Why Quality Improvement Doesn’t Reduce Health Care Costs
Manufacturing and service companies around the world have demonstrated the cost benefits of improving product quality and production efficiency. So why haven’t nearly two decades of work on improving health care quality had a measurable effect on health care costs?
The explanation lies in the cost structure of the typical health care setting. Its management and organization create a rigid cost structure that is relatively insensitive to small changes in patient volume, resource use, or the severity of patients’ health conditions. This fixed-cost dilemma leaves most health care costs insensitive to changes in volume and utilization, so clinical quality improvements typically create additional capacity rather than bottom-line savings…
Because of these cost behaviors, quality-improvement efforts that reduce lengths of stay or readmissions or increase radiology throughput do not create substantive bottom-line savings. They generally create capacity to treat additional patients. Similarly, efforts to expand the access of disadvantaged populations to primary care under the assumption that such access will be paid for through avoiding use of high-cost care sites — such as emergency departments — do not generate cost savings. The cost of staffing and equipping an emergency department does not change if there are small reductions in utilization. Indeed, improved access will increase health care costs if new physicians and staff are hired to serve new patients in primary care practices.
Entire NEJM article worth reading.
I suspect part of the issue is medical care can be of high quality, but patient compliance doesn’t necessarily always follow. A good doctor may advise a patient to lose weight, follow a healthy diet and take medication for hypertension and high cholesterol. But patients don’t always do what they’re told. In this case the doctor is practicing high quality medicine but the outcome is the same.
good article
Interesting. And really not all that surprising.
So, if quality does not reduce costs, then where is the incentive to improve quality?
Interesting about the effect of increased capacity: If emergency room waiting times are reduced, will other people show up to take the place of patients who are diverted?
Some of the “stickiness” of supply is regulatory. In California, for example, state law mandates a minimum number of nurses per patient per shift: It is not up to management’s discretion.
Plus, most hospitals are non-profit, which gives them the incentive to trap the profits inside – overcapitalizing and then having to keep the lights turned on in the huge campuses 24-7. (See Zelder’s literature review cited at http://tinyurl.com/7ee5us2).
Your analysis is good but I disagree with your conclusions. If you can get more patents through, then you have increased capacity without increasing staff. Also, is one of your assumptions that patent demand increases or remains the same?
If you get faster turnover in hospitals, then you would be able to use existing assets to cover more patents which would allow your fixed costs to be spread across more patients. therefore, you would reduce your overall costs.
true improvement will increase capacity with existing resources and therefore spread the same costs over each patent. if 1 nurse manages 5 rooms and current daily throughput is 20 patients, then you make improvement and you get 25 patients through those same 5 rooms, you have the same cost and more patients therefore your cost model is less per person. Room costs, equipment costs, radiography equipment costs, would all be absorbed. you may need to increase the number of doctors for every 5 nurses, but then their costs are variable to the number of patients every hour.
Higher capacity does not necessarily mean higher cost