How Yale New Haven Health System emphasizes quality to reduce costs: 6 questions with Stephen Allegretto

A recent partnership with Strata Decision Technology and an emphasis on quality have helped Yale New Haven (Conn.) Health System improve clinical outcomes and sustain savings of $150 million.

The partnership and model have even prompted YNHH to host the inaugural National Symposium on Value Innovation at Yale from April 27-29. The symposium will give industry leaders the chance to learn what Yale New Haven Health has accomplished, as well as how a focus on collaboration and best practices can help better patient care and improve financial performance.

Stephen Allegretto, vice president of strategic analytics and financial planning at YNHH, has been with the system for nearly 30 years. He recently chatted with Becker's Hospital Review about his passion for the partnership with Strata and the system's "quality-first" approach.

Note: Responses have been lightly edited for length and clarity.

Question: Could you divulge a little on Yale New Haven Health's partnership with Strata?

Stephen Allegretto: We were a long-time partner with them — we've been with Strata for about 15 years. We've expanded their product usage, and three years ago, they introduced their cost accounting system. We needed to move away from the product we were using so we took a hard look at their system. Their product really matured over time and we have not only fully implemented the solution in all of our hospitals, we have also installed the product for our over 600 employed physician organization — a first for our health system.

At the same time, Strata became interested in the quality variation indicators developed by our clinicians. They started licensing our QVI™ methodology as of April 1, 2015. Any hospital or health system that's one of Strata's partners can now utilize it to understand variations in cost based on negative quality outcomes.

Q: How is Yale New Haven using quality to identify variation and drive out costs?

SA: Because we have a robust cost accounting system, we can do a profit and loss statement for every patient we see. I, or anyone else in the organization, can take a look at the P&L statement for two specific patients and see if something like a longer stay is leading to utilization variation. If there is a quality defect, I can measure the cost difference at the individual patient level. That's our way of summarizing the variation that clinicians are interested in understanding and potentially eliminating.

There are bad things that happen to patients in every hospital, and patient safety indicators used by CMS started us on this journey of shining a light on what we need to do a better job of preventing. We're able to share this very specific patient information with physicians and clinical staff who care for these patients and have the ability to improve quality and change outcomes. We can then associate the cost with each of these quality measures.

Q: Why is having a quality variation focus so important, and how much has Yale New Haven Health System saved?

SA: We did this because of the revenue challenges facing the healthcare industry. These pressures have reduced our overall revenue and we now generate less revenue for every patient we treat than we used to. If we have that continued downward pressure on revenue, it forces us to look at utilization and cost.

We've had over $150 million of cost and value savings over the last four years that the finance team has removed from our budgets, and we've sustained that reduction. Over 50 percent of our cases are Medicaid and Medicare patients, where we have no ability to negotiate the revenue for these patients. Since government payers pay us less than it costs us to treat these patients, we cost shift to commercial payers, where it eventually is paid out of our pocketbooks through higher premiums. These revenue pressures caused us to take a look at quality variation and utilization. And the pressure on our revenues will only get worse, so our ability to sustain the $150 million and apply the quality first methodology will only grow in importance in the future.

Q: How can continuous improvement strategies significantly help drive margin and improve quality?

SA: We used to believe that the more we did, the more we made. But actually, the more we do, the less we make on a contribution margin basis. Improved quality improves margin and that is what we've been able to demonstrate. It's a new learning process and it's across every payer — not just Medicare and Medicaid — and every patient population. It's easy to pull up certain cases and show that if we eliminated a QVI™, the cost and length of stay would be significantly less.

Q: What should CFOs and financial VPs know when implementing such a strategy?

SA: When you're talking with physicians, words that resonate with them are "avoidable variation" rather than "cost reduction." The best and simplest way to discuss cost with clinicians is in terms of "variation in quality and utilization." Language is strategy and strategy is language.

When somebody asks us what our revenue is per patient, we have five different measures of it recorded at the individual patient level and there's a reason for each one of these revenue measurements. It's also okay to have different definitions on quality depending on what's being asked. At the patient level, if there is a question on whether a patient developed a blood clot during their stay, we need to be able to answer that question. This may be an additional piece of quality information at the patient level in addition to other quality data. And if you want to answer the question on what was the variation in cost given the development of the blood clot, you need to have this data point. It's okay to have multiple definitions, but you need to have the data recorded at the patient level.

Q: What are a few lessons you've learned from the experience?

SA: I have a few takeaways:

  • All of the data needs to recorded at the individual patient level in order for clinicians to take action on variation.
  • Then you need to aggregate this data into relevant clinical populations.
  • Use "avoidable variation" as opposed to "cost reduction."
  • Have physician champions passionate about patient care. You have to put the specific patient data in their hands in order for them to even look at the avoidable variation. After all, these are "their" patients that they took care of!
  • Then you need an interdisciplinary team to actually change the care process and then monitor progress.
  • You have to have a definition of quality at the patient level. Once you lead with quality, that's the magic of the QVI™ methodology.

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