Increasing Efficiency and Enhancing Value in Health Care: Ways to Achieve Savings in Operating Costs per Year

IncreasingEfficiencyWPCover.jpgHow to cite this paper:

Martin LA, Neumann CW, Mountford J, Bisognano M, Nolan TW. Increasing Efficiency and Enhancing Value in Health Care: Ways to Achieve Savings in Operating Costs per Year. IHI Innovation Series white paper. Cambridge, Massachusetts: Institute for Healthcare Improvement; 2009. (Available on www.IHI.org)
 
 
Until recently, the rationale for health care providers to undertake quality improvement (QI) initiatives rested largely on “doing the right thing”; any financial benefit resulting from QI efforts was regarded as an attractive side effect. However, changes in the current economic environment and mounting evidence that better care can come at lower cost provide additional motivation. Thus far, the Institute for Healthcare Improvement (IHI) has focused efforts to make the business case for improving quality on trying to identify the “dark green dollars” (i.e., actual savings on the bottom line, as opposed to theoretical cost savings that cannot be tracked to the bottom line, or “light green dollars”) resulting from QI projects. This method has proved very challenging; although hospitals often claim cost savings from such projects, it is rarely (if ever) possible to track the savings to a specific budget line item.
 
A new approach to the business case is the systematic identification and elimination of waste, while maintaining or improving quality. Here, the aim is primarily financial; any positive impact on quality, while desired, is secondary. IHI’s new way of thinking about “dark green dollars” is to express the improvement aim in terms of waste reduction — that is, to identify inefficiencies in the system and remove them, rather than separating out, or not addressing, the cost of a quality improvement project and the potential savings it generates.
 
This paper proposes a set of steps health care organizations can undertake to systematically identify and eliminate inefficiencies to create a portfolio of work leading to a 1 percent to 3 percent savings in operating costs per year. Methods for developing a balanced portfolio of projects and for calculating and tracking cost savings are also described.
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