HMC Study Shows Quality Problems Impact Overhead Costs Too

A recent study has documented a multiplier effect on overhead costs resulting from poor hospital inpatient care. The Healthcare Management Council, Inc. (HMC), a non-traditional benchmarking firm that fosters collaboration in hospital performance management, recently completed a study of the relationship between hospital quality and hospital overhead expenses.

Using the Cost Quality Matrix^TM methodology HMC routinely identifies the direct cost of quality related to patient safety and inpatient quality outcomes. But new HMC research has discovered that off-quality at the patient bedside has a rippling effect to overhead costs like malpractice insurance, quality management, case management and utilization review costs. The cost of off-quality overall costs grows exponentially as a result. These relationships have been confirmed with comparative hospital data at the system and individual hospital level.

Increasingly, the industry is moving towards defining quality as conformance to technical specifications and interim patient requirements. This has the unfortunate impact of locking in current processes. While applying conforming standards reduces variation, it ignores innovative new ways of providing patient care, a situation desperately needed in healthcare. By focusing on measures that reflect patient outcomes, HMC revealed the key relationships to the entire hospital cost structure. Focusing on outcomes, and avoiding quality measures focused strictly on processes, unlocked this discovery. Excessive indirect costs like malpractice insurance and high quality management expenses are symptoms of patient outcomes.

The HMC Cost Quality Matrix^TM is part of a suite of HMC tools that provides benchmarks; simplifies innovation (Idea Trees^TM), creates action plans (HMC Action Plan Developer^TM), and communicates results (HMC Trackers^TM and the HMC Digital Dashboard^TM). Both department managers and hospital executives use these tools to monitor action plans that focus on key strategic initiatives. Together they give a hospital a more complete view of current performance improvement efforts, and where performance is headed. Partners of HMC share acute hospital financial and practice information. Hospitals then use the HMC suite of products to support hospital managers in the project development phase and to move managers to action that will yield measurable results.

This recently discovered hospital cost dynamic does not include even greater negative impact of new hospital payment strategies that focus on higher reimbursement for better quality.

HMC President Tom Day says, "We've found that the downstream hospital costs are 6 to 7 times the direct patient care costs of poor quality. Adding to that the effect of reduced reimbursement for poor quality and the result is astonishing. What was thought to be an incremental battle of cost reduction reveals a clear pathway to measurable performance improvement."