Missed our previous post? We suggest you start here,
with “Wrestling with 30-Day Readmits”
Sometimes it takes an external crisis to reveal an organization’s vulnerability to system-wide failure. Fixing that system requires identifying the problems that exacerbated the crisis and learning the right lessons. Valuenomics is a powerful process for doing just that.
Here’s an example from outside healthcare. When the massive snowstorm known as the “bomb cyclone” hit the U.S. in the lead-up to Christmas 2022, travelers and airlines braced for cancellations and delays. Most airlines were back on schedule within a couple of days. But Southwest Airline’s problems continued to snowball (no pun intended), ultimately leading to the cancellation of almost 16,000 flights and costing the business $800 million in losses.
Southwest initially blamed the storm, but the real problems went deeper. It turns out, the airline’s use of direct routes (as opposed to the industry’s more common hub-and-spoke system), coupled with its antiquated communication and information technology, left flight crews scattered throughout the country and unable to get to airports where planes and passengers were waiting to take off.
Health systems across the U.S. experienced their own bomb cyclone over the past few years in the form of nursing staff shortages, which impeded workflows and increased labor costs by 19.1% per patient from 2019-2021. In fact, that pressure was more intense because skilled nursing facilities (SNFs) experienced their own nursing shortages. Since 25% of Medicare discharges from hospitals go to SNFs, many hospitals were forced to keep patients for at least an extra day until they could find SNFs with capacity.
Hospitals are not paid by Medicare for the number of days patients stay, but for specific conditions or diagnostic related groups (DRGs). This means hospitals experienced a double whammy to their bottom line. The first wallop came from their own increase in nursing labor costs, and the second from any extra days that Medicare patients spent in the hospital.
In other words, just as Southwest’s system failure left passengers stranded in airports, so the labor shortages at hospitals and SNFs left patients stranded between facilities. Average length of hospital stay (ALOS) increased by 19% in 2022, according to the American Hospital Association, contributing to the negative margins experienced by half of U.S. hospitals in 2022.
Worse, nursing shortages hit Skilled Nursing Facilities more than hospitals. And 25% of Medicare discharges from hospitals need Skilled Nursing Facilities post discharge. As SNFs were labor-short, they refused admissions, and thus hospitals had to keep patients for a day longer until they found a SNF with a bed and staff for their patient.
Naturally, this had a huge impact on the bottom line.
Hopefully, Southwest Airlines is doing some deep work reimagining its workflows and the technology that drives them to be better prepared to effectively manage through the next big storm. But what about health systems? It turns out that while the labor shortage was a contributing factor to increased length of stay, most hospitals also rely on outdated processes (often manual), legacy technology, and stale strategies for managing discharges—especially for post-acute patients who need further care at skilled nursing facilities (SNFs).
Let’s examine those processes through a Valuenomics lens to see how those system failures snowball, and what can be done to turn things around.
Almost half of all patients admitted to a hospital today are on Medicare. Of those, 25% will need to be discharged to a skilled nursing facility (SNF) for their post-acute care. That means 1 in 8 admissions transfer to a SNF.
In the Fee-for-Service (FFS) world, the longer those patients remained in the hospital before discharge and the longer they stayed in the SNF after discharge, the more money the hospital and SNF made. After Diagnosis Related Groups (DRGs) were introduced in the 1980s, length of hospital stay became dependent on the patient’s condition. When a patient remains in hospital even a day longer than their condition allows, the hospital makes no extra revenues, despite the extra cost of caring for that patient.
So why would a hospital delay discharging a patient who’s ready to leave? When we studied that problem, we quickly saw that workflow was often to blame. When the discharge day arrives, the hospital staff suddenly realizes they need to find a SNF for that patient, but beds are scarce. Or maybe the patient needs a final CT scan, but the imaging room is booked—so the patient stays where they are as the search for an available SNF or CT machine goes on.
The staffing shortage didn’t cause this problem. It magnified it. The antiquated system of post-acute discharge is the real cause, and one of the top-three reasons why hospitals lose money today.
Hospitals operating under value-based payment should be just as worried about post-acute discharges to SNFs, but for different reasons.
In a value-based model, the hospital is responsible for the total care costs associated with the patient, including those incurred in post-acute settings like SNFs that are largely out of the hospital’s direct control. Naturally, the hospital hopes the SNF will keep those costs down, but most SNFs are financially motivated to maximize the number of days they care for a post-acute patient. Miraculously, those patients are almost always ready for discharge from the SNF on the exact day payment stops.
What’s a hospital to do? The first, and perhaps best, alternative is to discharge the patient to some form of home nursing solution where care costs will be much lower. Not every patient is eligible for home care, however, so hospitals must also identify the high-value SNFs that can be reliable partners. Such SNFs are able to provide quality care (to minimize hospital readmissions) and are willing to discharge the patient when it’s medically appropriate to do so, not when reimbursement has been maximized.
