitoring of staff and systems offers a significant opportunity.

6.  Optimise clinical operations
There are significant opportunities to streamline frontline clinical services to increase utilisation of staff and expensive assets, reduce duplication, increase throughput and ensure that scale benefits are captured.  These opportunities sit in both hospital based services and out-of-hospital care.

In hospitals, the main levers to reduce costs are to reduce length of stay; increase utilisation; reduce headcount and spend on assets such as operating theatres, diagnostic kit and estates.  The exhibit below shows an example from a hospital which reduced costs for patients admitted to the vascular surgery division by ensuring adherence to best practice protocols for care and focusing on length of stay.

Exhibit 3

 

In out-of-hospital care variations in staff utilisation suggest significant scope to increase utilisation.  The exhibit below shows the variation in number of visits made by a district nurse per day, illustrating the potential to increase utilisation of staff.

Exhibit 4

 

7.  Reduce back office spend
There remain many opportunities to reduce back office spend in healthcare – from procurement spend to support services.  The diagram below shows the savings achieved in a number of organisations over the last ten years in procurement and back office functions.

Exhibit 5
 


8.  Mobilise patients
In order to significantly reduce spend on healthcare there needs to be a step change in the delivery of healthcare akin to that which has happened in other industries.  Other industries – most notably retail and banking – have effectively mobilised the customer to co-produce the end product.  We now pick our own groceries from the shelves, support inventory management through online shopping and even scan our own items at the check out.  This has enabled supermarkets to significantly reduce the costs of shopping and resulted in high profit margins/lower cost items.

A similar change could take place in healthcare.  Remote monitoring devices allow patients to check on their own condition and update their own medical records; group consultations enable patients to support one another with practical information and advice about managing their own condition.

These opportunities are not new but the sense of urgency to make real change happen is tangible.   Healthcare systems need to consider what system wide actions they should pursue and enable transformation by using system wide tools such as financial incentives, strong clinical leadership and information, to underpin and drive change.


Dr. Penny Dash is a Partner in the London office of McKinsey & Company. Her main focus of work is the redesign of healthcare systems in order to improve health, clinical outcomes and the efficiency of provider organisations; and the development of active commissioning, or payor systems. 

Penny is vice-Chairman of The King’s Fund, an associate fellow at the Judge Business School in Cambridge and Founder/Director of the Cambridge Health Network – a discussion and networking forum for over 500 senior executives from organisations working in health.  Penny is a Doctor by background, a Member of the Royal College of Physicians of London, and holds a MSc in Public Health Medicine and a MBA from Stanford University.  She has extensive experience in management consulting and in healthcare management, including time spent as Head of Strategy for the NHS.