Cleveland-based University Hospitals reimagined peer review and cost strategy — contributing to margin-based accountability and an $18.1 million surplus, according to Peter Pronovost, MD, PhD.
“We used to outsource our peer-to-peer review, like many hospitals do,” said Dr. Pronovost, University Hospitals’ chief quality and clinical transformation officer. “We got horrible service, and it was expensive. So I created the role of a chief medical officer for utilization management and resource use, which is kind of unique.”
The system then insourced physician advisors to lead peer-to-peer review, coordinate observation huddles and fight final denials. Before insourcing this service, Medicare patients were reviewed, but commercially insured patients were not.
After the change, the health system’s final denials declined from 28% to 20%.
Another financial issue stemmed from a common misunderstanding.
Some clinical service line leaders, such as those in cardiology or orthopedics, previously focused only on direct contribution margin, Dr. Pronovost told Becker’s. But with nearly 4 in 10 U.S. hospitals operating in the red, managing the total margin is paramount.
“There’s some that say, ‘Well, I don’t control that,’ but the reality is, we have to pay the rent or the mortgage,” he said.
University Hospitals also formed a cost cabinet and revenue cabinet, which meet every two weeks. About a year ago, Dr. Pronovost said, there was a disconnect between profitable procedures and their real cost, which includes indirect and professional fees.
“Because they thought they were so profitable, it diminished their urgency to reduce costs or to bill after,” Dr. Pronovost said. “Now, we’ve exploded. We have major efforts in billing more appropriately for [operating room] supplies.”
With 21 hospitals, more than 50 health centers and outpatient facilities, and more than 200 physician offices, it can be difficult to show how a single clinician’s actions contribute to a deficit of hundreds of millions of dollars.
“Our belief in our transformation model of living and leading in love — we need every employee to help us achieve that goal, because they have ideas,” he said. “They’re gonna have to work, but that number is like Monopoly money to them.”
Leaders converted the system’s financial losses into tangible metrics, such as margin per case or margin per discharge. Identifying opportunities to reduce costs — such as replacing a $1,000 stapler with a $15 one — has energized employees and fostered innovation, Dr. Pronovost said.
In 2024, University Hospitals reported a net income of $18.1 million, up from a net loss of $48.4 million in 2023.