That raises a couple of questions: How does the hospital (1) identify a high-value SNF and (2) how does it direct more patients to that SNF? Because this is healthcare, neither answer is as easy as it might seem.
Like the old-school baseball scouts in Moneyball, many hospitals look at the wrong numbers when evaluating SNF performance. In the simplest terms, they’re attracted to average costs for the length of stay in a SNF. Through that lens, SNFs with lower average costs look better. That’s a bit like scouting for power hitters while ignoring less flashy players who always get on base.
When we studied SNF costs through a Valuenomics lens, we saw that hospital readmissions were a significantly overlooked data point that must be included when calculating the true cost of a SNF.
In other words, the total cost of a post-acute patient discharged to a SNF must also include the cost incurred if the patient returns to the hospital. Typically, that happens when care at the SNF is not as good as it should be.
If one SNF costs $10,000 and a second costs $5,000, the old math would make it obvious that the second SNF is the better option. However, if 25% of the patients discharged to that cheaper SNF end up back in the hospital Emergency Department or, worse, get readmitted to the hospital, the true cost is higher—especially if the more expensive SNF provides such good care that only 5% of their patients are readmitted.
Hospitals can use Valuenomics to determine real SNF performance and make better decisions. Like Peter Brand (played by Jonah Hill) in Moneyball, we’ve made that calculation as simple as possible by distilling all the data into a single indicator called the Value Score. As the graphic below shows, the lowest cost SNF has the highest value score.
Once you know a SNF’s true value score, a different problem arises. How does the hospital get a patient to choose that high-value SNF over one that will ultimately cost the hospital more money?
By law, a hospital is not allowed to force a patient to choose a particular SNF. The patient gets to make that decision. The hospital can influence the decision, however, by nudging the patient in the right direction.
Usually, they have three days to do that. That’s because the average Medicare patient admitted to a hospital stays between three and four days. By the second day, the nurse will know the patient is too old, sick, or feeble to look after themselves during post-acute recovery, and a SNF stay will be necessary.
Typically, patients (or their caregivers) decide which SNF they want to be transferred to based on a range of variables, including familiarity, proximity, and what they’ve heard through word of mouth. For example, maybe the patient has a friend who stayed at the SNF before and remembers one nurse fondly or liked the food they served for lunch. Out of such gut data points, million-dollar decisions are made.
A nurse can help the patient make their decision based on their care needs. Sometimes that means engaging with family members, letting them know that discharge is coming in the next few days and what choices they have. Surprisingly, few hospitals do this systematically, as part of their patient experience efforts. But leaving family members out of the loop can lead to discharge delays, if the family is not ready for their parent or grandparent to come home or move facilities. That can cost the hospital thousands of dollars per patient.
A hospital that practices Valuenomics will know which SNFs are best and can use patient engagement and good old fashioned behavioral economics to influence patients accordingly. In one Midwest market, a hospital gave SNF-eligible patients a list of ten SNFs in the local area but listed the best SNFs at the top and the worst at the bottom. Patients were naturally drawn to the top of the list. As a result, preferred SNF utilization went from 40% to 70%.
As the hospital steers more business to preferred SNFs, it can solidify those relationships through an alignment of interests. Simply put, the hospital executive can tell the SNF executive, “I’ll continue to keep you on my list of preferred SNFs, but you have to keep your performance numbers up (as measured by length of stay and readmissions) by taking good care of our patients.” There’s nothing wrong with that, and everyone wins, especially the patient.
Business operations are complex. It’s important to know which variables matter in overall performance. Otherwise, an airline might under-appreciate its flight crew communication system, and a hospital might lack strategy and formal processes for post-acute discharges.
Valuenomics helps hospital executives understand performance end-to-end, through the discipline of design thinking, with appropriate weighting for all the critical levers of value. Moreover, improving performance in one critical area has a cascading effect on performance in other areas.
For post-acute discharges, most hospitals have very loose processes; others rely on specific steps and predictive models. It doesn’t matter if the hospital operates in a fee-for-service or value-based payment model. The impact of inefficient post-acute discharges on the bottom line can be massive.
Valuenomics helps build discipline and performance around post-acute discharges by helping hospitals:
Get those right, and a hospital can turn one of its top three costs into a competitive advantage, while improving patient throughput, experience and financial performance.
Next up, we’ll delve into how Valuenomics can help you reduce costs in the emergency department—typically one of the highest cost centers in a hospital or across a health system. With its large staff of nurses, physicians, and other medical professionals, costly equipment and supplies, skyrocketing patient volume, and a national decline in primary care visits, the ED is a perfect test bed for the power of Valuenomics.
Read the Entire The Valuenomics Series